Bitcoin Rally Ignites Weak Performance of Crypto Stocks
Bitcoin had an impressive performance in July, along with major digital tokens hitting their targets over the past four weeks.
Bitcoin (BTC) surged by over a quarter to hit $24,000, while Ethereum gained about 55 percent, trading around $1,700.
In the first week of July, the price of BTC led to a strong increase in the price of all cryptocurrencies. Not unexpectedly, this contributed to the growth of Bitcoin mining stocks, an arcane research shows.
Crypto miners enjoy high earnings
As miners earn income in the form of BTC, an increase in the crypto price should benefit their income and profits.
To increase leverage in this aspect, miners keep a significant amount of the tokens they mine instead of immediately converting them into cash. This can be problematic when the price of the crypto falls, but when it rises, the effect on their stock prices is magnified.
We can see from the graph how closely these stocks are linked to the price of BTC.
Chart: Arcane Research/TradingView.com
According to new IMF research, the link between crypto-assets and traditional holdings such as stocks has strengthened dramatically in response to growing use, limiting their perceived risk-spreading benefits and increasing the danger of market volatility.
Emerging market economies, many of which have pioneered the use of cryptoassets, also show a stronger correlation between cryptocurrencies and stocks.
The Bitcoin Effect
If you have been following the cryptocurrency market, you may have observed that as Bitcoin’s price falls, so do the prices of alternative cryptocurrencies (commonly known as altcoins). When the price of BTC increases, we expect altcoins to increase in value immediately afterwards.
As the price of Bitcoin has fallen by almost half this year, it’s only inevitable that crypto stocks have also experienced a dismal first half of the year. In 2022, the share prices of Bitcoin holder MicroStrategy (MSTR) are down 38%, cryptominer Marathon (MARA) is down 55%, and crypto exchange Coinbase (COIN) is down 60%, the Arcane study shows.
Bitcoin’s Solid Run Spurs Crypto Market’s Ascent
However, these shares would be even lower if not for their dramatic comeback over the past month, spurred by the crypto’s recent impressive showing.
Since the beginning of July, Marathon is up almost 180%, MicroStrategy 102% and Coinbase 100%. There was no significant difference between MicroStrategy or Marathon that would have led to these price increases, but both companies’ prices are heavily influenced by the price of BTC.
It is important to recognize that Bitcoin often has the final say when it comes to investor confidence. Before buying or selling an altcoin position, experienced traders and investors closely monitor Bitcoin.
The future direction of the crypto markets will be determined by macroeconomic variables, but investors can expect to be on edge over the next few weeks due to inflation, rising oil costs and fears of a recession.
Featured image from Finance Magnates, Chart from TradingView.com
