What happened
Shares of several crypto stocks are rising today after a good weekend for Bitcoin (BTC -0.45%), which seems to be moving higher due to investors' belief that inflation has peaked. As of this writing, the price of Bitcoin has risen 4.4% over the last 24 hours.
Shares of the large crypto exchange Coinbase (COIN 4.81%) were trading roughly 6.5% higher at 11:15 a.m. ET today. Shares of the crypto bank Silvergate Capital (SI 2.50%) were trading more than 3% higher, and shares of the Bitcoin miner Riot Blockchain (RIOT 5.65%) were trading nearly 9% higher.
So what
Investors are gearing up for new inflation data this week that could show inflation has peaked, at least to some degree. On Wednesday, the U.S. Bureau of Labor Statistics (BLS) will report the latest reading of the Consumer Price Index (CPI), which tracks the prices of a wide range of daily consumer goods and services. Investors use the CPI as a key way to gauge inflation.
Image source: Getty Images.
For June, the CPI grew 9.1% year over year, surpassing economists' expectations and showing the economy stayed hot. But within this number was a huge increase in energy and gas prices, which we know have come down in July. That's why investors are banking on the fact that the CPI will clock in lower in July when the data comes out Wednesday. Economists are currently forecasting that the CPI will rise 8.9% year over year in July.
Inflation has been a headache for crypto holders for a long time now because it has triggered a hawkish Federal Reserve that has been raising interest rates aggressively to tame some of the highest levels of inflation seen in four decades.
But as rates go up, it also raises the yields on safer assets like U.S. Treasury bills, making riskier assets like Bitcoin less appealing. Cryptocurrencies are also difficult to truly value, so when growth valuations start to get called into question, as they have been recently, it's less likely that crypto prices, which have surged in recent years, are going to hold up. So if inflation is still rising, the Fed will have to stay aggressive, but it may be able to let up a tiny bit if inflation shows signs of peaking.
Coinbase has also been on fire and is up more than 65% over the last month. A key part of this move higher has been the company's big announcement that it would partner with BlackRock, the largest asset manager in the world, to provide crypto services on one of its investment platforms. That alone sent the stock surging last week.
Now what
While I do think Coinbase needs to further diversify its revenue base and create a more resilient business model, I also think the large exchange will be relevant as long as cryptocurrencies and crypto trading stay relevant. However, the company will report second-quarter earnings after the market closes tomorrow, and the results are not expected to be good, given the recent crypto winter.
I am much more of a fan of Silvergate Capital because it is the rare crypto stock that has a resilient business model and can actually generate strong financial results in a volatile interest rate environment. Riot Blockchain is really more tethered to the price of Bitcoin, given that is the asset it mines and holds.
Ultimately, in the near term, the CPI reading Wednesday may move crypto prices significantly. Everyone expects energy prices to decline in July, but it will be interesting to see if prices on other consumer goods and services like food, transportation, and rent have started to peak as well.
