Bitcoin has plunged amid murmurs of a “crypto winter.”
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Murmurs of a “crypto winter” are intensifying and shares of crypto-exposed companies are being caught up in the carnage.
The price of Bitcoin—the proxy for the cryptocurrency space—is down by more than 50% this year, exceeding the volatility that even crypto-enthusiasts have come to tolerate. Amid the drawdown, few had been willing to acknowledge that the asset class is entering a so-called crypto winter, or a prolonged period of low prices. That changed this week after crypto lender Celsius paused account withdrawals and cryptocurrency exchange Coinbase Global (ticker: COIN) announced that it was laying off nearly a fifth of its staff.
But it’s not just the cryptocurrencies that are seeing their prices fall, many of the proxy stocks for crypto investing are also in decline—regardless of their level of exposure.
Among the publicly traded companies most exposed to the crypto markets is Coinbase. Shares are down 80% this year, far exceeding the drop in Bitcoin. This shouldn’t come as a total surprise to investors as Coinbase has stated that volatility in cryptocurrencies would affect its financials, meaning it would be profitable in good times and would face losses in bad times.
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But Wall Street is souring on Coinbase: Analysts at J.P. Morgan Securities cut their rating on shares to Neutral from Overweight Tuesday, and slashed their price target on shares to $68 apiece, down from $171.
Marathon Digital Holdings (MARA)—Like Coinbase, Marathon’s fortunes are closely tied to the gyrations of cryptocurrencies. The crypto-mining company has seen its shares fall by about 80% this year.
MicroStrategy (MSTR)—Although MicroStrategy is a maker of business-intelligence software, it borrowed money to invest in Bitcoin in an attempt to hedge against inflation. As of March 31, the company held 129,218 Bitcoin coins, which were then valued at $5.9 billion. In light of the drop in Bitcoin, shares are down by 70%.
But it’s not just the companies with the heaviest exposure to Bitcoin that have seen their share prices stumble.
Nvidia (NVDA)—NVIDIA has long been a popular proxy for cryptocurrency investors as the chip maker’s gaming cards are used for mining Ethereum. While the company has historically acknowledged its correlation to crypto markets, it has said that it has “limited visibility” into just how much demand for its graphics processing units is determined by cryptocurrency mining.
Shares of Nvidia are off by 46% this year and trading around $158 apiece.
Financial companies—which had previously shunned cryptocurrencies—have been allowing customers to trade and hold crypto assets. Cryptocurrencies have yet to be a significant driver of financial results for many of these companies, but the shares rise and fall with cryptocurrency sentiment.
Block ( SQ
)—As of March 31, Block held $365.5 million in Bitcoin. In its most recent earnings report, Block acknowledged that revenue and gross profit for its Bitcoin business could fluctuate due to demand and price movements. Indeed, in its most recent quarter, 40% of the company’s revenue was tied to Bitcoin, while a year ago the cryptocurrency accounted for 70%.
Block shares are down by 60% this year, reflecting the drop in Bitcoin as well as fears that Apple (AAPL) will further extend its tentacles into the payments space.
PayPal Holdings (PYPL)—Payments company PayPal has laso seen shares tumble 60% this year on crypto worries as well as fears of increased competition from Apple. PayPal recently started allowing users to transfer cryptos to other digital wallets and exchanges. But analysts are less excited about PayPal’s forays into cryptocurrencies, saying the company’s margins would be improved if it scaled back.
Robinhood Markets (HOOD)—Last year Robinhood was flying high as retail investors eagerly traded meme stocks, options, and cryptos. This year, shares are down by 60%. Some of that is due to cryptocurrencies losing their luster but the share drop also reflects lower retail trading volume.
First-quarter transaction-based revenue at Robinhood was cut in half from a year ago. The company noted a 73% plunge in equities-based revenue, while options and cryptocurrency revenue fell nearly 40%. Over the last year, cryptocurrency usually accounted for roughly a quarter of Robinhood’s revenue but was 50% of revenue in the second quarter of 2021.
Silvergate Capital (SI)—Shares are off by 70% this year, heavily reflecting worries about the crypto plunge as the La Jolla, Calif.-based bank is known as a crypto-focused bank. Its digital client base has grown to over 1,500 customers as of the end of the first quarter, marking a 40% jump from last year.
Outside of the payments companies, more-traditional financial firms have been dipping their toe into cryptos with mixed results.
Signature Bank ( SBNY
)—The New York-based bank has seen shares tumble 45% this year, far exceeding the 20% in the SPDR S&P Bank ETF (KBE) due in part to crypto exposure. The bank was the first FDIC-insured bank to launch a blockchain-based digital-payments platform. That begins to look like a liability when crypto isn’t in favor.
SVB Financial (SIVB)—SVB shares are off by 40% as the Silicon Valley-based bank has been hit hard over the pullback in initial public offerings and venture-capital investment. SVB touts itself as the banker for the innovation economy, so a slowdown in cryptocurrencies is a headwind.
Write to Carleton English at [email protected]
