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Will the Rally in Bitcoin Mining ETFs Last in 2H23?
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The year 2023 has so far seen Bitcoin mining companies exceed the performance of the world's most valuable cryptocurrency, Bitcoin (BTC). The cryptocurrency is up about 84% so far this year (as of Jul 10, 2023).
Meanwhile, Valkyrie Bitcoin Miners ETF (WGMI - Free Report) , Crypto Industry Innovators ETF (BITQ - Free Report) , Invesco Alerian Galaxy Crypto Economy ETF (SATO - Free Report) and Global X Blockchain & Bitcoin Strategy ETF (BITS - Free Report) added about 244.8%, 172.2%, 161.4% and 124.8%, respectively, so far this year (as of Jul 10, 2023).
This divergence in price performance is primarily attributed to a less-hawkish Fed which helped growth stocks like bitcoin miners. Increased transaction fees, prominent issuers’ interest in launching a bitcoin ETF also acted as drivers in boosting those stocks. If these were not enough, the leveraged beta effect, which tends to boost mining stocks more than the underlying asset, played a key role.
However, the likelihood of interest rate hikes left investors wondering if mining stocks can maintain their upward trajectory in the second half of the year. Let’s delve a little deeper.
Fears of Higher Rates Weigh on Crypto Stocks
The Fed's efforts to curb inflation through interest rate hikes have caused uncertainties for high-risk assets like digital currencies. In past one week, bitcoin remained almost flat. While this decline may be a short-term correction, a resilient U.S. labor market strengthens rate hike expectations, alarming Bitcoin's future.
What Are Silver Linings?
Blackrock, WisdomTree and Invesco Plan to Launch Bitcoin ETFs: The filing of spot ETF applications by renowned asset managers fueled a growing interest in cryptocurrencies from institutional and corporate clients. While the Securities and Exchange Commission (SEC) has been in denial for a Bitcoin ETF for long, the filings represent a significant step towards widespread adoption. The world’s largest asset manager BlackRock’s plans to launch a bitcoin ETF in June influenced the entire space. Two other large investment firms now joined the queue, WisdomTree and Invesco.
Traditional Finance Giants Explore Crypto Space: Renowned financial institutions, including Charles Schwab, Fidelity, and Citadel Securities, have partnered to launch EDX Markets, a crypto exchange platform. EDX Markets, which had faced delays due to regulatory uncertainty, has finally listed major cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
Institutional Adoption: Institutions such as JPMorgan and Goldman Sachs, which were against virtual currencies before, have started implementing them into their systems. This is a sign of growing acceptance among institutional investors.
Favorable Regulations in the Cards?Though the SEC’s stance toward cryptocurrency has been adverse so far, back-to-back efforts in launching an ETF from reported issuers stirred speculation that such intuitional initiatives might compel legislative institutions to figure out how to classify and regulate them.
Positive Outlook for Bitcoin Mining Companies: Bitcoin mining stocks are well-positioned for growth. Mining companies have been making expansion moves, increasing their hash rates, and planning to acquire more mining machines. Such companies include Hut 8 Mining, Riot Platforms and Cleanspark. In fact, bitcoin hash rate hit a new all-time high amid weakening prices.
Bitcoin Having Expected in 2024: Halving events, which occur about every four years, lower the mining rewards by half. The resulting shortage of newly mined BTC has historically played a crucial role in driving price rallies. As the having event looms in 2024, traders are tightening their belts for a new cycle. So, there is high chance of an upward momentum for Bitcoin.
Cheaper Valuation: Last year, bitcoin was thrashed as rising rates weighed on speculative and growth investments. This has helped the crypto block to bounce back with all force.
Sustainability Parameter: Cryptocurrencies are being promoted as an eco-friendlier investment. Sustainability concerns are in vogue lately as the global investing world is concerned about climate change.
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Will the Rally in Bitcoin Mining ETFs Last in 2H23?
The year 2023 has so far seen Bitcoin mining companies exceed the performance of the world's most valuable cryptocurrency, Bitcoin (BTC). The cryptocurrency is up about 84% so far this year (as of Jul 10, 2023).
Meanwhile, Valkyrie Bitcoin Miners ETF (WGMI - Free Report) , Crypto Industry Innovators ETF (BITQ - Free Report) , Invesco Alerian Galaxy Crypto Economy ETF (SATO - Free Report) and Global X Blockchain & Bitcoin Strategy ETF (BITS - Free Report) added about 244.8%, 172.2%, 161.4% and 124.8%, respectively, so far this year (as of Jul 10, 2023).
This divergence in price performance is primarily attributed to a less-hawkish Fed which helped growth stocks like bitcoin miners. Increased transaction fees, prominent issuers’ interest in launching a bitcoin ETF also acted as drivers in boosting those stocks. If these were not enough, the leveraged beta effect, which tends to boost mining stocks more than the underlying asset, played a key role.
However, the likelihood of interest rate hikes left investors wondering if mining stocks can maintain their upward trajectory in the second half of the year. Let’s delve a little deeper.
Fears of Higher Rates Weigh on Crypto Stocks
The Fed's efforts to curb inflation through interest rate hikes have caused uncertainties for high-risk assets like digital currencies. In past one week, bitcoin remained almost flat. While this decline may be a short-term correction, a resilient U.S. labor market strengthens rate hike expectations, alarming Bitcoin's future.
What Are Silver Linings?
Blackrock, WisdomTree and Invesco Plan to Launch Bitcoin ETFs: The filing of spot ETF applications by renowned asset managers fueled a growing interest in cryptocurrencies from institutional and corporate clients. While the Securities and Exchange Commission (SEC) has been in denial for a Bitcoin ETF for long, the filings represent a significant step towards widespread adoption. The world’s largest asset manager BlackRock’s plans to launch a bitcoin ETF in June influenced the entire space. Two other large investment firms now joined the queue, WisdomTree and Invesco.
Traditional Finance Giants Explore Crypto Space: Renowned financial institutions, including Charles Schwab, Fidelity, and Citadel Securities, have partnered to launch EDX Markets, a crypto exchange platform. EDX Markets, which had faced delays due to regulatory uncertainty, has finally listed major cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.
Institutional Adoption: Institutions such as JPMorgan and Goldman Sachs, which were against virtual currencies before, have started implementing them into their systems. This is a sign of growing acceptance among institutional investors.
Favorable Regulations in the Cards?Though the SEC’s stance toward cryptocurrency has been adverse so far, back-to-back efforts in launching an ETF from reported issuers stirred speculation that such intuitional initiatives might compel legislative institutions to figure out how to classify and regulate them.
Positive Outlook for Bitcoin Mining Companies: Bitcoin mining stocks are well-positioned for growth. Mining companies have been making expansion moves, increasing their hash rates, and planning to acquire more mining machines. Such companies include Hut 8 Mining, Riot Platforms and Cleanspark. In fact, bitcoin hash rate hit a new all-time high amid weakening prices.
Bitcoin Having Expected in 2024: Halving events, which occur about every four years, lower the mining rewards by half. The resulting shortage of newly mined BTC has historically played a crucial role in driving price rallies. As the having event looms in 2024, traders are tightening their belts for a new cycle. So, there is high chance of an upward momentum for Bitcoin.
Cheaper Valuation: Last year, bitcoin was thrashed as rising rates weighed on speculative and growth investments. This has helped the crypto block to bounce back with all force.
Sustainability Parameter: Cryptocurrencies are being promoted as an eco-friendlier investment. Sustainability concerns are in vogue lately as the global investing world is concerned about climate change.