Why Cryptocurrency Mining Stocks Were Up Big Today

Stocks and cryptocurrencies are bouncing back after recent pullbacks.

| More on:
a man sits on his sofa loong at his phone and raises a fist to the air in happy celebration.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Cryptocurrency mining stocks were up big on Tuesday, thanks to a price rebound among cryptocurrencies including Bitcoin (CRYPTO: BTC) -- and thanks to a hot stock market. As of 12:30 p.m. ET, the S&P 500 was up 2%, which is a big move for a single day. And Bitcoin is up 4% over the past 24 hours and up around 14% from its weekly low.

Cryptocurrency mining stocks up today include Canaan (NASDAQ: CAN), Marathon Digital Holdings (NASDAQ: MARA), and HIVE Blockchain Technologies (NASDAQ: HIVE), up 11%, 9%, and 9%, respectively.

So what

There were several factors negatively impacting the price of Bitcoin over the past week. For example, cryptocurrency exchange BitMart was hacked on Saturday and the bad guys got away with between $150 million and $196 million in digital assets, according to CNBC. Whenever an exchange is hacked like this, it can spook investors in cryptocurrencies.

Besides Bitcoin, investors were recently reminded that there's a big need for discernment when it comes to cryptocurrencies. Trading platform Bitget is based in Singapore. But this week, the Monetary Authority of Singapore reportedly suspended Bitget's license because it promoted an obscure cryptocurrency based on the popular music group BTS from South Korea.

These kinds of things can rattle confidence in the cryptocurrency market. But the stock market has been far more rattled of late, especially with stocks that are labelled as growth stocks. The ARK Innovation ETF, a popular exchange-traded fund (ETF) with a plethora of high-flying growth stocks, is down 35% from its 52-week high and down sharply over the past month as investors fret over surging coronavirus cases and institutional investors make year-end moves to lock in gains.

Whatever the exact reasons may be, both the stock market and the cryptocurrency market rebounded sharply on Tuesday, which was doubly helpful for stocks like Canaan, Marathon Digital, and HIVE Blockchain Technologies. To be clear, none of these companies had news today. Marathon Digital did have a filing with the Securities and Exchange Commission (SEC) yesterday. However, this was merely an official filing of previous press releases. So there wasn't anything materially moving these stocks today other than general market conditions.

CAN Chart

Year-to-date returns for these cryptocurrency stocks, Bitcoin, and the S&P 500. CAN data by YCharts

Now what

Canaan manufactures hardware for mining Bitcoin and this is a good business to be in right now. Historically high profit margins for Bitcoin miners have sparked a spending frenzy as companies try to increase their mining capabilities to take advantage of these favourable economics. Strong demand was reflected in Canaan's third-quarter results, released on Nov. 16. Hashing power sold was up an impressive 128% year over year. However, Q3 revenue was up over 708% from the previous year, reflecting a higher price per mining unit. 

As long as these favourable economics are in place, it's likely that Canaan's products will be in high demand. However, the other side of this equation is that mining companies like Marathon Digital and HIVE Blockchain Technologies are getting more competitive, attempting to increase their market share. 

As of December 1, Marathon Digital had a hash rate of 3.2 exa-hashes per second (EH/s), which was around 2% of the total hash rate of the Bitcoin network. But the company is rapidly adding power and expects to have 13.3 EH/s roughly six months from now.

However, companies like HIVE Blockchain Technologies aren't going to just sit there while Marathon Digital expands. For its part, HIVE Blockchain mines both Bitcoin and Ethereum (CRYPTO: ETH) and has 1.31 EH/s for mining the former. It expects to roughly double this by the summer of 2022. Of course, that won't keep up with Marathon Digital quadrupling its capacity. 

As long as the price of Bitcoin continues to rise, the economics of mining cryptocurrencies should keep making sense, motivating companies to buy more mining hardware from providers like Canaan. That's good for now. However, investors will need to be sure to develop a balanced long-term perspective on this space, recognizing that prolonged pullbacks have happened in the past and can create tough operating environments for all of these companies.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Jon Quast owns shares of Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

More on International Stock News

Virtual goggles
International Stock News

Here are 2 safe Metaverse stocks for risk-averse investors

These tech companies could benefit in a big way from the creation of the metaverse, but they're already highly profitable…

Read more »

Electric vehicle being charged.
International Stock News

Tesla shareholders approved a 3-for-1 stock split — is the stock a buy?

Tesla's share price has climbed 77% since its last stock split in August 2020.

Read more »

A graphic of a non-fungible token
International Stock News

This NFT-linked cryptocurrency just surged into a top-30 spot

Judging by Flow's price action of late, the NFT space could be one to watch right now.

Read more »

The word cryptocurrency on a round clock.
International Stock News

Why Polkadot, Solana, and Cardano are 3 altcoins in focus today

Investors appear to be increasingly focused on fundamental growth metrics in the crypto world.

Read more »

A graphic showing a businessman running up a white upwards rising arrow symbolising the soaring Magellan share price today
International Stock News

Why US growth stocks jumped today

The market is back in "risk-on" mode.

Read more »

The word crypto spelt out in front of a blue background.
International Stock News

Why Bitcoin, Ethereum, and Dogecoin are shooting higher today

Top cryptocurrencies are starting the week off with a bang as investors take a bullish view of these risk assets.

Read more »

happy family playing video game
International Stock News

Why GameStop stock is gaining today

Another meme-stock rally pushed the video game retailer higher.

Read more »

woman with coffee on phone with Tesla
International Stock News

Here’s why Tesla stock popped today

Investors had two bits of good news today.

Read more »