Bitcoin (BTC-USD) is finally trading better on the long side after a painful decline over the last few months. Of course, this has dealt a painful blow to mining stocks like Stronghold Digital (NASDAQ:SDIG), which suffered a peak-to-trough decline of 95.9%. However, SDIG stock is ripping on Wednesday, up over 40%.
At its high, shares were up about 60% on the day and temporarily eclipsed last month’s high.
The move comes on pretty serious volume as well. SDIG stock has traded more than 84 million shares on Wednesday. While there’s still a few hours left in the session, that’s easily its highest volume ever. Previously, its highest-volume day came in October 2021 and was 8.8 million shares.
So what’s got the stock going crazy today? The crypto rally really helps. Ethereum (ETH-USD) enjoyed a strong 18% rally on Monday and continues to hold up. Bitcoin is up modestly on Wednesday, but has climbed 17% from Monday’s low.
For companies like Stronghold Digital, the rally is a welcomed and necessary sight.
How Far Can SDIG Stock Rally?
According to the company, “Stronghold Digital Mining is a vertically integrated crypto asset mining company currently focused on mining Bitcoin. …we believe that we are one of the first vertically integrated crypto asset mining companies with a focus on environmentally beneficial operations.”
With that description, it’s clear why SDIG stock needs a rebound in Bitcoin prices. If the recent rally is any sign — and as Bitcoin holds at a 5-week high — some are saying the downtrend is over.
If that’s the case and Bitcoin has more room to run, it will likely have bulls looking for potential squeezes out of the crypto-miners. Looking at Stronghold Digital specifically, investors have to use some perspective.
The stock declined 95% from its peak. So while a 320% rally from its 52-week low would only get SDIG stock back to the second-quarter high, it would still be down 83% from the high and 52% on the year. To be clear, that doesn’t mean a four-fold move is coming. Instead, I’m just pointing out that it’s possible for a significant rally, while shares are still in a larger downtrend.
The peak-to-trough decline in SDIG stock vs. the decline in Bitcoin highlights the leverage in the former vs. the latter. Today’s action also highlights it. Despite Bitcoin’s solid-but-mild rally over the last few days, Stronghold Digital shares are soaring. Investors must be aware of this relationship between the two assets and respect the risks that come with it.
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On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.