Why shares of Riot Blockchain, Marathon Digital, Hut 8 Mining and Bitfarms are rising today
What happened
Stocks on several Bitcoin (BTC 14.67%) Mining stocks rose after the price of Bitcoin rebounded on Monday.
That rally was largely thanks to news Sunday that federal banking regulators would freeze deposits at SVB Finance (SIVB -60.41%) and Signature bank (SBNY -22.87%) after both experienced runs on deposits and then collapsed.
Shares of Riot Blockchain (RIOT 18.02%) traded nearly 20% higher as of 3:23 p.m. ET Monday, while Digital Marathon (MARA 25.52%) and HUT 8 Mining (COTTAGE 19.05%) traded about 30% and 21% higher, respectively, and shares of Bit farms (BITF 15.49%) increased by around 17%.
So what
The start-up and technology-focused SVB Financial, which is the parent company of Silicon Valley Bank, was placed into receivership by the Federal Deposit Insurance Corp. (FDIC) Friday. Although not a crypto bank per se, due to its position supporting the innovation economy and catering to venture capital and private equity firms, the bank certainly worked with many crypto-related companies.
Image source: Getty Images.
Then Signature Bank, which catered heavily to the crypto ecosystem, was suddenly shut down by New York state authorities on Sunday, and there was a big question about whether depositors from both banks would be made whole.
Cryptocurrency company Circle, which issues the US dollar-backed stablecoin USD coin (USDC 3.91%), said it had $3.3 billion in deposits with SVB and that the token lost its peg to the dollar over the weekend. It has since regained that pin.
After depositors were told they were going to be made whole — bailing out many tech startups and early-stage businesses that needed their money to do things like meet payroll — Bitcoin responded positively.
“Bitcoin is leading the market because there is a group of investors who recognize the fragility of central banking and the solutions BTC offers,” said Sean Farrell of Fundstrat, according to CoinDesk. “Crypto reacts to the expected change in liquidity conditions as it should.”
Not only did established banks fail, but they were brought down by classic bank runs, even though those bank runs mostly happened online rather than in brick-and-mortar branches. SVB’s depositors withdrew a total of USD 42 billion in deposits from the bank on 9 March.
What now
Because Riot, Marathon, Hut 8 and Bitfarms are all in the business of mining Bitcoin, they are always going to benefit when the price of the token rises. Mining stocks often trade with even more volatility, rising faster and falling harder than Bitcoin.
But I’m still worried about how Bitcoin will be affected in the short term now that Silvergate Capital and Signature Bank are closed. Both of these banks operated real-time payment networks that crypto exchanges and institutional traders used as fiat off-and-on ramps, and the institutions were seen as critical infrastructure for the crypto ecosystem.
Still, the price of Bitcoin has held up better than I would have thought, as it has since the FTX collapse. I think Bitcoin is ultimately here to stay, so these miners might as well stick around, but ultimately I see Bitcoin as a better long-term investment.
SVB Financial provides credit and banking services to The Motley Fool. Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and SVB Financial. The Motley Fool has a disclosure policy.
