For obvious reasons, the value and performance of cryptocurrency mining stocks are heavily dependent on the trajectory of cryptocurrency prices. Where the leading coins and tokens go, the miners tend to follow.
This was the dynamic in effect on Tuesday, with a score of miners seeing decent, if unspectacular, stock price rises on the day. Among these were Riot Platforms (NASDAQ: RIOT), with a nearly 4% gain, Bitfarms (NASDAQ: BITF) outpacing it slightly with a 4.5% advance, and TeraWulf (NASDAQ: WULF) and HIVE Digital Technologies (NASDAQ: HIVE) lagging a bit with respective 3.5% and 2.5% increases.
Those gains more or less mirror the performance of the leading cryptocurrency, which, as most of the world knows by now, is Bitcoin. Over the preceding 24 hours, as of late afternoon Tuesday, Bitcoin’s price had risen by 4%. Other leading coins and tokens were also in positive territory; Ethereum, for example, had improved by 3.6%.
Bitcoin was leading because it crossed what some investors and pundits consider to be a “psychologically important” level for the market. Typically, this means that the coin rose above a very even price point it hadn’t hit in some time — in this case, early Tuesday morning, Bitcoin rose to over $26,000 apiece and stayed there.
Looking at the latest developments for major cryptos like Bitcoin, Ethereum, etc., there was no single catalyst pushing their values higher. Rather, it seems to be investor bullishness that a crucial upcoming central bank decision and some macroeconomic data coming down the pike will tilt in favor of digital money.
Many crypto investor eyes will turn to that monetary authority, which is the European Central Bank (ECB) that covers the sprawling European Union. This week is a big one for the ECB, as it’s slated to hand down its latest decision on key interest rates following a meeting of its governing council on Thursday.
Many crypto investors love to hunt for patterns, and the ECB’s interest rate streak is a very strong one. In each of its past nine decisions, the central bank has raised interest rates.
Now, most economists — according to a recent story on the subject by Reuters, anyway — believe that raise streak is over and the ECB will hold steady. Inflation might not be rampant in the 20-country euro area (i.e., the 20 economies that use the euro currency), but it’s still a persistent beast, with the rate of 5.3% month over month in August matching the July figure.
Crypto investors and observers follow the moves of central banks because benchmark interest rates matter greatly to them. Even though the leading cryptocurrencies are established as legitimate investments, for various reasons, they continue to be taken as speculative products, given their volatility (plus, in the minds of more traditional investors, many aren’t anchored to a “hard” underlying asset).
When interest rates rise, the investing community tends to trade out of more speculative plays and into more conservative assets. If the ECB does pull the trigger on yet another hike this week, we can imagine the opposite happening to cryptos and the companies that mine them, at least in the short term.
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Eric Volkman has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
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