What happened
Friday was an excellent day to be an investor in cryptocurrency mining company stocks. As a group, they surged ahead, with many rising at low double-digit rates.
Among these high flyers were Canaan(NASDAQ: CAN), TerraWulf(NASDAQ: WULF), and Cipher Mining(NASDAQ: CIFR), which all booked gains of nearly 11% on the day. Trailing closely behind was Iris Energy(NASDAQ: IREN) with its rise of just under 10%. The quartet trounced the uninspiring 0.3% dip of the S&P 500 index.
So what
It's not like the market suddenly woke up on Friday and discovered the wonders of Canaan, TerraWulf, and their numerous mining peers. These stocks have been doing well for days due to a number of factors.
The first is the recent pop in popularity for cryptocurrencies in general; this is essential for miners, as without a bullish crypto market, the value of what they produce obviously falls.
Happily, developments on that front have largely been positive. Traditional finance companies are clamoring to get into the crypto game, with several pushing to establish exchange-traded funds (ETFs) for such assets. Among other efforts, top securities exchange operator Cboe Global Markets is teaming up with crypto market master Coinbase for a Bitcoin ETF.
These sorts of moves help to legitimize cryptocurrencies in general, and Bitcoin in particular, as attractive investible assets.
Another factor is the state of the U.S. macroeconomy. The latest figures from the government's Bureau of Labor Statistics show lower-than-expected job additions. This eases fears of inflation heating up from wage increases, and with tamer inflation could come a cap on interest rates.
Higher rates are challenging for the cryptosphere, as they make other assets more attractive (Bitcoin and its ilk, after all, are still considered high on the risk scale).
Finally, crypto miners habitually release monthly operational updates for their investors. The June editions have come thick and fast, and for the most part they've indicated miners are continuing to push for growth. On Friday, for example, Iris Energy published its digest, revealing that the expansion of its Texas mining facility is on track to be completed in early 2024.
Now what
However, since cryptocurrencies are volatile investments by their nature, there is always a risk of a sudden (and possibly sharp) downturn. Inflation could heat up again, spurring the Federal Reserve and other central banking authorities to kick interest rates higher. More scandals could arise in a cryptoverse that has already seen quite a few of them.
So those considering investments in miners should bear this in mind. If they remain bullish on the future of digital money, though, mining stocks are a neat, sideways method of being involved in it.
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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Cboe Global Markets, and Coinbase Global. The Motley Fool has a disclosure policy.
