Why Bitcoin Mining Stocks Surged Today

What happened

The value of Bitcoin (BTC 2.61%) surged over the weekend, and that led to a surge in crypto miners and related suppliers on Monday.

In early business, bitfarms (BITF -0.08%) jumped as much as 15%, hut 8 mining (HUT 1.80%) increased by 14.4%, marathon digital holdings (MARA 1.12%) increased by 14%, and riot platform (Riot 5.63%) increased by 17.4%. However, some of those gains were quickly given back, and at 1:15 p.m. ET shares were up 2.8%, 2.6%, 3.1% and 7.8%, respectively.

So what

Bitcoin miners and the companies that make chips and products for mining are a leveraged play on the underlying cryptocurrency, and we’re looking at that play today. Bitcoin is up about 3.5% since market close on Friday at the time of writing, yet these stocks have gained much more than that.

The nature of leverage comes from their underlying operations. For these companies the cost of mining or making chips is relatively fixed, with revenues variable depending on the value of the bitcoin. When revenues increase, scale increases, which is why we see surges like today.

What’s interesting about Bitcoin’s recent move is that it happened after the US Congress agreed to a deal that would prevent a government shutdown. Bitcoin is often seen as a hedge against fiat currencies or big governments, but in reality, events like shutdowns or debt limit violations have been negative for Bitcoin, and the cryptocurrency has soared in value once the deal was reached.

In related news, we are seeing a slow start to the crypto trading market for exchange-traded funds (ETFs). The SEC has begun allowing some Ethereum ETFs, which could give rise to more crypto products ranging from Bitcoin to smaller cryptocurrencies. Like it or not, the market is moving toward greater regulatory clarity and more available products for cryptocurrency investors and traders.

now what

It’s unclear how long Bitcoin’s price surge over the weekend will last, as it remains highly speculative. The cryptocurrency has already given back a portion of its gains and is currently trading at around $28,070. History tells us that the averted shutdown-related pop will return over time.

More important answers about the future of crypto will come from Congress as it answers regulatory questions about the use of Bitcoin and other cryptocurrencies for payments and asset ownership. Over the past few weeks, we have seen Singapore move forward with a more open regulatory system, and other countries are doing the same. This may also put pressure on America to answer regulatory questions.

In the long term, the crypto industry is moving in the right direction as it becomes an infrastructure layer in the global payments system rather than a speculative asset. But that change will take time. Bitcoin miners will likely continue to fluctuate due to Bitcoin’s price fluctuations, but if the crypto continues to take big steps toward being used for payments, it will be good news for Bitcoin and miners.

Travis Hoime has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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