crypto stock recovery

The cryptocurrency market is experiencing a resurgence as Bitcoin enjoys its longest winning streak in more than nine years—and a crypto stock recovery is following suit. Despite this resurgence, not everyone is convinced that the rally will continue, however.

The rally in Bitcoin is boosting shares of crypto-exposed companies such as Coinbase Global Inc., Marathon Digital Holdings Inc. and Riot Platforms Inc. The NYSE FactSet Global Blockchain Technologies Index has surged more than 52% and is set for its best month since February 2021.

The rapid rebound is a much-needed reprieve for investors who have been facing a major losses since late 2021. However, the rally may or may not be sustained as wider macroeconomic conditions are showing signs of slowing the movement of investors into risk assets.

Wednesday has proved to be a difficult day for stock futures and the crypto markets alike so far as investors analyze fresh economic data showing retail sales dropped more drastically than anticipated during December—while inflation at the producer level continued to slow.

Government figures indicated that U.S. retail sales decreased by 1.1%, exceeding forecasts of a 1% slide. Results from The December Producer Price Index suffered too with an unexpected 0.5% decrease instead of its projected 0.1% dip.

At the time of writing, Dow futures had declined by 1.27%, with S&P 500 and Nasdaq-100 futures slipping by 1.11% and 0.92%, respectively.

A Much Needed Crypto Stock Recovery

The crypto market saw a significant drop in the past year as Bitcoin tumbled over 64% during a tumultuous stretch for the industry. The collapse of Sam Bankman-Fried’s FTX exchange was just one of the events that contributed to this downfall.

Companies like Coinbase, Silvergate Capital, and Marathon Digital were among the worst hit, with their shares plunging by 80% or more in 2022. This drop in the market was a harsh blow for investors who had been facing a brutal stretch of losses since late 2021.

But now, as Bitcoin enjoys its longest winning streak in over nine years, shares of crypto-exposed companies such as Coinbase Global Inc., Marathon Digital Holdings Inc. and Riot Platforms Inc., are all up 50% or more since the start of the year.

The NYSE FactSet Global Blockchain Technologies Index has surged more than 42% and is set for its best month since February 2021. However, as of today, the price lost some of its initial gains, and the index is down by nearly 7% in the past 24 hours—though it’s anyone’s guess as to whether this retracement is only a temporary setback for a continued rally.

The resurgence of the market is also being attributed to short sellers leaving their positions after profiting substantially from last year’s decline. Marathon Digital, Coinbase, and MicroStrategy have had high levels of bets against them for some time now with the percentage of equity float around 25% or more—according to S3 Partners data collected by Bloomberg—higher than any other company in the S&P 500 Index.

Crypto mining stocks benefit from the rebound in Bitcoin

This recovery is not only limited to crypto-exposed companies, but also to crypto mining stocks, which have been some of the biggest beneficiaries of the rebound in Bitcoin. The Luxor Hashprice Index, which tracks how much miners can earn from the computing power used for the Bitcoin network, is up nearly 20% this year.

Companies like Bitfarms Ltd., Hut 8 Mining Corp. and Bit Digital Inc. have all seen their share prices more than double since the start of January.

Coinbase, the leading crypto exchange, has also seen a significant growth, soaring more than 10% to $53 per share on Tuesday before settling back down to $51.95 so far today to lose over 4% of those gains.

The growth in crypto mining stocks also highlights the growing interest in the industry. Bitfarms, for example, reported a strong Q4 performance, with revenue increasing by 60% in the last quarter of 2022.

Skepticism Persists Despite the Crypto Stock Recovery

Despite the market’s recovery, some experts are skeptical about the longevity of this rally.

“We’ve seen prices rise above $21,000 from $17,000 in recent days on CPI data that we believe the market interpreted as a potential tailwind for risk assets in general, though at this point, we believe the price increase is likely a head fake that will prove largely transitory,” said Compass Point analyst Chase White.

This sentiment is shared by others in the industry who believe that the rally may not be sustainable in the long run.

Some industry experts have also noted that the current rally could be driven by short sellers exiting positions after cashing in on outsized profits following last year’s rout. This could potentially indicate that the rally may not be as organic as it appears.

The crypto market is known for its volatility and fluctuations, however, so a pullback at this point doesn’t necessarily mean the current upward trend since the start of the year is over. But as always, experts are divided on the sustainability of this current rally. While some see it as a sign of a maturing market on the upswing and expect a further crypto stock recovery, others believe it to be a temporary uptick.

Related:

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Why the Bitcoin Price is Up 21% to $21,200 in 7 Days – Where Next?
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