Why Bitcoin, Marathon Digital and Hut 8 Mining are on the rise today
What happened
After a rough start to the week, cryptocurrencies and crypto stocks poked their heads above water following the conclusion of the Federal Reserve’s September meeting on Wednesday.
Over the past 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC 0.22%), traded 1.2% higher as of 3:48 PM ET today. The price of Bitcoin jumped back above $19,000 at the time of writing, after falling below that level earlier this week.
Shares of the Bitcoin miners Digital Marathon (MARA 5.75%) and Cabin 8 Mining (COTTAGE 4.37%) traded about 4% and more than 7% higher. Earlier in the afternoon, both shares had been up more than 10%.
So what
All eyes were on the Fed today after August inflation data earlier this month came in hotter than expected. The market broadly expected the Fed to raise its benchmark overnight rate, the Federal Funds rate, by 0.75%, which the Fed delivered.
Image source: Getty Images.
The market has struggled this week as some investors worried that the Fed could surprise everyone with a full 1% hike. Nevertheless, the rate increase of 0.75% is the third such move in a row since June. The federal funds rate is now within a range of 3% and 3.25%.
Bitcoin and the crypto industry have not fared well during these intense interest rate hikes, which increase returns on safer assets and tend to put pressure on riskier assets.
After the Fed’s meeting, Fed Chairman Jerome Powell said at a news conference: “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”
However, the Fed has become more hawkish with its projections in its most recently released dot plot, which shows where the federal funds rate could be headed. Members of the Fed expect the federal funds rate to end the year at 4.4% and then slow down to end 2023 at 4.6%. With just two meetings left in 2022, that means the Fed expects to have to make another 0.75% rate hike and 0.50%.
Although the bulk of rate hikes may now be in the rearview mirror, there may still be more to come, and investors are now likely to be thinking more about what will happen when the increases take full effect on the economy. The labor market is expected to eventually deteriorate, and the market is largely uncertain whether the Fed can engineer a soft landing or whether the economy is headed for a more severe recession.
What now
Unfortunately, the fate of Bitcoin and other crypto stocks seems to be tied to the Fed’s policy decisions right now, and it looks like more rate hikes are on the way.
I didn’t see anything specific driving Bitcoin, Marathon and Hut higher today, other than what appears to be a slight pullback from earlier in the week as investors feared the possibility of a 1% rate hike today.
While Marathon and Hut may bounce when Bitcoin comes back, I’m not a big fan of the Bitcoin mining space because these companies have to worry about fixed costs and hardware even in challenging times like a crypto winter. I’d much rather put my faith in Bitcoin, which I think will come back in the long term.
