It’s been an interesting week for cryptocurrencies. Early Saturday morning, the price of Bitcoin (CRYPTO:BTC) dropped to about $30,400, then steadily rose for the rest of the weekend. By the time the stock market opened on Monday, Bitcoin had returned to the levels it was trading at on June 24, which provided a boost to stocks like MicroStrategy (NASDAQ:MSTR) and Riot Blockchain (NASDAQ:RIOT). While they’re down a little now from their weekly highs, these two stocks were still up 17% and 10% respectively as of market close on Thursday.
Of course, Bitcoin isn’t the only cryptocurrency that’s rising in value. Notably, Ether — the token native to the Ethereum (CRYPTO:ETH) blockchain — has risen by around 5% since Monday morning. On the surface, rising values for cryptocurrencies look like a good thing for cryptocurrency exchange Coinbase Global (NASDAQ:COIN), which explains why it’s up by about 8% so far this week. However, some analysts have noted that cryptocurrencies’ overall volatility is going down. That’s not good for Coinbase’s business, which is why the stock gave back some of its gains on Thursday.
MicroStrategy and Riot Blockchain both own bitcoins — but they acquired them by very different means. As of June 21, MicroStrategy held over 105,000 bitcoins, most of which it purchased with financing from convertible note offerings. These notes carry an interest rate and will eventually come due, meaning MicroStrategy management is counting on Bitcoin’s returns to outpace these costs. It’s a multibillion-dollar gamble that’s currently paying off, considering it purchased its Bitcoin stake at an average price of $26,000 per token.
By contrast, Riot Blockchain validates transactions on the Bitcoin blockchain and is compensated for this service with Bitcoins. In other words, Bitcoin is MicroStrategy’s capital allocation strategy, but it’s Riot Blockchain’s business. In May, Riot Blockchain mined 227 Bitcoins and was holding around 2,000 Bitcoins as of May 31. It should come as no surprise that these stocks rose when Bitcoin’s value did.
It was a quiet week for Bitcoin news, but Motley Fool contributor Bram Berkowitz provided some insights as to why Ethereum has been trending higher in recent days. Developers for the Ethereum blockchain network want to transition it to a completely different model — from proof-of-work to proof-of-stake — which will make it less of an energy hog. The project is called Ethereum 2.0, and observers note that the network is quickly approaching 6 million Ether being staked. For perspective, that’s over 5% of the total supply of the tokens even though Ethereum 2.0 only launched in December. So it seems the transition of blockchain models is progressing well, and that may partly explain why Ethereum has been going up.
That said, there’s been a reduction in the price volatility of Bitcoin and Ethereum in recent weeks, which…