This week has been very positive for Bitcoin (CRYPTO:BTC) miners. While the price of Bitcoin moved 3.4% higher over the past seven days, as of 12:15 p.m. ET, Crypto miners Canaan (NASDAQ:CAN), Bit Digital (NASDAQ:BTBT) and SOS (NYSE:SOS) saw elevated gains. These top cryptocurrency miners appreciated 17.6%, 9.5%, and 3.7% respectively, since Friday’s close, at 12:15 p.m. ET.
This week’s move appears to be mostly driven by higher Bitcoin prices. However, for Chinese crypto miners Canaan and SOS, positive export data and surging equity prices in China have also bolstered two of these crypto miners.
I’ve covered some of the key economic factors driving the underlying fundamentals and valuations of crypto miners in the past. As price-takers producing what’s essentially a commodity, Bitcoin miners’ profitability hinges on the price of Bitcoin. With high up-front fixed costs (mostly denominated in U.S. dollars), and variable income streams and reserves in the form of Bitcoin, the exchange rate between Bitcoin and the dollar matters tremendously for these top miners.
When Bitcoin loses value relative to the U.S. dollar, the debt held by Bitcoin miners gets more expensive, and the revenue streams these miners produce (as well as their core reserves) decrease in value. The inverse is also true.
Accordingly, on longer-term upswings and downtrends in the price of Bitcoin, Bitcoin miners can often experience increased volatility. Given how volatile crypto already is, and the risk-off sentiment that’s been building in the market in recent weeks, most miners haven’t performed well. However, this week’s bounce in the price of Bitcoin has driven valuations higher.
Those bullish on Bitcoin, and who believe this token will continue to rise over the long term, may want to look at crypto miners right now. Relative to the price of Bitcoin, many of these top crypto miners have seen their valuations decline to a much greater degree. Thus, Bit Digital, Canaan, and SOS each provide a publicly traded, higher-leverage option for investors and traders bullish on an upward directional move for the world’s largest cryptocurrency.
This week’s rally among these top crypto miners certainly provides investors with a nice reprieve. However, the steeper declines these crypto miners have seen in recent months appears to be factoring in the heightened risk associated with these stocks. The market isn’t taking a hyperbolic or manic view of Bitcoin’s trajectory right now. Accordingly, more volatility can be expected on the horizon, and I’m guessing it’s not all likely to be positive in the near term.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.