Bitcoin and other cryptos were trading higher on Tuesday, showing signs of stability after one of their longest losing streaks since 2018.
Bitcoin was pricing around $42,900, up 2.8% in the past 24 hours. Ether, the second-largest token, was at $3,240, up 5.9%. Other major coins were rallying, including Solana, Cardano, Polkadot, Polygon, Avalanche, and Dogecoin.
Whether the rally holds depends on both macro and technical factors.
The macro landscape is looking tougher as the Federal Reserve and other central banks prep the markets for higher interest rates this year. The Fed has indicated it will raise rates three times this year and could start to shrink its $9 trillion balance sheet.
That will create taller hurdles for speculative assets like cryptos, which have benefited from excess liquidity and ultralow rates. As the Fed tightens money supplies and bond yields rise, less capital is likely to flow to the most speculative assets, including cryptos.
The technical side of crypto is looking wobbly too. Bitcoin briefly broke through a support level at $40,000 on Monday, while Ether dipped below support at $3,000.
While both cryptos have bounced back a bit, some technical analysts still aren’t impressed. “Intermediate-term momentum remains to the downside,” said Katie Stockton, founder of crypto research firm Fairlead Strategies.
“Bitcoin and other cryptos are still in corrective modes, within the context of their long-term uptrends,” she said in an interview. “Oversold conditions have returned but have yet to yield improved momentum. Until we see that momentum, we wouldn’t feel better about adding exposure.”
Bitcoin’s next major support level is $37,400. If it drops to that level, buyers are likely to step in, Stockton says. On the upside, resistance is at $49,400—its 50-day moving average—indicating that Bitcoin would have to breach that level for a sustained move higher.
While the technical and macro factors don’t look great, some analysts do see value in beaten-down crypto stocks.
J.P. Morgan analyst Kenneth Worthington reiterated support for crypto exchange Coinbase Global (ticker: COIN) in a recent note, for instance, arguing that it’s “still a buy.”
“Use-cases for crypto markets will continue to grow and new projects and tokenswith more and different use cases will surface,” he writes. “With these projectsattached to tokens and Coinbase a leading exchange to buy and selltokens, we see Coinbase as a leading direct beneficiary of crypto marketgrowth.”
Bitcoin miners, which process transactions on the network and receive Bitcoin as payment, have also been hammered, falling more than 40% since last November.
But the major miners have raised capital and added capacity to capture more of the network’s “hash rate,” or overall computing power. Miners with more hashing capacity could, in theory, capture more of the Bitcoins doled out as payments for validating transaction blocks on the network.
“Even at $42,000, they can generate 85% gross margins,” said D.A. Davidson analyst Christopher Brendler in an interview. “There are concerns about their ability to grow and raise capital, but they now have enough cash on their balance sheets, so the market is overreacting here.”
Brendler points out that Core Scientific has one of the lowest costs to mine at around $5,000 per token. Core plans to go public through a merger with Power & Digital Infrastructure Acquisition (XPDI), a special purpose acquisition company. The stock trades around $10, which is often a floor for SPACs.
Riot Blockchain (RIOT) has a mining cost of $13,000, estimates Brendler, while Marathon Digital Holdings (MARA) is around $7,000 to $8,000. He rates all three stocks as Buys.
“These companies have their growth paid for and funded in 2022, and they have a lot of Bitcoin on their balance sheet, so they’re very cheap stocks on an earnings and enterprise value to Ebitda basis,” he says, referring to earnings before interest, taxes, deprecation, and amortization.
Riot trades at 10 times estimated adjusted 2022 earnings per share, Brendler notes, while Core goes for 8.2 times and Marathon for 6.4 times. Those valuations imply that the market is deeply skeptical of miners hitting earnings targets or that their profits will be sustainable.
Still, for investors who believe in Bitcoin’s long-term prospects, the miners look like attractive deep-value plays.
Write to Daren Fonda at [email protected]
