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Crypto is Making a Big Comeback. will it Last?
Here's why bitcoin's drop has investors worried

Here's why bitcoin's drop has investors worried 03:20

Coinbase has rallied as well, and was up 9% on Monday. Software company MicroStrategy (MSTR), which had nearly 130,000 bitcoins on its balance sheet as of June 30, has soared more than 35% in the past five days.

The crypto comeback could be validation for the sector's biggest supporters. At the same time, it should also serve as a reminder that the nascent market is likely to remain volatile for the foreseeable future.

Expect more volatility

"We will see a longer-term rally in the digital assets sector, but I wouldn't get too excited yet," said Joel Kruger, market strategist at LMAX Group. "This is still an emerging market."

Kruger said that bitcoin's rally has lagged the sharper upward moves in ether and other smaller cryptos, and remains a concern for the short term. The broader group of cryptocurrencies and stocks may not enjoy a more meaningful recovery until there is "a more healthy bounce" in bitcoin, he added.

So all the hype about bitcoin being the digital equivalent of gold is just that: hype. As an asset, bitcoin behaves much more like volatile tech stocks rather than the far more stable commodities such as gold or government-backed currencies like the dollar and euro. CRYPTOGRAPHY

EU agrees rules to tame 'Wild West' crypto market

Investors should also consider that there just may not be enough interest in crypto to justify the thousands of coins, tokens and exchanges out there. If that's the case, only the strongest cryptos will survive and thrive.

"Crypto has seen a dotcom era-like run," when a lot of great ideas and companies were created, Adam Grealish, head of investments at wealth management fintech Altruist, said in an email. But a number of not-so-great ideas and companies also were launched, he added.

The same scenario will likely apply to crypto. "With tougher markets, companies in weaker positions and with weaker business models will feel a lot of pressure," Grealish said.

Don't tell that to the crypto bulls. The broader rally is lifting shares of nearly all companies with ties to the industry. Several crypto mining firms, which use computers to solve complex mathematical equations in order to generate new bitcoins, have moved sharply higher in recent days.

Marathon Digital (MARA) rose 21% Monday and is up more than 50% in the past week. Riot Blockchain (RIOT) has surged more than 40% in the past five days while Hive Blockchain (HVBTF) and Bitfarms are each up about 25%.

So have bitcoin, ether and top crypto stocks finally hit bottom? There are some hopeful signs.

Winners and losers

Two banks that provide crypto-backed loans and offer digital currency deposits, Silvergate Capital (SI) and Signature Bank (SBNY), each reported earnings and revenue Tuesday that topped Wall Street's forecasts.

It also appears that the sector's turmoil has created a shakeout of winners and losers among both publicly traded companies and startups.

Crypto lender Celsius was forced to file for bankruptcy earlier this month. But privately held crypto giant FTX continues to thrive, and now has a valuation of $32 billion.

FTX recently agreed to provide a line of credit to struggling crypto firm BlockFi, and the company's billionaire CEO, Sam Bankman-Fried, has talked about using FTX's financial strength to bail out other floundering crypto companies as well.

Bankman-Fried also has a stake in Robinhood, and there was recent chatter that FTX might want to buy the struggling brokerage firm. Bankman-Fried denied those reports to CNN Business.

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