Crypto stocks rally and challenge Bitcoin weakness
Some cryptocurrency-related stocks and exchange-traded funds rallied to start the new year, ignoring declines in Bitcoin and its counterparts.
The crypto industry, including Bitcoin miners, exchanges and blockchain-related companies, was generally higher on Monday.
Marathon Digital Holdings
(symbol: MARA), one of the biggest miners, gained 1.7%. the
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(BLOCK) was ahead 1%, while the ProShares Bitcoin Strategy Fund (BITO), which holds Bitcoin through futures, rose 1.4%.
Some of these gains may reflect demand for tech stocks in general: the Nasdaq Composite had gained 1% by early afternoon, beating the
Still, Bitcoin and other cryptos were not participating in the rally. Bitcoin fell 1% to around $ 46,500. Ether, the second largest crypto, was down 1% to $ 3,750. Major “spare parts” also performed poorly, with Solana down 2.7% to $ 170 and Cardano down 1.8% to $ 1.33.
Cryptos may now be at a pivotal point: the next step for tokens and stocks may depend on whether investors see them as proxies for so-called risky assets, or conversely, as inflation fighters. that will hold their value as interest rates and bond yields rise.
If the crypto industry is a proxy for technology, it could be vulnerable to rising interest rates and rising bond yields, which tend to put pressure on risky assets. The idea is that tech stocks and other high-growth assets look less attractive as rates rise. Higher bond yields imply higher risk-free yields on treasury bills, and they reduce the present value of future cash flows for companies whose profits are expected to materialize more in the future.
Blockchain-related companies and crypto tokens fall into this category, to some extent, and they are periodically under pressure as bond yields have skyrocketed. Bitcoin has been low for months. It ended the year around $ 48,000, down 30% from its all-time highs of nearly $ 69,000, and it hasn’t shown much evidence of an exit from a trading range. relatively narrow.
However, it is not always clear whether Bitcoin is inversely or positively correlated with Treasuries. The relationship reversed on Monday: the 10-year Treasury yield jumped 11.5 basis points, or hundredths of a percent, to 1.63%, as Bitcoin slumped.
While the token has shown “minor stabilization” over the past few days, its true test will hold support at $ 45,655, according to a report released Monday by Fundstrat Global Advisors. If Bitcoin falls below that, it could fall back to last September’s lows around $ 39,500, while a move above $ 49,000 would be needed for a ‘bigger rebound’ to take hold. according to Fundstrat.
The counter-argument to crypto as a technology proxy is that Bitcoin could prove itself as a store of value in an inflationary climate, while other cryptos benefit from a variety of catalysts.
“You don’t have to think too much,” said Digital Asset Investment Management, a registered investment advisor for cryptos, in its January outlook. “We don’t think a crypto wallet can be too overweight Bitcoin and / or Ethereum.”
Catalysts for the two biggest cryptos could also arrive. Bitcoin continues to gain traction as an alternative asset in institutional wallets, and it is advancing in payment networks and international money transfers. The Ethereum blockchain network could benefit from a major upgrade this year, reducing congestion and high transaction fees, supporting higher transaction volume and potential gains in the Ether token.
Alt-coins are also expected to benefit as their uses expand. Some tokens and networks, like Solana and Avalanche, are gaining ground as alternatives to Ethereum for trading and lending based on “smart contracts”. These networks and others are also used for decentralized finance or DeFi applications, non-fungible tokens, distributed storage, and supply chain management on blockchains.
One of the concerns is that Bitcoin and other tokens could enter a “crypto winter” – a long period of low prices. Crypto markets have experienced periodically long collapses, under pressure from profit taking, technical factors and government crackdowns.
But the bulls argue that even a crypto winter would have a ribbon liner – bolstering the industry by chasing out some of the smaller trading platforms.
Global (COIN) could benefit, wrote Oppenheimer analyst Owen Lau in a note released Sunday. He sees Coinbase as a survivor with opportunities to gain market share or make acquisitions.
“While this may not be good for investors with a shorter investment horizon, [a] crypto winter offers long-term investors the ability to buy COINs at a relative price, ”Lau wrote.
For now, cryptos appear to be caught in competitive headwinds: as risky assets or as stores of value. How the crypto performs in 2022 will depend on what prevails.
Write to Daren Fonda at [email protected]