Shares of public Bitcoin (BTC) miners rallied on January 9 on growing bets that the US Federal Reserve may soon relax its aggressive fight against inflation.
Bitcoin miners Riot Blockchain (RIOT), Hut8 (HUT), Bitfarms (BITF), Marathon Digital Holdings (MARA) and others posted double-digit percentage gains in trading for the day.
The rise coincided with a broad rally in equity markets, with the large-cap S&P 500 index rising 1% and the technology-focused Nasdaq rising 2% before paring gains.
Markets rallied ahead of the release this week of the highly anticipated US Consumer Price Index, which is expected to show a continued easing of cost pressures. On January 7, data from the Labor Department showed that job creation and wage growth softened in December, suggesting that the Federal Reserve’s rate hike campaign is having its desired effects.
According to Bloomberg, the swap contracts show that traders now expect the Federal Reserve’s effective funds rate to peak below 5%, up from 5.06% after Friday’s non-farm payrolls report. Fed funds futures prices, meanwhile, suggest that traders expect less aggressive rate hikes in the coming months.
In addition to favorable market conditions, the rally in Bitcoin mining stocks can also be attributed to short covering in an illiquid market. Short covering is often responsible for the early stages of a rally, as traders open their positions by buying an asset after previously selling short it.
$BTC miners ripping today.
Shorts covering into an illiquid market. pic.twitter.com/mwSwIB7K23
—Dylan LeClair (@DylanLeClair_) January 9, 2023
With the price of Bitcoin falling by 75% from end to end and the bankruptcy of several cryptocurrency companies, the contagion has begun to spread to the mining sector. In December, Core Scientific, one of the largest BTC miners by computing power, filed for Chapter 11 bankruptcy in Texas. The same month, mining company Greenridge received a $74 million restructuring lifeline from the New York Digital Investment Group.
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