What happened
The stocks of most Bitcoin-mining companies jumped today on news that lawmakers in Washington, D.C., were closing in on an agreement to suspend the U.S. debt ceiling until 2025.
Shares of CleanSpark (CLSK -4.58%) traded nearly 7% higher as of 10:49 a.m. ET. Meanwhile, Bit Digital (BTBT 0.90%) rose 11%, and Canaan (CAN 4.24%) was up roughly 6.6%.
So what
Over the weekend, President Joe Biden and House Speaker Kevin McCarthy came to an agreement on the debt ceiling, which will now head for a vote. If passed, the deal will allow the U.S. government to keep paying for obligations that have already been approved until 2025. If the debt ceiling is not suspended or raised by June 1, then the U.S. government could default on its debt, which would likely have huge adverse ramifications for the economy and financial markets.
Image source: Getty Images.
While the likelihood of a debt ceiling deal passing is good news for investors, McCarthy was also able to negotiate some concessions for agreeing to suspend the debt ceiling, and one of those appears to be the end of a proposed tax on crypto-mining companies.
Earlier this year, the Biden administration had proposed a bill that would have charged a 30% excise tax on the cost of electricity miners use to mine Bitcoin and other cryptocurrencies (mining involves a tremendous amount of computing power and therefore requires a lot of electricity). The bill also would have barred crypto miners from taking tax-deductible losses associated with the wash-trading of crypto tokens. This would have likely impacted all of these companies, with CleanSpark based in Nevada, Bit Digital located in New York, and Canaan based in China but planning to expand into the U.S.
Bitcoin seemed to rise on the debt ceiling news, which broke this weekend, surpassing $28,300 per token yesterday, although now the price has fallen back to below $27,800.
"From a technical point of view, follow the pressure on the first support marked by $26,500-$26,800. Despite seeing sessions with prices below that zone, it seems that the buying pressure is enduring the attacks of the bears," eToro markets analyst Javier Molina wrote in a research note today. "The key area for new gains is marked by $28,500."
Now what
Given that the crypto-mining tax appears to be dead and the likelihood of lawmakers passing the debt ceiling agreement in order to avoid catastrophe, this looks like a big win for crypto miners, which have already been on a monster run this year.
Ultimately, these stocks are all heavily influenced by the price of Bitcoin because it is the asset that many of these companies mine and hold. However, crypto-mining stocks all tend to be more volatile than Bitcoin, which is why I generally prefer to hold Bitcoin instead of them.
The entire crypto market has been moving higher this year on the belief that the Federal Reserve will pause its aggressive interest rate hiking campaign potentially at its next meeting in June. However, this will depend on economic data, starting with the upcoming jobs report on Friday, so I'll be watching that carefully for the next big catalyst for cryptocurrencies and associated stocks.
