Rise in bitcoin mining stocks may be bullish signal investors are returning, Fundstrat says

Business Insider US
Lots of computing power is used on bitcoin mining.
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  • The rise in bitcoin mining stocks may be a sign that institutions are returning, Fundstrat said.
  • Bitcoin has consolidated in recent weeks but shares in many miners are up sharply.
  • Investors often use miners and other crypto-related stocks as a way to gain exposure the the space.
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The recent rise in stocks linked to bitcoin mining may be a positive signal for the cryptocurrency's price, research firm Fundstrat has said, as it suggests institutions are becoming interested in the space again.

Despite bitcoin's consolidation at around $32,000 to $35,000 (R448,000 to R490,000), mining stocks have fared relatively well over the last month.

Miners Riot Blockchain and Marathon Digital have risen around 12% and 9% respectively over the period. Nvidia, which makes computing equipment used in mining, has risen 17%.

David Grider, lead digital asset strategist at Fundstrat, said in a note on Thursday that bitcoin mining stocks tend to rise and fall ahead of bitcoin.

"Money flowing into and out of public crypto mining stocks may be an early signal for traditional institutional interest in crypto increasing or decreasing - with the recent uptrend possibly being one sign that money may start flowing back into the space," he said.

Big players such as hedge funds often use stocks related to cryptocurrency mining as a way to gain exposure to the market, without the danger of buying bitcoin itself.

For example, JPMorgan earlier this year started offering clients the opportunity to invest in products linked to crypto-exposed companies, many of which were miners.

Yet the rise in US-listed mining stocks has also likely been driven by China's crackdown on the practice.

The network has adjusted to a lower number of miners, making it easier for each miner to verify transactions and earn coins. In technical terms, the hash rate has fallen.

"Investors may be expecting greater profitability for operational crypto miners post this hash rate reduction," Grider said.

Bitcoin mining is the process whereby computers compete against each other to solve complex puzzles. Solving the puzzle verifies transactions on the network and creates new bitcoin.

Other analysts have said they see little sign of investors buying the dip in the value of bitcoin. Amber Group CEO Michael Wu said this week bitcoin may have to drop to $25,000 (R350,000) before investors really get back in.

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