Here's How Cryptocurrency Stocks Bounced Back on Wednesday - The Motley Fool

What happened

Many cryptocurrency stocks crashed on Monday and Tuesday, followed by a strong upswing on Wednesday. Here are some of the crypto industry's strongest gainers today:

Company	Cryptocurrency Business	Max Intraday Gain on Feb. 24, 2021
Marathon Patent Group (NASDAQ:MARA)	Cryptocurrency mining, digital asset management	27.9%
Ebang International Holdings (NASDAQ:EBON)	Mining hardware manufacturer, Bitcoin miner	25.8%
The9 (NASDAQ:NCTY)	China-based Bitcoin miner	20.4%
Hut 8 Mining (OTC:HUTM.F)	Canada-based Bitcoin miner	19.8%
Riot Blockchain (NASDAQ:RIOT)	Colorado-based Bitcoin miner	15.7%

Data source: Yahoo! Finance.

So what

At the time of this writing, Bitcoin (CRYPTO:BTC) had gained 5% in 24 hours. A couple of leading alternative cryptocurrencies posted larger jumps, led by a 24% gain in the joke-of-a-digital-currency Dogecoin (CRYPTO:DOGE) and a 20% boost for decentralized finance token Solana (CRYPTO:SOL).

Most of the leading cryptocurrencies broke a negative trend that started last weekend. Federal Reserve chairman Jerome Powell spoke to the House Committee on Financial Services this morning, outlining a path toward a "digital dollar" based on feedback from American citizens about the trade-offs and benefits a blockchain-based national currency might bring. The prospective digital dollar is not the same thing as Bitcoin, but the largest cryptocurrency is often seen as a shorthand for the entire crypto market. At any rate, the U.S. government appears to be working on a legislative and regulatory framework for conducting business with cryptocurrencies, and that's an important step toward stabilizing the crypto industry as a whole.

Furthermore, business analytics company MicroStrategy just added another 19,452 Bitcoin shares to its treasury. MicroStrategy's shares rose as much as 16.8% on the news and arguably contributed to Bitcoin's stabilization today. The company now holds approximately 90,500 Bitcoins on its balance sheet, worth roughly $4.5 billion at current Bitcoin prices.

All told, Bitcoin has now lost 3% of its market value over the last seven days. It's the return to positive price movements that matters here, not the actual size of the upward move. All of the stocks in the table above produced much larger jumps than Bitcoin itself, even though all of their business models are based very directly on the value of Bitcoin shares.

Image source: Getty Images.

Now what

It's important to note that these cryptocurrency stocks are incredibly volatile. It's not unusual to see them either rising or falling faster than the underlying cryptocurrency. Their bottom lines are almost always written in red ink and the skyrocketing stock prices are based on speculation about the future development of Bitcoin and other cryptocurrencies. Fellow Fool Sean Williams is perhaps too bearish on Bitcoin in the first place, but he's right when he says that Bitcoin miners are even more dangerous to your portfolio than Bitcoin itself.

It's just impossible to say where the mining stocks will go from here. They could continue to soar for years to come, or they could crash and burn in the next big correction of Bitcoin prices. These companies may not be able to survive a dry spell where Bitcoin prices are too low to run a profitable mining operation for a year or two. MicroStrategy is a bit different because it actually runs an enterprise intelligence business and simply invests in Bitcoin shares.

Only investors who are willing to handle a massive amount of market risk should consider buying Bitcoin mining stocks at this point. There are safer ways to invest in the crypto industry without actually buying digital coins.

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Here's How Cryptocurrency Stocks Bounced Back on Wednesday - The Motley Fool
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