Why Crypto Mining Stocks Are Surging Today, Paring This Week's Losses

What happened

Today's been another wild one in the world of cryptocurrencies and crypto-related stocks. For companies tied to the crypto mining sector, this has been even more true.

As of 9:45 a.m. ET, shares of Bit Mining (NYSE:BTCM), SOS (NYSE:SOS), Bit Digital (NASDAQ:BTBT), Hut 8 Mining (NASDAQ:HUT), and Canaan (NASDAQ:CAN) have all surged more than 3% in today's session. This sector-specific move is driven, unsurprisingly, by higher Bitcoin (CRYPTO:BTC) prices today. At 9:45 a.m. ET, Bitcoin had surged 8.6% over the past 24 hours.

That said, over the past week, these top Bitcoin-mining-related companies are each down considerably. This week's losses, compared to last Friday's close, come in at -6.8%, -15.6%, -8.9%, -17.3%, -13.6%, and -22.7%, respectively.

Image source: Getty Images.

So what

This group of Bitcoin-mining-related companies tends to track the price of Bitcoin higher or lower. That's because these companies generally carry debt denominated in dollars on their balance sheets, with revenue denominated in Bitcoin (or tied to the price of Bitcoin, in the case of machine or chip production).

These business models effectively provide a leveraged way for investors to play the price of Bitcoin (a higher-beta option, relative to Bitcoin itself). This means that when Bitcoin prices are surging or plunging, the stock prices of many of these companies will often see even greater swings in the same direction.

This week's rather incredible price swings in Bitcoin appear to tell most of the story with respect to these stocks. Bitcoin's dramatic decline earlier this week, which was tied to concerns about contagion from the fallout from algorithmic stablecoin TerraUSD, has seemingly worked its way through the market. Today, investors appear to have decided that the crypto market can operate without Terra's stablecoin, and it's full steam ahead.

Now what

This morning's price action in the stock market and crypto market suggests investors believe enough is enough. The indiscriminate beating risk assets have seen up until today has been quite impressive. Accordingly, it remains to be seen whether today's move is truly the beginning of a bottoming process and recovery or just a dead cat bounce. Investors will need to decide for themselves if these crypto miners are well positioned for a continued run from here.

Risks remain high, and volatility is also likely to continue for some time for these crypto-mining-related stocks. This week was a doozy, and I expect many more weeks of impressive volatility ahead.

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Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.