Analysts Warn Over Bitcoin-Related Stocks in 2023

Crypto investing in Bitcoin-related stocks remains extremely risky despite a price rally, according to market analysts. Crypto-related stocks were extremely volatile last year as interest rates soared and recession forecasts were issued. As cryptocurrency prices have recovered, bitcoin-related stock prices have begun to rise in the last month.

Bitcoin investors have returned to speculate on cryptocurrency prices as interest rate hikes are expected to slow. Bitcoin prices have risen to $23,000 year to date.

Cryptocurrency-related stocks 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) has increased by 47.7%.

United Power of Asia (UPA) and ZIGA International (ZIGA) increased by 20% and 15%, respectively.

According to Crypto News, the main driver of these rallies has been Bitcoin prices, which have risen nearly 40% year to date. However, they cautioned that the fundamentals of these businesses had stayed the same.

“Despite gaining positive sentiment from the Bitcoin price increase in the short term, 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.

Bitcoin Bottomed Out

According to Nattachart Mekmasin, research manager at Trinity Securities, the price of stocks related to cryptocurrency investment has continued to rise as the cryptocurrency market has recovered. The fundamentals of those companies, however, remain volatile and risky.

“The Bitcoin price has most likely passed the bottom of this cycle, and stock prices may have already bottomed out. This group of stocks, however, is only suitable for short-term speculation, “He stated.

Since the beginning of 2023, Trinity Research has calculated the correlation between the prices of these stocks and Bitcoin prices and discovered that the stock prices correlated with Bitcoin prices are BROOK, UPA, and JTS.

Bitcoin prices peaked around $67,000, and Mr. Nattachart believes the chances of Bitcoin returning to highs this year are slim, citing US economic forecasts and the expected peak in US interest rates this year.

According to him, bitcoin prices typically move opposite to interest rates.

ESG Rules for Banks in the EU

In other crypto news, European lawmakers voted to impose stricter regulations on banks that hold cryptocurrencies. The EU’s Economic and Monetary Affairs Committee has tightened the capital requirement for holding digital assets.

The move will limit the number of unbacked assets, like Bitcoin and Ethereum, that lenders can hold before the European Commission proposes new rules.

According to one amendment, banks would be required to apply a risk-weighting of 1,250% of bank capital to crypto asset exposures, which is enough to cover a complete loss in value.

The amendments also include a definition of “shadow banking,” which refers to the vast sector of insurers, hedge funds, and investment funds that accounts for roughly half of the global financial system and is typically less regulated than banks.

The amendment requires the European Commission, the EU’s executive body, to publish a report by June 2023 analyzing the possibility of imposing prudential limits on banks’ exposures to shadow banks.

The amendments also require that banks’ remuneration policies be aligned with environmental, social, and governance (ESG) risks.

The draft law establishes a new regime for appointing bankers, with amendments stating that a bank’s management body should have goals.

They should be “sufficiently diverse in terms of age, gender, geographical and educational background,” according to Jonas Fernandez, the EU committee member leading the negotiations on the draft law in parliament.

The amendments generally go further than the changes made by EU states in December, which primarily focused on temporary exemptions from some of the requirements to give bankers more time to adapt in the face of European Central Bank opposition.

Following Tuesday’s vote, lawmakers and EU member states will negotiate a final agreement that will take effect in 2025.