Crypto stocks are riding the spot bitcoin ETF wave

While the US stock market opened mostly in the red Monday, crypto-tied equities appeared to prove the exception Monday morning.

Some publicly listed firms posted double-digit rallies to round out the last month of the year. Galaxy Digital, Marathon Digital Holdings and Riot Platforms each gained more than 10% in the first twenty minutes of Monday’s trading session.

Coinbase and MicroStrategy weren’t far behind, posting around 8% and 9% rallies, respectively. Indeed, Coinbase, Marathon and Riot are poised to clock gains of more than 300% over the year.

Cryptocurrencies were also in the green. Bitcoin (BTC) rallied more than 4% Monday morning over the past 24 hours, putting the largest cryptocurrency on track to post more than 150% gains over 2023. Ether (ETH), which was up around 1.4% Monday, has rallied more than 85% year to date.

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“Crypto trades while stocks are closed, so then they have to slingshot to maintain relative value,” said Roshun Patel, partner at Hack VC.

The ongoing optimism around a spot bitcoin exchange-traded fund remains a key market-driving narrative, Patel added, which is serving as a tailwind for both cryptocurrencies themselves and related stocks.

“Coinbase in particular benefits a lot from anyone getting an ETF approved as they will serve as the go-to custodian. I think stock market traders have a hard time underwriting BTC much higher so their forward expectations of earnings for stocks, especially miners, are dampened to expected reality,” Patel said.

Bitcoin, which briefly hit $42,000 Monday before hovering around $41,600 later in the morning, is obviously riding the ETF wave, analysts agree, and the rally is positioning other cryptos in a favorable spot.

Bitcoin “is still the ‘gateway’ into the crypto market for many mainstream and large investors, as can be seen in its climbing market dominance,” Noelle Acheson, author of the Crypto is Macro Now newsletter said.

Broader markets, by contrast, slipped early in the trading day. The S&P 500, Nasdaq Composite and Dow Jones Industrial Average indexes each opened in the red. The Russell 2000, representing small-caps, outperformed, gaining close to 3% at the open.

For traders considering other strategies to close out 2023, small caps may be a good place to look, analysts said.

A run for US small-caps, which continued Monday after the Russell 2000 posted a 3% rally on Friday, may not be the most shocking narrative, but it could foreshadow what is to come for the rest of the year.

“Friday’s Russell rally, while not especially unusual, does signal the possibility of a classic “dash for trash” rally in small caps this month,” Nicolas Colas, founder of DataTrek Research, wrote in a note Monday.

“This slice of the US equity market has lagged large caps in 2023, largely due to its spotty profitability and worries that high interest rates would crimp the ability of smaller companies to raise affordable incremental capital,” Colas added. “Now that rates seem to be heading lower, it makes sense that small caps could continue to play catch up.”

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