What happened
Shares of several crypto stocks have soared this week even more so than the broader crypto market, as investors bet that the worst may be over for the industry.
For the week, shares of the business intelligence company and Bitcoin holder MicroStrategy (MSTR -1.00%) traded nearly 24% higher as of 12:54 p.m. ET Thursday. Meanwhile, shares of Bitcoin miners Marathon Digital Holdings (MARA -0.84%) and Bitfarms (BITF -2.43%) traded close to 40% and 29% higher, respectively, according to data provided by S&P Global Market Intelligence.
So what
It seemed a bit premature for the crypto market to be rising with such strength this week but market conditions are difficult to understand right now. First, the crypto market seemed to respond well to new inflation data. The Consumer Price Index (CPI), which tracks the prices on a market basket of consumer goods and services and is a good indicator of inflation, rose 0.5% in January and was up 6.4% year over year, which is higher than what economists had expected.
Image source: Getty Images.
The data wasn't necessarily bad, but did seem to indicate that it could take longer than expected for inflation to come down, which could mean more interest rate hikes by the Federal Reserve or higher rates for longer. Rising interest rates have been one of the main factors really hurting Bitcoin and the rest of the crypto market.
Crypto investors also seemed to shake off a number of regulatory concerns in the industry right now. First, the Securities and Exchange Commission (SEC) late last week told the crypto exchange Kraken to cease its staking-as-a-service business and also fined the company $30 million. Then the SEC and New York state regulators earlier this week told the crypto firm Paxos to stop issuing the stablecoin Binance USD.
But there have also been several positive developments for crypto-related stocks this week. In a regulatory filing, Soros Fund Management, the fund managed by the billionaire investor George Soros, disclosed that it had purchased close to 40 million of convertible debentures associated with Marathon. This is long-term debt that can be converted into stock over time. Marathon is also heavily shorted and there have been a lot of short squeezes this week.
Soros also purchased call options on MicroStrategy in the fourth quarter of 2022 and continues to own $200 million in preferred shares, although the fund also owns put options on MicroStrategy.
Ultimately, Bitcoin miners may see better days ahead, according to Christopher Bendiksen, who heads up research on Bitcoin at CoinShares. Bendiksen said in a recent interview with Seeking Alpha that if Bitcoin can stay around its current levels and not fall back below $20,000 and energy prices keep moving downward, then miners should benefit. Bitcoin's price briefly topped $25,000 today.
Now what
I do think the market saw some erratic movement this week on crypto. Inflation is easing, but I wouldn't call the CPI report positive by any means, nor any of the regulatory developments on the crypto side.
That said, a big part of MicroStrategy's, Marathon Digital's, and Bitfarms' business is holding Bitcoin, so a big part of their performance is attributed to the price of Bitcoin. I do think all three of these stocks will benefit if Bitcoin continues to rebound and move higher long-term, but I would personally rather own Bitcoin over any of these names.
