For most of this year, driven by the heightened demand for Bitcoin (BTC), miners have gained immensely due to an increase in transaction fees that boosted their bottom lines.
Prominent Bitcoin mining companies saw their shares outpace the price of the world’s most valuable coin by a huge margin in the first half of 2023.
The difference in the price performance between Bitcoin mining firms and Bitcoin is primarily because of the leveraged beta effect. This means mining stocks tend to perform even better when Bitcoin prices are moving northward. On the other hand, mining stocks underperform when spot Bitcoin price declines.
Now, the question is, can Bitcoin mining stocks also post higher gains in the second half? After all, an interest rate hike in July is already priced in, and further rate hikes are in the cards. Needless to say, higher rates do weigh heavily on high-risk assets such as digital coins.
Expect More Interest Rate Hikes
Job additions in the month of June remained robust, with strong wage growth and the jobless rate near historic lows. This means a solid labor market will continue to fuel demand in the economy.
However, the Federal Reserve is trying to slow down the pace of economic growth through rate hikes. And with inflation still running above the Fed’s target of 2%, the central bank is expected to remain aggressive in its monetary policy.
Fears of Higher Rates Drag Down the Price of Bitcoin
A resilient labor market driving rate hike expectations dragged the price of Bitcoin lower on Jul 7. Over the past 24 hours, the price of Bitcoin dropped 1% to $30,250 and traded just above the psychologically vital $30,000 level.
Lest we forget, that at one point of time last week, the price of Bitcoin had breezed past the $31,000 level. Also, the price of Bitcoin had posted its best first half a year since 2019 (read more: 3 Crypto Stocks On a Roll as Bitcoin Tops $31,000).
Bitcoin to Hold the $30000 Support Level & Gather Strength
Even though the price of Bitcoin gave away some of its gains last week, it was able to hold the $30,000 level as support. In reality, market pundits expect this decline to be a short-term correction. But in the long run, the price of Bitcoin is well-poised to scale upward.
This is because large financial institutes, at the moment, are showing keen interest in Bitcoin. BlackRock, Inc BLK has requested regulators to launch a Bitcoin ETF, which will in due course lead to more retail participation. Simultaneously, The Charles Schwab Corporation SCHW is backing a new crypto exchange called EDX Markets. This exchange will allow the trading of Bitcoin.
Good Times Ahead for Bitcoin Mining Companies
With the price of Bitcoin expected to shrug off this temporary dip, and finally gain strength, Bitcoin mining stocks are positioned to scale upward. Mining companies, meanwhile, have made expansion moves, indicating long-term strength in the industry. They are increasing their hash rate, and positioning themselves to buy more machines in the long run.
Hut 8 Mining HUT has recently merged with US Bitcoin Corp to increase its total hash rate substantially. It aims to increase its total hash rate to 9.8 EH/s. The Zacks Rank #2 (Buy) company’s expected earnings growth rate for the current year is 50%.
Similarly, to improve its hash rate capacity, Riot Platforms, Inc. RIOT recently agreed with mining hardware manufacturer MicroBT. The Zacks Rank #3 (Hold) company’s expected earnings growth rate for next year is 20.8%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Cleanspark CLSK is another company that invested heavily to increase its hash rate by nearly 1 EH/s. The Zacks Rank #2 company’s expected earnings growth rate for the next year is 52.6%. Thus, it can be safely concluded that there’s a lot more upside to come for Bitcoin mining companies.
Infrastructure Stock Boom to Sweep America
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.