What happened
Shares of several crypto stocks bounced today, as the price of the world's largest cryptocurrency, Bitcoin (BTC 0.38%) , rose over the weekend and investors changed their outlook for interest rate hikes.
Shares of the Bitcoin mining company Riot Blockchain (RIOT -5.95%) traded more than 19% higher as of 11:50 a.m. ET today. Shares of the crypto bank Silvergate Capital (SI 2.56%) traded more than 14% higher, and shares of Hut 8 Mining (HUT) were up more than 16%.
So what
Stocks and cryptocurrencies have risen in recent days after a volatile last week in which new data showed that inflation in June stayed hot and investors began to get nervous over just how hawkish the Federal Reserve might be with interest rate hikes.
After the new inflation data, some surmised the Fed could raise its benchmark overnight lending rate, the federal funds, by a whole percentage point at its meeting later this month. But then two of the Fed's more hawkish members publicly said last week they support a 0.75% rate hike.
Riskier assets like Bitcoin have not fared well amid the rising-rate environment, as safer assets begin to yield more and investors demand more from stocks that were previously trading at high valuations. So, the announcement by members of the Fed led the market to reassess its assumptions when it comes to near-term rate hikes.
Comments made recently to Yahoo! Finance by Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), also may be driving crypto prices higher today. Gensler said Friday that the SEC does have the power to exempt some crypto companies from laws regulating securities to help them comply with current regulations.
"There's a potential path forward," said Gensler. "I've said to the industry, to the lending platforms, to the trading platforms: 'Come in, talk to us.'"
On Friday, Riot Blockchain's CEO, Jason Les, told Yahoo! Finance that he thinks crypto mining companies will continue to "flourish," despite the tough time cryptocurrencies have had in 2022. He said the company is "continuing to scale our business, continuing to scale our power strategy, continuing to scale our positive presence" in the Texas grid.
The crypto bank Silvergate Capital, which has built a real-time payments platform to better facilitate crypto trading between institutional investors and crypto exchanges, is gearing up to report earnings for the second quarter of the year tomorrow before the market opens.
As a bank, Silvergate generates net interest income, which is the profits banks make on loans, securities, and cash after funding those assets. Large banks have been reporting strong net interest income growth in recent earnings reports, and Silvergate is a huge beneficiary of rising interest rates, so investors may be feeling good about earnings.
Now what
With more rate hikes still on the way, I can't say with certainty that Bitcoin won't go lower in the near term, but I do like the cryptocurrency long term.
Bitcoin miners tend to trade very much in line with Bitcoin because it's the asset they mine and hold. But there are other complications that come with the business including hardware costs, energy costs and demand, and regulation, so I tend to prefer the likes of Bitcoin over crypto mining stocks.
Silvergate is one of my favorite crypto stocks, and I'm long. I expect the bank to show strong net interest income growth tomorrow but will be curious how deposits trended given the intense sell-off of cryptocurrencies in the quarter.
