Why Coinbase, Marathon Digital Holdings, and HIVE Blockchain Technologies Shares Are Falling Today

What happened

Cryptocurrencies and most crypto stocks gyrated this morning as investors assessed the macro outlook and tried to gauge how hawkish the Federal Reserve will be.

Over the past 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -8.97%)traded 8.6% lower and for under $21,400.

Share of the major crypto exchange Coin base (COIN -9.37%) traded more than 9% lower at 10:49 a.m. ET today. Shares in the Bitcoin mining companies Marathon Digital Holdings (MARA -13.67%) and HIVE Blockchain Technologies (HIV -15.66%) traded around 13% and 15.5% lower respectively.

So what

Stocks and digital assets have had much more correlation this year, as high inflation and the Fed’s ongoing rate hikes have crushed both asset classes this year. In addition, the Fed has begun pulling liquidity out of the economy in an effort known as quantitative easing, which has also spooked investors. But there didn’t seem to be an obvious reason for the huge drop in crypto prices this morning.

Image source: Getty Images.

“US stock markets have retreated since Wednesday’s release of July Fed meeting minutes, the most important factor being that the Fed is unlikely to be done raising interest rates until inflation is tamed across the board, with no guidance on future rate hikes either,” Simon said. Peters of investment company eToro to CNBC this morning.

Peters added that “the trend may also have been exacerbated by [the] liquidation of long positions in bitcoin perpetual futures markets.”

Cryptocurrencies have not fared well as interest rates have risen because rising interest rates make safer assets like US Treasuries yield more, making riskier assets across the board less appealing.

In addition, Bitcoin went on a huge run in 2021, making it look like many growth stocks that had unsustainable valuations towards the end of last year. Valuing cryptocurrencies is very difficult, but investors probably thought Bitcoin had gone up way too fast. The longer the Fed has to keep raising interest rates, the longer the pressure on the crypto market is likely to be.

After new data for July showed inflation could peak, investors hoped the Fed could ease its hawkish stance and slow the pace of rate hikes.

But in recent days, the Fed has indicated that it still likely has a lot of work to do to get inflation to a comfortable level. Until then, the Fed is likely to keep raising interest rates for some time, increasing the likelihood that it could also tip the economy into a more severe recession. San Francisco Federal Reserve President Mary Daly recently said she expects rate hikes to continue into at least 2023.

What now

Coinbase, Marathon and HIVE are all stocks that trade with a high correlation to the price of Bitcoin and the crypto market because their business models all rely on crypto activity.

Coinbase needs consumers and businesses to trade cryptocurrencies, on which it collects commissions. And then Marathon and HIVE mine Bitcoin, so the value of Bitcoin largely determines their perspective values.

I think Bitcoin will eventually go higher in the long term, but can be very volatile and experience pressure in the short term. I haven’t completely given up on Coinbase and think it has long-term potential, but the company has a lot of work to do to diversify its revenue base. I prefer to buy cryptocurrencies like Bitcoin over Bitcoin miners like Marathon and HIVE.