Investing in Bitcoin-related stocks remains very risky, analysts warned on Tuesday amid a rally in prices as inflation has begun to slow amid market expectations that interest rate hikes will not be extreme.
Stocks related to crypto investments were highly volatile in 2022 as interest rates skyrocketed and recession forecasts were issued. In the past month, Bitcoin-related share prices have begun to rally after cryptocurrency prices recovered.
As interest rate hikes are expected to slow, investors have returned to speculate on cryptocurrency prices. Year-to-date, Bitcoin prices have risen to US$23,000.
Stocks investing in cryptocurrency have also begun to recover from sharp declines last year. For example, Brooke Group (BROOK) shares have increased by 24.4%, while Comanche International (COMAN) jumped 47.7%.
Jasmine Technology Solution (JTS) rose 8.79%, while United Power of Asia (UPA) and ZIGA International (ZIGA) surged 20% and 15%, respectively.
Analysts said the main driver of these rallies was Bitcoin prices skyrocketing almost 40% year-to-date. But they cautioned the fundamentals of these companies have not changed.
"Despite gaining positive sentiment in the short term from the Bitcoin price increase, the prices of Bitcoin mining stocks are still below the break-even point due to the high cost of electricity causing the performance to still have a risk of loss," said an analyst from Innovest X Securities.
Nattachart Mekmasin, research manager at Trinity Securities, said the price of stocks related to cryptocurrency investment have continued to surge as the crypto market has largely recovered. However, the fundamentals of those companies remain volatile and risky.
"The Bitcoin price is likely to have passed the bottom of this cycle and perhaps the stock prices have already bottomed out. However, this group of stocks is only suitable for short-term speculation," he said.
Trinity Research has been calculating the correlation between the prices of these stocks and Bitcoin prices since the beginning of 2023 and found the stock prices which are correlated with Bitcoin prices are BROOK, UPA and JTS.
Bitcoin prices previously peaked at around $67,000 and Mr Nattachart said the possibility of Bitcoin returning to highs this year would be slim, citing forecasts for the US economy and the expected peak of the US interest rate this year.
Bitcoin prices typically move in the opposite direction of interest rates, he said.