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Bitcoin prices are rising, and shorts are spooked.
Traders are trading again, and cryptocurrency trading drives much of Robinhood's growth.
A 7% plunge in the value of Bitcoin (CRYPTO: BTC) -- and other cryptocurrencies -- drove Robinhood (NASDAQ: HOOD) stock lower on Monday. A rebound in Bitcoin prices revived the online brokerage stock yesterday, however. As Bitcoin prices continue to gain strength midweek (up 1.1% Wednesday and above $93,000), Robinhood stock rises even higher.
As of 3 p.m. ET, Robinhood shares are up 6%.
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Image source: Getty Images.
What's going on with Bitcoin today, and what does it have to do with Robinhood?
As I've previously discussed, crypto trading is currently the fastest-growing business within Robinhood, accounting for more than 30% of "transaction-based revenue" and growing more than 300% last quarter alone. The more investors trade Bitcoin therefore, the better it is for Robinhood.
And boy oh boy, are traders ever trading Bitcoin today!
Trading volume of the cryptocurrency is spiking midday, and according to TheFly.com, Bitcoin's revival is turning into a bit of a self-fulfilling prophecy. As the price of the cryptocurrency spikes, Bitcoin short sellers are getting squeezed, forcing the price higher. As the price rises, the squeeze naturally tightens, forcing even more shorts to liquidate their positions, and pushing the price higher still.
Does that sound to you like a lot of crypto trading might be happening on Robinhood right about now? It does to me. Citing data from CoinDesk, TheFly notes that spot bitcoin ETFs from BlackRock are now among "the top 10 ... active contracts in the U.S."
Meanwhile, Robinhood stock continues to trade at a hefty 53 times trailing earnings. That could be expensive if Robinhood grows earnings less than 22% annually over the next five years, as analysts anticipate. If Bitcoin remains volatile, however, and traders keep trading, it's still possible Robinhood stock could grow into its valuation over time.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.
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