What happened
Shares of several crypto-mining stocks rose today, thanks to positive economic data and after some company-specific news as well.
Shares of Riot Platforms (RIOT -3.68%) traded nearly 11.5% higher as of 11:45 a.m. ET today. Meanwhile, shares of Cipher Mining (CIFR -5.89%) traded 10% higher, while shares of Marathon Digital Holdings (MARA -3.99%) were up roughly 12.4%.
So what
After a tough week for crypto in which the price of Bitcoin, a bellwether for the crypto industry, has fallen nearly 5% and now hovering around $28,200, as of this writing, the industry got some reasonably good news when new inflation data came out this morning.
Image source: Getty Images.
The Consumer Price Index (CPI), which tracks the prices of a market basket of consumer goods and services and acts as a key gauge for inflation, rose 0.4% in April and was up 4.9% year over year. The results were roughly in line with what economists had expected, but didn't show any big surprises either.
Inflation is teetering between slowing but not dropping too fast, which is good and bad. The Fed wants to bring inflation back to its 2% target, but if the CPI fell too fast, the market might worry about a hard landing for the economy.
Still, inflation does remain high. Notably, used-car prices grew 4.4% in April, while shelter prices only rose 0.4%, its lowest monthly rise in quite a while.
Bitcoin and crypto stocks this year have been rallying, largely on the idea that the Federal Reserve is poised to end its intense interest rate-hiking campaign and potentially cut rates, which would be beneficial for riskier assets like cryptocurrencies and therefore crypto-related stocks.
The inflation data from this morning doesn't seem to have changed the market's outlook that the Fed will pause interest rate hikes at its June meeting and then cut interest rates later this year. However, the Fed has largely taken a data-dependent approach. John Williams, president of the Federal Reserve Bank of New York, said yesterday that "if additional policy firming is appropriate, we'll do that."
In more company-specific news, Cipher Mining reported earnings results yesterday that slightly beat consensus estimates, although revenue missed estimates by a small amount. The company also purchased 11,000 additional mining machines that are expected to improve its computing power, which is key for crypto-mining cryptocurrencies. Marathon Digital also announced a partnership with the digital asset development company Zero Two to develop two crypto-mining sites in Abu Dhabi.
Now what
The main reason for the move higher today in crypto-mining stocks seems tied to the inflation data this morning.
Riot, Cipher, and Marathon have all had phenomenal years so far, with each stock up at least 200%. These stocks tend to trade as a leveraged play on Bitcoin. When the price of Bitcoin rises, they explode much higher, but it goes vice versa when Bitcoin falls. This makes them more volatile than Bitcoin, which is why investors do need to be careful.
The market is pricing in rate cuts this year, but I think it's still premature to say those are going to happen, which means crypto-mining stocks could certainly fall from here if the rate cuts don't materialize. They will benefit if Bitcoin rises. I do like Bitcoin long term but ultimately prefer to hold Bitcoin itself over mining stocks.
