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2 Stocks to Avoid on Spike in Cryptocurrency Market Volatility

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The cryptocurrency market witnessed a volatile Tuesday after bitcoin briefly fell below $30,000 for the first time since January, this year. The world’s most popular and biggest digital coin (in terms of market cap) eventually recovered to $33,994.56, up 11.3% on a 24-hour basis, per data.

The volatility can be attributed to regulatory crackdown by China, which reportedly mines almost 60% of the world’s currently circulating bitcoins. Apart from shutting down bitcoin mining projects in the Sichuan province, banks and fintech organizations have been asked to stop dealing in cryptocurrencies.

The China crackdown has rattled cryptocurrency miners. Notably, China’s bitcoin mining company BIT Mining (BTCM - Free Report) delivered the first batch consisting of 320 mining machines to Kazakhstan despite Sichuan shutdown. The company is now planning to accelerate overseas development of its mining resources, including clean energy. Notably, BIT has investments in Kazakhstan and Texas.

Moreover, the hawkish tone of the U.S. Federal Reserve, which is now expected to make its first interest-rate hike in 2023 instead of 2024, spooked the cryptocurrency market. Additionally, concerns over huge power consumption in mining bitcoin have dragged down its prices in recent times.

Bitcoin Collapse Dragged Down Stocks

Bitcoin is currently down more than 47% from its all-time high of $64,829.14 hit on Apr 14. Over the past seven days, the digital coin is down more than 15%. Moreover, Ethereum, the second-biggest digital coin (in terms of market cap), is currently down 21.7% in the past week, per CoinGecko data.

Bitcoin’s downward spiral is expected to continue and is feared to slip below the $20,000 mark due to lower demand in the near term. Notably, per glassnode’s latest weekly update, both bitcoin and Ethereum witnessed weak on-chain activity with active addresses and total transfer volume falling back to 2020 and early 2021 levels this week.

The overall cryptocurrency market collapse has also dragged down crypto-oriented stocks. Since Apr 14, Canaan (CAN - Free Report) , Marathon Digital (MARA - Free Report) , Riot Blockchain (RIOT - Free Report) , Coinbase (COIN - Free Report) , SOS Limited (SOS - Free Report) and MicroStrategy (MSTR - Free Report) are down 41.9%, 36.4%, 35.8%, 32.2%, 31.3% and 24.7%, respectively.

Of this list, Marathon Digital and Riot Blockchain, both cryptocurrency miners, are stocks to avoid as growing volatility bitcoin prices have direct impact on their businesses. Currently, both the stocks carry a Zacks Rank #5 (Strong Sell).

Apart from bitcoin price volatility, Marathon Digital faces risks related to lack of a power agreement to support the increasing number of miners. The Zacks Consensus Estimate for 2021 earnings declined 25% over the past 30 days to $2.09 per share.

Moreover, the Zacks Consensus Estimate for Riot Blockchain’s 2021 earnings moved down 9.4% to 85 cents per share over the past 30 days.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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