Why Shares of Dogecoin, Silvergate Capital, and Hut 8 Mining Are Rising

What happened

Shares of many cryptocurrencies and crypto-related stocks shot up after the Federal Reserve raised its benchmark overnight lending rate and said it may soon consider slowing rate hikes.

The price of the world’s largest cryptocurrency, Bitcoin (BTC 7.46%), responded well to the news and is now up close to 8% over the past 24 hours.

In the same period, as of 3:24 p.m. ET today, the price of the meme crypto token Dogecoin (DOGE 6.08%) traded roughly 7.5% higher, crypto bank Silvergate Capital (SI 6.05%) traded 6.5% higher, and Bitcoin miner Hut 8 Mining (HUT 14.21%) traded about 12.5% higher.

So what

As expected, the Fed this afternoon raised its benchmark overnight lending rate, the federal funds rate, by 0.75% to bring it within a range of 2.25% to 2.5%. But what really pleased the market was Fed Chairman Jerome Powell’s comments following the hike.

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are effecting the economy and inflation,” he said.

Image source: Getty Images.

Still, Powell added that there could be another 0.75% hike at the Fed’s meeting in September but that decision would be based on data and how the economy and inflation are trending.

Riskier assets including tech stocks and cryptocurrencies, which have been battered by rate hikes all year, floored higher at the possibility of the hawkish Fed easing up on monetary policy. Many cryptocurrencies and crypto stocks move with at least some correlation to the price of Bitcoin, so the fact that the cryptocurrency is moving higher is taking the rest of the industry with it to some degree.

High inflation followed by rising interest rates have proven to be massive headwinds for much of the crypto industry and led to a crypto winter in recent months, where crypto prices and trading volume have fallen sharply. When rates rise, safer assets like U.S. Treasury bills yield more, making riskier assets like cryptocurrencies less appealing. Dogecoin has pretty much followed Bitcoin, which is still down more than 52% this year.

Silvergate Capital, a crypto bank that has developed a real-time payments system that better facilitates crypto trading, has still performed well from an operational standpoint this year, but recently saw outflows in some of its crypto-related deposits. And Hut 8 Mining has seen the value of the main asset that it mines, Bitcoin, lose a lot of value while still having to cover expenses to run its business.

Now what

The news from the Fed is good news for Bitcoin and the rest of the crypto industry and suggests that the worst of inflation and rate hikes may be behind us now, although it’s no guarantee. However, there could still be volatility to come as investors may now focus on a recession and slower economic growth, which could have consequences as well.

Tomorrow, the U.S. Bureau of Economic Analysis will release its preliminary estimate for how gross domestic product trended in the second quarter of the year. The economy contracted 1.6% in Q1, so if it is negative again in Q2, that could mark what many economists consider to be a technical recession.

Powell just said today he does not think the U.S. economy is in a recession, but investors may react harshly if the economy lost a lot of ground in Q2. While the price of Bitcoin could go lower in the near term, I am a big fan of Silvergate here and not much of a fan of Dogecoin or Hut 8 Mining.