Why Bitcoin Stocks Like MicroStrategy and Riot Blockchain Were Up This Week
First the short-term catalyst for Bitcoin: On June 13, Musk said Tesla would start allowing Bitcoin as a method of payment again on two conditions. First, he wants to be sure at least 50% of the energy used to run the Bitcoin blockchain network is coming from clean energy sources. Second, he also wants to see Bitcoin trending in a greener direction.
While Bitcoin popped around the time of Musk’s comments, it’s important to note that most people aren’t using Bitcoin to pay for things like they would with fiat currency. In part, this is because cryptocurrency investors believe Bitcoin will increase in value over time. Therefore, it doesn’t make much sense to spend it. That’s why I see Musk’s support as a short-term boost for Bitcoin. But what if people did want to digitally transact more with Bitcoin in the future? That could be a problem. You see, right now Bitcoin is limited with how much volume it can handle, and normal payment volume for an entire economy would be too much. This is due to how information is processed and recorded on the blockchain.
The taproot will give Bitcoin new use cases that could drive greater demand and send prices higher. And without a doubt, that’s something MicroStrategy shareholders are hoping for. The company currently holds over 92,000 bitcoins and on June 14 it issued $500 million more in convertible senior notes to buy even more Bitcoin. This management team is clearly betting the farm that Bitcoin will go up. And MicroStrategy could be in a tough place financially if that doesn’t pan out.
The ripple effect that Taproot could have for Bitcoin miners is unclear right now. We often discuss how miners are rewarded with 6.25 bitcoins for every block they mine — this is one way companies like Riot Blockchain and CleanSpark make money. But miners also make money from transaction fees, which have spiked significantly higher over the past year.