Bitcoin Rally Ignites Lackluster Performance Of Crypto Stocks

August 10, 2022 0 Comments

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Bitcoin had an impressive performance in July, along with major digital tokens that have achieved their targets in the last four weeks.

Bitcoin (BTC) increased by over a quarter, reaching $24,000, while Ethereum increased by approximately 55 percent, trading around $1,700.

In the first week of July, the price of BTC led a strong increase in the price of all cryptocurrencies. Not unexpectedly, this contributed to the rise of Bitcoin mining stocks, an Arcane research shows.

Crypto Miners Enjoy Brisk Revenues

As miners make revenue in the form of BTC, an increase in the crypto’s price should benefit their revenues and profits.

Adding to the leverage in this aspect, miners retain a substantial amount of the tokens they mine rather than instantly converting them into cash. This can be problematic when the price of the crypto falls, but when it increases, the effect on their stock prices is magnified.

We can see from the graph just how closely these equities 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 equities has strengthened dramatically in response to rising usage, limiting their perceived risk diversification benefits and increasing the danger of market instability.

Emerging market economies, many of which have pioneered the adoption of crypto-assets, also exhibit a stronger correlation between cryptocurrencies and stocks.

The Bitcoin Effect

If you have been keeping tabs of the cryptocurrency market, you may have observed that as Bitcoin’s price decreases, the prices of alternative cryptocurrencies (often known as altcoins) follow. When the price of BTC increases, we anticipate altcoins to increase in value immediately thereafter.

As the price of Bitcoin has decreased by almost half this year, it is only inevitable that crypto stocks have experienced a dismal first half of the year as well. In 2022, the share prices of Bitcoin holding MicroStrategy (MSTR) are down 38%, crypto miner 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 equities would have been even lower if not for their dramatic comeback over the past month, which was spurred by the crypto’s recent impressive showing.

Since early July, Marathon has increased nearly 180%, MicroStrategy 102%, and Coinbase 100%. There was no substantial difference at MicroStrategy or Marathon that would have prompted these price rallies, but both companies’ prices are greatly influenced by the price of BTC.

It is essential to recognize that Bitcoin frequently has the last word when it comes to investor confidence. Before buying or selling an altcoin position, experienced traders and investors carefully monitor Bitcoin.

The future direction of the crypto markets will be determined by macroeconomic variables, but investors could expect to be on edge in the next weeks because of inflation, rising oil costs, and concerns of a recession.

Featured image from Finance Magnates, Chart from TradingView.com

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