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Why Crypto Mining Stocks Soared This Week
Although the prices of crypto mining stocks and cryptocurrencies do not always move in harmony, as a general rule, if cryptocurrencies are doing well, miners are doing well too.
That was the dynamic this week, as the big crypto rally of 2024 went into full gear and miners came along for the ride. According to data from S&P Global Markets Insights, CleanSpark (NASDAQ:CLSK) has increased nearly 9% during this period, Encryption Extraction (NASDAQ:CIFR) rose nearly 12%, and Cabin 8 (NASDAQ: HUT) has had a rather unusual trajectory with a gain of just under 27%.
Halving Expected to Boost Demand for Bitcoin
We are getting closer to the final halving Bitcoin (CRYPTO: BTC). For those who don’t know, a halving is an event in which the rewards for mining a cryptocurrency is, yes, split in two.
The primary purpose of a halving is to reduce the supply of a cryptocurrency or token, particularly in the case of Bitcoin, which will eventually have a supply cap of 21 million cryptocurrencies. A halving occurs with cryptocurrency every time 210,000 blocks, representing sets of transactions, are created.
In concrete terms, miners will receive 3.125 bitcoins for each new block in the chain that they complete, compared to 6.25 currently. The halving will likely take place at some point in April.
As any investor knows, regardless of the type of asset, when the supply of a desired good, service or investment decreases, demand tends to increase. This is the basic formula behind rising prices.
It’s no surprise, then, that Bitcoin’s price has surged significantly right after its three previous halvings. During the most recent one in May 2020, six months after the event, Bitcoin’s price increased by 79%. A year after the halving, it’s up a staggering 547%.
Follow the leader
Of course, there are no guarantees in the world of investing, and we’ve all heard the warnings that past performance is no guarantee of future success. For now, though, Bitcoin and any assets associated with it appear to be very solid bets.
The rush to cash Bitcoin exchange-traded funds has subsided, but their coffers are still full and helping to support the currency’s high price levels. The U.S. and global economies continue to provide tailwinds, with inflation becoming less of a concern by the day and Federal Reserve officials still seem intent on cutting interest rates, just not immediately.
Finally, for many investors, Bitcoin is not just the asset that represents the crypto space; it is the only one they are willing to buy. The fact that investing in these spot ETFs is quick and easy is a plus.
The story continues
All of this greatly supports the work of Bitcoin miners. As long as investors continue to believe in Bitcoin, the price of these digital miners should continue to defy gravity.
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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Why Crypto Mining Stocks Soared This Week was originally published by The Motley Fool