By Several crypto-related stocks and funds have demonstrated an impressive rally this year, outpacing major cryptocurrencies, even as U.S. regulators continue to scrutinize the industry.
Crypto exchange Coinbase and MicroStrategy, which holds over $4 billion in bitcoin on its balance sheet, have seen their shares surge by more than 190% and 210% respectively, according to Dow Jones Market Data.
Meanwhile, shares of crypto miner Marathon Digital Holdings have skyrocketed by 390% this year, with Ebang International’s stock enjoying a 260% leap. Riot Platforms’ shares have also surged by almost 440%.
Grayscale Bitcoin Trust (GBTC) has achieved a commendable advance of over 140% year-to-date.
These remarkable gains have overshadowed the performance of bitcoin, which has only posted an 80% rally this year. However, it’s important to note that both bitcoin and many crypto-related stocks are still far from reaching their record highs.
Analysts attribute the outperformance of crypto stocks and funds compared to bitcoin to factors such as higher volatility, previous oversold conditions, and increased institutional adoption of digital assets.
According to a recent note from analysts at Alliance Bernstein led by Gautam Chhugani, crypto-related stocks tend to outperform major tokens during upward trends but underperform during downtrends. They also highlight that in 2022, crypto mining stocks suffered losses of over 90%, while bitcoin recorded a loss of over 60%.
“The market consensus is that Bitcoin and Ethereum prices serve as the main indices, and other crypto assets, such as ETFs, Grayscale’s GBTC, or public crypto miner stocks, trade based on these benchmark indices,” commented Youwei Yang, chief economist at crypto mining company BIT Mining.
The recent rally in crypto prices has provided an opportunity for these stocks to rebound and generate higher returns, Yang added.
The Rally in Shares of Crypto Companies: A Shift in Institutional Interest
The year has seen a significant rally in shares of crypto companies, coinciding with an increase in institutional interest in the crypto space. Jeff Dorman, the Chief Investment Officer at Arca, points out that several asset managers, led by BlackRock, have recently filed applications for spot bitcoin exchange-traded products. If approved, these products could provide investors with broader access to the world of crypto.
The Return of Idle Capital
According to Dorman, idle capital is finding its way back into digital assets, first through brokerage accounts (which explains the significant rally in COIN and GBTC shares). However, it is anticipated that this capital will eventually flow into direct investments in crypto funds and tokens.
Analysts emphasize that different types of crypto-related stocks have experienced increases for various reasons.
Coinbase’s Boost and Bitcoin Miners’ Surge
Coinbase, as the chosen custodian for BlackRock’s proposed spot bitcoin exchange-traded fund, has experienced a boost in its shares. Ever since BlackRock submitted the necessary paperwork for the ETF on June 15th, Coinbase’s shares have rallied by over 90%.
Similarly, the surge in shares of bitcoin miners can be attributed to an improved mining environment. Higher bitcoin prices and increased transaction fees have driven the recovery of these companies, after many collapsed last year.
MicroStrategy’s Leverage
MicroStrategy has also seen beneficial effects from the recovery of bitcoin prices. The company has positioned itself as a “leveraged bitcoin position,” holding a $4.6 billion bitcoin position on its balance sheet using $2.2 billion of long-term convertible debt. As a result, analysts at Alliance Bernstein describe MicroStrategy’s stock as behaving like a proxy bitcoin ETF, with 95% of its market cap represented by the value of its Bitcoin holdings.
Despite having a cashflow positive $500M revenue enterprise analytics business, the market perceives MicroStrategy primarily as a player in the bitcoin space.
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