What happened

Cryptocurrency mining stocks were up sharply on Tuesday, thanks to a rebound in prices among cryptocurrencies, including Bitcoin (CRYPTO: BTC), and thanks to a hot stock market. Starting at 12:30 p.m. ET, the S&P 500 was up 2%, which is a big step for a single day. And Bitcoin is up 4% in the past 24 hours and about 14% from its weekly low.

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

Image source: Getty Images.

So what

Several factors have negatively impacted the price of Bitcoin over the past week. For example, the BitMart cryptocurrency exchange was hacked on Saturday and the bad guys fled with between $ 150 million and $ 196 million in digital assets, according to CNBC. Anytime an exchange is hacked like this, it can scare off cryptocurrency investors.

Besides Bitcoin, investors were recently reminded that there is a great need for good judgment when it comes to cryptocurrencies. The Bitget trading platform is based in Singapore. But this week, the Monetary Authority of Singapore reportedly suspended Bitget’s license for promoting an obscure cryptocurrency based on South Korean popular music group BTS.

This stuff can shake confidence in the cryptocurrency market. But the stock market has been a lot more choppy lately, especially with stocks labeled as growth stocks. The ETF Innovation ARK, a popular exchange-traded fund (ETF) with a plethora of high-end growth stocks, is down 35% from its 52-week high and down sharply in the past month as investors ‘worried about the surge in coronavirus cases and institutional investors are making year-end moves to lock in gains.

Whatever the exact reasons, the stock exchange and the cryptocurrency market rebounded strongly on Tuesday, which was doubly helpful for stocks like Canaan, Marathon Digital and HIVE Blockchain Technologies. To be clear, neither of these companies had any news today. Yesterday, Marathon Digital filed a case with the Securities and Exchange Commission (SEC). However, this was only an official filing of previous press releases. So there was nothing significant for these stocks today, other than general market conditions.

CAN table

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

Now what

Canaan is making hardware for Bitcoin mining and it’s a good deal to do right now. The historically high profit margins of Bitcoin miners have sparked a spending spree as companies attempt to ramp up mining capacity to take advantage of these favorable economic conditions. Strong demand was reflected in Canaan’s third quarter results, released on November 16. The hash power sold increased 128% year over year. However, third quarter revenue increased by more than 708% from the previous year, reflecting a higher price per mining unit.

As long as these favorable economic conditions are in place, Canaan’s products are likely to be in great demand. However, the other side of this equation is that mining companies like Marathon Digital and HIVE Blockchain Technologies are becoming more competitive and trying to increase their market share.

As of December 1, Marathon Digital had a hash rate of 3.2 exa-hashes per second (EH / s), or roughly 2% of the Bitcoin network’s total hash rate. But the company is adding horsepower quickly and expects to have 13.3 pe / s in about six months.

However, companies like HIVE Blockchain Technologies are not going to stand there while Marathon Digital grows. For its part, HIVE Blockchain operates both Bitcoin and Ethereum and has 1.31 EH / s to extract the first. He expects to roughly double that number by the summer of 2022. Of course, that won’t follow Marathon Digital which is quadrupling its capacity.

As long as the price of Bitcoin continues to rise, the economics of cryptocurrency mining should continue to make sense, motivating companies to buy more mining equipment from vendors like Canaan. It’s good for now. However, investors will need to ensure that they develop a balanced long-term perspective on this space, recognizing that prolonged setbacks have occurred in the past and can create difficult operating environments for all of these companies.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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