Many investors have noticed the impressive volatility we saw in several major cryptocurrencies at the beginning of the year. However, results were mixed for crypto-adjacent companies, with today’s moves Digital Marathon (Mara -15.27%), Riot pads (riot -10.39%)And The precise strategy (MSTR -9.45%) Reflecting a downward movement of 7% Bitcoin (BTC -8.25%), which tends to drive the price movement of these companies, given their large Bitcoin holdings. Notably, as of early afternoon trading, Bitcoin had fallen to the $44,000 level, triggering significant long liquidations for traders and indicating that momentum is not on investors’ side at the moment.
As of 3pm EST, shares of Marathon Digital, Riot Platforms, and Microstrategy were down 15.1%, 9.7%, and 9.9%, respectively, over the past 24 hours. While the decline in Bitcoin prices is directly impacting the valuations of these companies, there are more factors impacting these stocks today.
Let’s dive into what’s driving such a big bearish move in these cryptocurrency-adjacent companies today.
The landscape of investing in cryptocurrencies is changing
Undoubtedly, the biggest news impacting the cryptocurrency sector this week was the approval of spot Bitcoin ETFs. These exchange-traded funds began trading on Thursday, providing new publicly traded options for investors looking to get direct exposure to bitcoin. Presumably, much of the demand for Bitcoin mining stocks was generated from investors who preferred the liquidity and publicly traded nature of these companies. With the advent of these ETFs, many retail and institutional traders have likely repositioned their portfolios away from Bitcoin miners and into Bitcoin ETFs.
Money flows will certainly be an important story worth following. About $100 billion of capital is expected to flow into Bitcoin ETFs. This is a lot of money that has to come from somewhere.
Additionally, lower fees among Bitcoin ETF issuers have made these ETFs an attractive, low-cost option for those seeking exposure to the space. Instead of investing in high-beta Bitcoin miners (their stock prices tend to move disproportionately up and down, based on Bitcoin’s volatility), investors can get direct exposure to what they are looking for – Bitcoin. This is a more attractive proposition for many investors interested in preserving capital in this current climate.
What could change the narrative around these Bitcoin stocks?
Bitcoin ETFs, as the new investment vehicle in the region, will certainly continue to attract significant interest from investors. To some extent, the market may have already anticipated a heavy sell-off among crypto-adjacent stocks, considering the poor price performance of these companies before the approval of these ETFs on Wednesday. Accordingly, there are some strong near-term price pressures that may appear for some time.
Additionally, if these ETF approvals are a “sell-the-news” event, and Bitcoin prices head lower, that’s not good for Bitcoin miners and companies like Microstrategy that really act as a way to hold Bitcoin. With the halving event expected to occur within a few months, new Bitcoin mining will become more expensive. As a result, margin pressures and other factors also play a role.
In short, these Bitcoin-adjacent stocks present a more chaotic and potentially more volatile picture than owning Bitcoin ETFs directly. I believe that while the sell-off in cryptocurrency stocks may be exaggerated, it could also be true that this selling pressure is lasting longer than many think. Therefore, I will remain on the sidelines for the time being when it comes to these specific stocks.
Chris McDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.