: Why some crypto stocks surged up to 400% this year, outperforming bitcoin

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Several crypto-related stocks and funds have staged a spectacular rally this year, outperforming major cryptocurrencies, despite U.S. regulators’ ongoing scrutiny of the industry.  

Crypto exchange Coinbase COIN, -0.91% shares rallied over 190% so far this year, and MicroStrategy MSTR, -0.91%, which holds more than $ 4 billion bitcoin on its balance sheet, saw its shares up more than 210% year-to-date, according to Dow Jones Market Data. 

Read: Cathie Wood’s ARK funds dump millions more in Tesla and Coinbase stocks

Crypto miner Marathon Digital holdings MARA, -2.61% shares traded up 390% year-to-date, and Ebang International’s EBON, +4.90% stock jumped 260%. Riot Platforms RIOT, -1.08% shares went up almost 440% so far this year. 

Grayscale Bitcoin Trust GBTC, -1.05% advanced more than 140% year-to-date. 

Such gains overshadowed that of bitcoin, which posted a rally of more than 80% so far this year. Both bitcoin and many crypto-related stocks are still well below their record highs.

Analysts attributed the outperformance of crypto stocks and funds versus bitcoin to their higher volatility, previous oversold conditions and increased institutional adoption of digital assets.

Crypto-related stocks tend to outperform major tokens during an upward trend, and underperform in a downtrend, analysts at Alliance Bernstein led by Gautam Chhugani wrote, in a recent note. 

In 2022, crypto mining stocks on average lost more than 90%, while bitcoin recorded an over 60% loss, according to the analysts. 

“The market consensus is that Bitcoin BTCUSD, -0.00% and Ethereum ETHUSD, +0.11% prices serve as the main indices, and other crypto assets, such as ETFs, Grayscale’s GBTC, or public crypto miner stocks, trade based on these benchmark indices,” Youwei Yang, chief economist at crypto mining coming BIT Mining, wrote in emailed comments. 

“Therefore, the recent crypto price rally provided an opportunity for these stocks to rebound and generate higher returns,” Yang wrote. 

The rally in shares of crypto companies this year also comes as institutional interests in the crypto space mount, noted Jeff Dorman, chief investment officer at Arca. Last month, led by BlackRock BLK, +1.52%, several asset managers filed applications for spot bitcoin exchange-traded products, which, if approved, could provide investors with wider access to crypto. 

The SEC approved several bitcoin futures-based ETFs in the past, but has yet to green light anything that directly invests in bitcoin.

See also: BlackRock is applying for a spot bitcoin ETF. Here’s why it matters to crypto.

“Idle capital is returning to digital assets, first via brokerage accounts (which is why COIN, GBTC are rallying the most), but eventually, via direct investments into crypto funds and tokens,” according to Dorman.

To be sure, different types of crypto-related stocks went up for different reasons, analysts said. 

Coinbase shares got a boost for serving as the custodian for BlackRock’s proposed spot bitcoin exchange-traded fund. The crypto exchange’s shares rallied more than 90% since June 15, when BlackRock submitted paperwork for the ETF. 

Also read: BlackRock’s bitcoin ETF filing is a vote of confidence in Coinbase, one analyst says. Here’s why.

Shares of bitcoin miners were mostly oversold last year as some mining companies collapsed, while their surge this year is driven by an improved mining environment with higher bitcoin prices and increased transaction fees, according to Dessislava Aubert, an analyst at Kaiko Research. 

MicroStrategy has also benefited from the recovery of bitcoin prices, Aubert noted. The company is designed as “a leveraged bitcoin position,” with a $ 4.6 billion bitcoin position on its balance sheet using $ 2.2 billion of long-term convertible debt, analysts at Alliance Bernstein noted.

“Thus, the stock behaves like a proxy bitcoin ETF, with 95% of its market cap represented by the value of its Bitcoin holdings, despite a cashflow positive $ 500M revenue enterprise analytics business,” said the analysts.