Why Riot Blockchain, SOS, and Canaan Had One Heck of a Good Week

What happened

Crypto miners and crypto mining-related stocks have seen impressive interest over the past week. Since last week's close, Riot Blockchain (NASDAQ: RIOT), SOS Limited (NYSE: SOS), and Canaan (NASDAQ: CAN) appreciated 5.8%, 14.7%, and 7.4%, respectively, as of 11:30 a.m. ET Friday.

Much of this positive sentiment appears to be tied to the price of Bitcoin, which surged to nearly $45,000 per token Friday morning. Crypto mining companies' valuations tend to reflect the moves in the price of Bitcoin, for various reasons.

Digital-looking symbol with a dollar sign at the center.

Image source: Getty Images.

Additionally, this week's momentum was a continuation of the strong trend seen since March 14, when the European Union voted on how Bitcoin would be handled in Europe in the context of its current proof-of-work state. The vote to reject a proposal to heavily restrict the energy-intensive mining of proof-of-work tokens in the EU has provided a major boost to companies engaged in mining activities.

So what

Importantly, these gains for the week are what remain even after a sell-off Friday morning. Previously, these crypto mining-related stocks had each been up by more than 14% week-to-date at their peaks. It appears investors across the board are taking a step back following what has been a rather impressive rally since mid-March.

A Bitcoin-mining-friendly regulatory environment, at least in Europe, is a big deal to crypto miners such as Riot and SOS. For Canaan, which produces integrated circuit final system products used in crypto mining machines, the outlook for this sector is equally important.

Rising Bitcoin prices also provide a massive boost to the profitability of these companies. For Riot and SOS specifically, revenue generation in the form of Bitcoin, with costs denominated in dollars, means that the BTC-USD exchange rate is a key factor in determining these companies' profitability. The more profitable Riot and SOS are with their mining activities, the more mining rigs and integrated circuits they'll buy, boosting the overall sector.

Now what

It's too early to tell if these crypto mining-related stocks will be able to sustain their upward momentum for the rest of the month or longer. However, what is clear is that the easing of various regulatory headwinds, at least for now, is a catalyst that investors are keen to focus on.

In terms of Bitcoin prices, $45,000 appears to be a key psychological level that investors will want to see maintained from here. Fortunately (or unfortunately, depending on how one looks at it), the values of crypto mining stocks are tied to the price of Bitcoin rather closely. Accordingly, those looking to make a bet on this sector have a high-leverage way to gain exposure to Bitcoin via investments in publicly traded companies such as the three aforementioned names.

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Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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