A major rally in Bitcoin is refueling gains in shares of cryptocurrency-linked mining and trading companies, putting the group back on track to add to last year’s big run.
The world’s largest crypto based on market value is on track to add 48% in February for its best monthly performance since December 2020. That’s helped lift an index that tracks companies linked to digital assets up 36% in February, after slumping more than 20% the month before.
The cohort is now mostly in positive territory after a rough January, when a rally ahead of the US Securities and Exchange Commission’s approval for exchange-traded funds that invest directly in Bitcoin weighed on crypto-linked companies. Now, investors are rushing into Bitcoin ETFs, further fueling the advance. The gains are a continuation of huge rallies across the sector in 2023.
“Interest in the sector is back,” said Will Rhind, chief executive officer of Graniteshare Advisors LLC. “There was always going to be a bit of a sell the news aspect to the Bitcoin ETF, it got hyped so much, but hiding within the hype was something very real, and that was an institutionalization of the market and certainly the regulator kind of legitimizing the space.”
On Wednesday, the broad crypto rally led to outages at US cryptocurrency exchange Coinbase Global Inc., which itself has jumped more than 56% in February for its best month since November after falling 26% last month. Citron Research said that the site malfunction makes going long Bitcoin and short Coinbase a “compelling” trade.
Despite the one-day glitch, Coinbase and other crypto-linked stocks, including Marathon Digital Holdings Inc., Riot Platforms Inc. and Bit Digital Inc., are on track to end February higher, reversing losses from earlier in the year.
Halving Is a Catalyst
Increasing optimism about the upcoming halving event, which reduces Bitcoin’s supply and has lifted prices of the digital asset in past cycles, is also elevating the group. The halving is expected in late April.
Bitcoin “cycles have historically rhymed and the current cycle dynamics look very similar to the past two 3-year cycles with the strongest price appreciation occurring post-halving,” Compass Point LLC analyst Joe Flynn wrote in a note dated Feb. 27. “We continue to like the set-up for BTC/Crypto and expect considerable upside.”
Benchmark Co LLC analyst Mark Palmer initiated coverage of MicroStrategy Inc. with a buy rating and $990 price target in a Feb. 27 note, calling it a timely play on the upcoming Bitcoin halving as the stock price is “highly correlated” to the cryptocurrency. MicroStrategy is up 92% this month — the most since November 2020.
“We believe the boost in demand for Bitcoin resulting from the launch of multiple spot Bitcoin ETFs, combined with the reduced pace of supply of coins resulting from the halving, has the potential to drive the price of the cryptocurrency meaningfully higher during the next couple of years,” Palmer wrote. He added that the first three halvings were associated with bull runs in Bitcoin.
Of course, while crypto-linked stocks tend to benefit from Bitcoin’s rallies, shares can also be easily punished if the token loses momentum.
“Crypto stocks will largely continue to be volatile so long as the underlying asset remains volatile,” said Rhind.
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