The price of bitcoin hit $40,000 U.S. this weekend as the digital currency continues its rally. That bullishness has also helped HIVE Blockchain (TSXV:HIVE) soar. The blockchain company mines for bitcoin and other digital currencies, and in the past 12 months, it’s up around 1,100% while bitcoin’s value has risen 300%.
Most recently, it looks to be Tesla’s (NASDAQ:TSLA) Elon Musk who looks to be behind the surge in digital currencies, after calling Dogecoin “the people’s crypto.” It sent the price of Dogecoin rising and since cryptocurrencies often move together, bitcoin looks to have also gone along for the ride.
For investors, it’s tempting to invest in a blockchain stock like HIVE since it’ll reap the benefits of the growing popularity of digital currencies and an increase in their prices. But the problem is that this also reflects just how volatile these investments can be. If a billionaire like Musk can so easily impact the price of cryptocurrencies, a negative outlook could do the opposite. That can make holding crypto stocks or exchange-traded funds in your portfolio very risky.
With bitcoin back around record levels, there’s a possibility that a big correction could be overdue. Whether you’re looking to buy crypto itself or just an investment that will piggyback off its success, you need to be aware that significant losses are possible and that this isn’t for the faint of heart. There’s no telling how high bitcoin and other digital currencies could rise since there’s not a typical earnings or sales multiple that you can tie their values to. They’re speculative buys, and that’s why investors need to exercise a lot of caution.