If there’s one sector short sellers have been right on for the past year, it’s been crypto. Indeed, those taking bearish bets against this space have seen impressive gains, as this sector has vastly underperformed the market. For those interested in crypto stocks, this is certainly an interesting time to consider jumping in.
That said, today’s bullish price action tied to the release of the Federal Open Market Committee (FOMC) meeting minutes has sent shockwaves through highly-shorted sectors. Various sectors, particularly in crypto and other high-risk areas of the market, are taking off today. This comes as risk-on sentiment surges, as investors seemingly look through what could be an end of, or at least a slowing of, monetary policy tightening this year.
Shares of Marathon Digital (NASDAQ:MARA), Silvergate Capital (NYSE:SI), Riot Blockchain (NASDAQ:RIOT), Coinbase (NASDAQ:COIN), and MicroStrategy (NASDAQ:MSTR) are up between 12% and 27% at the time of writing. These outsized moves are due, at least in part, to short-covering in this highly-shorted space.
Let’s dive into whether this move can be sustained from here.
Can Crypto Stocks Sustain This Move?
It’s certainly a question worth exploring. Indeed, 2022 was a year of nearly exclusive selling for anything tied to crypto. This highly-speculative sector, fueled by cheap money and accommodative monetary policy, has seen capital dry up. For a sector that relies on fresh capital to move forward, that’s not a good thing.
That said, the fact that investors are looking past this monetary policy tightening period toward what could be upcoming interest rate cuts (via a recession) means that this sector has a chance of rebounding. Whether that’s later this year, next year, or further out, remains to be seen. However, there’s clearly a view building that now may be a good time to start building long positions in some of the most beaten-down crypto stocks.
Personally, I’m of the view that this is a sector that’s heavily shorted for a reason. These stocks are highly speculative and could continue lower this year. But for aggressive investors with a long time horizon, perhaps going long (or at least avoiding going short) is the way to go for now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
