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Yesterday he Bitcoin the price reached levels above $24,000, the highest price since last August. With some in the crypto space claiming the worst is over, investors are clearly getting excited again.
I am primarily a stock investor. So should you start investing in cryptocurrency stocks that are indirectly influenced by Bitcoin’s movements?
Benefit from higher volatility
One type of stock you might consider is a cryptocurrency exchange. A good example here is world coinbase (NASDAQ: CURRENCY). The business is one of the world’s largest trading platforms for Bitcoin and other major currencies. You earn income every time a user buys or sells. So actually, Coinbase becomes more profitable when there is a jump in volatility. This causes higher trading volumes and number of transactions, earning more fees in the process.
Given the renewed interest in cryptocurrencies over the last month due to the strong rally, I expect the first quarter to show higher volumes for Coinbase. However, if I wait until the results are published, I will probably have missed the boat. In fact, the stock price is up 135% in the last month alone.
The stock is still down 55% over the past year, so there could be more upside to profit from. In the short term though, I feel like I’ve missed my chance here.
A UK-listed option
Another possible angle is to revisit one of the most popular UK-listed crypto stocks, viz. Argo Blockchain. At the beginning of 2021, the crypto mining company came into the spotlight. The stock jumped 20 times in a matter of a few months as the price of Bitcoin shot up to new all-time highs.
Since then, the story has changed. The share price fell from being above 200p in April 2021 to 16p right now. It has dropped 78% in the last year.
Financially, the business has still performed well. The results for the first half of 2022 indicated that the total amount of Bitcoin and equivalents mined during the period was 939, an increase of 6% compared to the same period of the previous year. However, due to the drop in the value of these coins, the actual income derived from this fell. It pushed the business to a pre-tax loss of £36.9m.
Similar to Coinbase, shares are up 99% in the last month, reflecting the change in sentiment across the market.
my thoughts from here
The rally in the price of Bitcoin has been remarkable. However, I am not so comfortable that it is backed by a true change in the wind. The consequences of the bankruptcy of different exchanges are still fresh and highlight the risks involved in this unregulated space.
I also feel like I was a bit late to the party on this move, as evidenced by the jump in recent weeks on Coinbase and the Argo Blockchain. With all of that in mind, I prefer to avoid investing simply for fear of missing out on other gains (FOMO). Instead, I will be patient and keep both stocks on my watch list for future opportunities.
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