How Marathon, Riot, MicroStrategy, and Grayscale Bitcoin Trust Soared This Week

What happened

According to data from S&P Global Market Intelligence, companies and funds with direct ties to the crypto market are having a great week as the leading cryptocurrency finally had some good news to report. Here’s how a handful of securities intimately related to Bitcoin (BTC 3.45%) fared this week, counting from Wall Street’s closing bell at 4 p.m. ET last Friday to the corresponding bell time on Thursday, Jan. 12:

MARA data by YCharts.

For those unfamiliar with these crypto-friendly securities, Marathon Digital (MARA 30.91%) and Riot Platforms (RIOT 14.52%) specialize in mining new Bitcoin tokens with renewable energy and ultra-specialized computer rigs. MicroStrategy (MSTR 7.91%) is a data analytics business that has converted essentially all of its cash reserves into Bitcoin, pouring more cash into the cryptocurrency through new debt, stock sales, and cash flows from the software business. Finally, Grayscale Bitcoin Trust (GBTC 7.04%) is neither a company nor a stock but a closed-end fund that holds nothing but Bitcoin on its balance sheet. These are four of the largest concentrated Bitcoin holdings on the planet.

Bitcoin itself gained 6.4% over the same period and continued climbing after Thursday’s market close. By 8:30 p.m. ET, the oldest and largest crypto had gained 11.2% since Friday afternoon.

So what

There was a lot going on in crypto-land this week. Let’s stick with a bird’s-eye view of Bitcoin’s action, as the others based their gains directly on that foundation.

Friday morning’s jobs and wage growth report was good but not fantastic, which was exactly what the Federal Reserve was hoping for. The dream scenario these days is a lukewarm economy, allowing the Fed to slow down the pace of interest rate increases. That was good news for high-risk investments, including Bitcoin and the securities mentioned above.

Bullish signs for the global economy continued to amass as the week progressed, supported by positive financial reports and cautiously optimistic comments from federal regulators. And then, Bitcoin went for a more obvious bull run on Thursday for several reasons. The morning’s inflation report showed stabilizing trends. South Korean tech giant Samsung’s Hong Kong-based asset management arm unveiled an upcoming exchange-traded fund based on Bitcoin futures. The government of El Salvador passed a complex new law to regulate cryptocurrency trading in the country, which adopted Bitcoin as a legal tender last year.

This flurry brought Bitcoin back to prices not seen since last November, passing $18,000 per coin and briefly peeking above the $19,000 level on Thursday afternoon.

The fund and stocks mentioned above are extremely sensitive to Bitcoin’s price moves, amplified by the additional risk these organizations are taking to take full advantage of the cryptocurrency’s expected long-term price gains. Marathon, Riot, and MicroStrategy have significantly more debt than cash and may have to sell some Bitcoin from time to time just to keep the lights on.

Many investors expect them to get crushed in periods of weak Bitcoin pricing, with short-selling interest ranging from 20% of all Riot shares to roughly 45% for Marathon and MicroStrategy. And Grayscale Bitcoin Trust holds 631,628 Bitcoins worth approximately $12.0 billion at today’s crypto prices, but the fund’s total market value is just $7.3 billion. So you can effectively get exposure to Bitcoin at a 40% discount through the Grayscale fund, as investors see more risk than promise in Grayscale’s Bitcoin plans.

Now what

Don’t get too excited by the Bitcoin stocks’ massive weekly gains. They all still trade far below their 52-week highs and even deeper under the multi-year highs they set in November 2021. MicroStrategy, for example, trades stands 61% below its 52-week highs, and that’s the mildest price cut on my list. Marathon and Riot shares are down more than 70% each.

Against that background, this week’s rosy news and surging market action serve as a reminder that these alternative Bitcoin investments come with larger portions of both promise and risk than the cryptocurrency itself. That’s fine if you don’t mind the elevated risk and volatility, but it also makes sense to see massive short-selling interest in these securities.

In other words, please tread carefully around these hyper-volatile investment options. Bitcoin miners and dedicated crypto investors can be explosive, both in the “skyrocketing” sense of that word and the plain old destructive meaning. As sobering as this thought may be when you remember Bitcoin’s wild price swings in years past, buying Bitcoin directly looks like a lower-risk strategy.