Why Cryptocurrency Stocks Were Hurting Today

What happened

To put it mildly, Tuesday was a day to forget for investors in many cryptocurrencies and the companies that concentrate on mining them. Competing assets are leaching the value of such investments, and many felt the pain on the second trading day of the week.

Among them was Marathon Digital Holdings (MARA -14.42%), which experienced a scary price swoon of over 14%. TeraWulf (WULF -10.08%) also took a slide, descending at over 10%. Coins and tokens weren’t spared, with lately popular altcoin Bitcoin Cash (BCH -4.97%) turning south at a nearly 8% clip.

So what

After retreating from a 16-year high late last week, the yield of the 10-year Treasury note has come roaring back. The rally started on Monday and extended into Tuesday, with Treasuries — considered by many to be one of the safest investible assets in the world, if not the safest — setting new peaks at over 4.8%.

The performance of investments like Treasuries matters to crypto investors because they are competitors in a way. Coins, tokens, and companies involved in mining or holding them continue to be seen as risky assets. That’s in sharp contrast to Treasuries, which are backed by the belief (or the hope) that the U.S. federal government will never default on its debt. An investment in a Treasury is a near-sure bet, in other words.

So if the value of an asset like that is rising, all things being equal, the demand for the riskier stuff is weakening. That’s why the Tuesday decline in cryptos and related stocks was so widespread.

Tuesday afternoon, it was hard to find any major crypto investment that was in positive territory. Bitcoin and Ethereum were both headed south, for example. So Bitcoin Cash, Marathon, and TerraWulf were at least in good company. 

Now what

In the crypto world, though, what goes down could come up just as quickly — as we’ve seen many times in a host of post-swoon rallies. Yet we shouldn’t expect that to immediately occur, particularly if that Treasury yield stays elevated.

Also, the Fed is primed and ready to raise interest rates again. Their chief bad guy of the moment is inflation, so any sign of it flaring up again will likely trigger a hike. And there is a host of non-core consumer price index (CPI) components that could see upticks, particularly gasoline — although crude oil prices have eased somewhat in recent days, for the most part, they have marched higher since mid-summer.