Sliding Prices and a Bitcoin Slump Put the Crypto Stock Mania to the Test
A sell-off in cryptocurrency-related stocks following Bitcoin's decline and Coinbase Global Inc.'s rocky debut has sparked a rallying cry from optimists who refute concerns that the market has peaked.
A Bloomberg-curated basket of stocks linked to cryptocurrency trading or Bitcoin mining dropped nearly 9% in the last week, bringing 2021's gain to about 130 percent. While a weekend Bitcoin plunge shook cryptomania, the token has since recovered some of its losses and is still up 690 percent year to date.
“The public market validation of Bitcoin and the entire space as a result of Coinbase's listing would inspire those with the ability to invest in the markets to do so,” said Jehan Chu, managing partner at Hong Kong-based crypto adviser Kenetic Capital. There are indications that retail investors profited from Bitcoin's decline, he said.
Bitcoin increased by as much as 2.3 percent on Monday, trading at $56,691 in New York at 6:08 a.m.
Day traders have also boosted stocks such as Bitcoin miner Marathon Digital Holdings Inc. and cryptocurrency broker Voyager Digital Ltd., which have increased by at least 8,900 percent in the last year. For others, Coinbase's $68 billion market capitalization justifies wagers on a watershed advance in crypto adoption. Others believe the listing and Bitcoin's wild price swings are part of an unsustainable, stimulus-fueled frenzy.
“Passions are strong” for the short-term crypto outlook, but “dives are clearly supported,” Chris Weston, head of research at Pepperstone Group Ltd., wrote Monday in a message.
Coinbase, the largest cryptocurrency exchange in the United States, was down 2.6 percent in pre-market trading in the United States on Monday, after closing at $342 on Friday, down from a high of $429.54 reached in the first few minutes of its April 14 debut. Marathon and Voyager both fell roughly 20% last week.
In Asia on Monday, shares of firms such as Japan's Monex Group Inc., which operates a cryptocurrency exchange, and Woori Technology Investment Co. — which owns a stake in a leading South Korean digital-token broker — fell. Cryptocurrency-related stocks also dropped in the premarket in the United States, with Riot Blockchain Inc. falling 8.4 percent and Marathon falling 7.2 percent.
Nonetheless, analysts who have started covering Coinbase are optimistic, forecasting a 52 percent increase in the next year on average. Brian Armstrong, the firm's CEO, characterized the listing as a watershed moment for the entire cryptocurrency industry.
According to PwC's Global Crypto Leader Henri Arslanian in Hong Kong, the fact that more sell-side analysts will be forced to engage with the digital-token market is a promising development for it.
“It now compels sell-side firms to cover Coinbase and cryptocurrency in a more realistic and comprehensive manner,” Arslanian said. “This would result in an increase in not only knowledge, but also skills in the asset class.”
Numerous traps remain: Bitcoin's boom could yet come to an end, and regulators are poised to increase regulation of digital tokens and related businesses as they gain wider acceptance.
However, for the time being, the cryptocurrency craze persists. For example, Dogecoin – a satirical cryptocurrency – nearly tripled in value to around $50 billion on Friday. The demand was so strong that investors attempting to trade it on Robinhood were unable to do so.
“We are still in the early stages,” Dave Chapman, executive director of Hong Kong-based BC Technology Group Ltd., which runs the digital asset platform OSL, said. “Investors also have an opportunity to participate and gain a first-mover advantage.”