Riot Platforms (NASDAQ: RIOT) stock is up 17%. RIOT stock rose on the back of the Grayscale Bitcoing Trust win against the SEC. We might think of this as being ever so slightly a tenuous link but we assure you it’s a true one. This is because the value of any miner of something – metals, minerals or crypto – depends upon the market value of the thing being mined. Indeed, it’s geared to that.
As we’ve said before about Riot: “Riot Platforms (NASDAQ: RIOT) is up some 10% on the back of the rise in the Bitcoin price. Which makes sense as both are leveraged to that BTC price. Yes, we’re aware that they’re more than merely crypto miners, both of them, but it’s still true that they are leveraged to the Bitcoin price. Their energy costs, their overheads – so, both fixed and variable costs – do not change as the price of their output, BTC, changes. So, a rise in the Bitcoin price feeds through directly to their gross and thus net profit. Or, as the case may be, reduces their losses. So, if Bitcoin goes up in price then the value of these two stocks – so also with other miners – should go up by more than the change in BTC. It’s worth noting that they should also fall by more than any fall in BTC. Because that’s the way leverage does work, both up and down.”
This is just the way this part of the world works.
Riot Platforms stock price from Google Finance
Well, OK, if that is how it works then why today? The answer there is that Bitcoin itself is up 6%. That’s as a result of the case against the SEC just won by Grayscale: “Grayscale Bitcoin Trust (OTCQX: GBTC) stock is up 16%. GBTC is up because it’s seemingly won the case against the SEC. It should now be able to convert to an ETF from its current structure as a closed end fund. This should, all other things being equal, eliminate the discount to net asset value. It’ll also preclude the possibility of it trading at a premium too but that’s not been happening just recently. The background here is that ETFs based upon bitcoin futures are allowed by the SEC. But they’ve always refused to allow a spot bitcoin ETF. There never was any reasonable justification for this view other than that they just didn’t seem to want to. And that’s not a good enough reason the court has just decided.”
Exactly why – other than just general cheerfulness about the market – this should make Bitcoin itself rise is unknown. But it’s obviously happening – for we can see the same effect at Marathon Digital.
Miners – of bitcoin and crypto, as with anything else – are geared to the price of the product they mine. The commodity goes up in price the miners rise by more than that commodity price rise. That’s just the way it works.
