Mining stocks are soaring, but private equity firms remain cautious as some expect the crypto market to recover.
March has been a busy month for the crypto industry. Bitcoin has had its highest weekly close in 10 months and has led many to hope that the bear market is over.
One of the main drivers of this prediction was a series of banking crises in the United States as this has led investors to assume a rate cut later this year, despite Fed Chair Jerome Powell’s insistence that lower rates are not part of the baseline scenario for 2023.
However, optimism about the macroeconomic environment has the risk of being offset by a regulatory crackdown on the sector in the United States. This mixed environment is markedly different from the typical bull and bears markets to which the crypto industry is accustomed and affects its various regions in different ways.
Stagflation Discourages Venture Capital Funds
According to the latest information from the Cointelegraph database, investment activity in the blockchain sector dropped significantly in March, as there were only 59 individual transactions, down from 96 in February. This represents a 38.5% decline in investment activity. Total inflows in March were $504 million an important reduction of more than 42.7% from February’s $880 million.
Private equity funds require stable and favorable macroeconomic conditions that can support the growth of high-risk companies. The risk of a stagnant inflationary environment in the long term makes difficult this target achievement that is why sentiment among private equity investors has been on a downward trend in the near term. Until there is a change in macroeconomic indicators that moves investors from risk-off to risk-on, it is possible that investors’ sentiment in the blockchain sector will continue to stagnate or decline.
In the view of some experts, investor sentiment has ranked the blockchain sector 3 out of 5, indicating that venture capital investment continues to be hampered by macroeconomic factors. However, venture capital activity could be a lagging indicator of any future recovery.
Mining Stocks Take the Lead
Crypto stocks had a mixed performance in March. While mining operations have boosted stock prices due to higher revenues, other types of crypto companies have struggled, for example, Coinbase, Canaan, and Block.
The price of the latter continues to be affected by Hindenburg Research’s short-selling attack. In terms of mining, the biggest profits went to Riot Platforms, up 60%, Cipher Mining, up 53%, and Terwulf, which now operates a nuclear-powered mining facility that provides cheap electricity for mining, up 47%. This outperformance compares favorably with BTC’s 23.0% month-over-month return and 20.4% increase in mining revenue meaning that crypto stocks continue to underperform significantly against Bitcoin.
The crypto industry is expected to operate in a more favorable environment, with a more relaxed interest rate situation and reduced debt for miners in the coming months.
However, the macroeconomic perspective remains volatile and the market should continue to adopt a risk-averse approach. With the new information on the first quarter of 2023 results, investors will be paying close attention to the financial statements to look for any signs of strength or weakness in the crypto sector.
By Marina Meza
