Why Shares of Coinbase, Riot Blockchain, and Silvergate Capital Are All Falling Today

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What happened

Shares of many crypto-related stocks were struggling today, along with the broader market. As of 12:45 p.m. ET today, the Dow Jones Industrial Average traded more than 900 points down, while the Nasdaq Composite had fallen nearly 4%.

At the same time, shares of the large cryptocurrency exchange Coinbase Global (NASDAQ:COIN) had fallen more than 11%, while shares of the Bitcoin (CRYPTO:BTC)-mining company Riot Blockchain (NASDAQ:RIOT) and the crypto bank Silvergate Capital (NYSE:SI) traded more than 8% and roughly 5% lower, respectively.

So what

All of these companies trade in a correlated fashion to the broader cryptocurrency market and Bitcoin, the world’s largest cryptocurrency. Now below $34,000, Bitcoin has been getting absolutely hammered, down nearly 50% from early November.

There’s a lot going on in the crypto world right now. Russia is thinking about banning crypto trading and mining in the country, and the Federal Reserve has discussed the possible creation of a central bank digital currency, which some see as competition.

But I think the main culprit behind the sharp sell-off is the same thing crushing the U.S. stock market right now: the Federal Reserve. Several months ago, the chances of the Fed raising its overnight benchmark lending rate in March seemed unlikely. Now, there seems like a very good chance it happens.

Not only that, but the Fed has been tapering the tens of billions of additional monthly bond purchases it started doing at the beginning of the pandemic in order to support the economy in the face of a severe downturn. On top of all of this, the Fed has spoken about reducing its balance sheet once it ends its additional bond purchases and starts hiking rates. In doing so, it would effectively be removing liquidity from the economy, a sharp reversal from the massive amount it has been pumping in.

On Wednesday, the Fed’s rate-setting Federal Open Market Committee will release a new statement that may provide hints about how it is thinking about interest rate hikes and shrinking the Fed’s balance sheet, which the market will be watching very closely. The last time the Fed tried to shrink its balance sheet in 2019 did not exactly end well, leading to an abrupt rise in short-term interest rates. However, the economy is in a much different place than in 2019 and the Fed now has that experience in its pocket.

“The Fed is definitely sensitive to the equity market, but I don’t think it changes anything for the meeting,” Peter Cramer, head of insurance portfolio management at SLC Management, recently told Reuters.

Cramer added, “If the sell-off leaks to the broader economy and starts to impact the energy, banking, consumer cyclical type names, then I think the Fed would question their path a little bit.”

Now what

There is a lot of debate over whether or not Bitcoin can hedge inflation. So far, it has acted like the other tech and growth stocks currently getting hammered. But ultimately, while it will probably continue to stay volatile, I think Bitcoin is certainly here to stay.

Furthermore, I do see this recent dip as a buying opportunity for stocks like Silvergate and Coinbase. Silvergate is actually positioned to benefit from rising interest rates, and Coinbase is diversifying revenue so it is not as heavily correlated to the movement of Bitcoin.

Riot is heavily tethered to the price of Bitcoin but is based in the U.S., which I think removes some of the regulatory uncertainty it would face if it were in a foreign country.

It’s official: Stock market having worst start to year ever

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It’s been a decidedly ugly start to the year for the stock market, with particular pain in the tech trade.

State of play: As of the end of trading Tuesday — the 16th session of the year — 2022 is now, officially, the worst-ever start in the history of the S&P 500, according to data from Ned Davis Research, a stock market research shop.

The 8.6% decline for the month edges out the 8.57% drop experienced in January 2009.

S&P 500 data goes back to 1929.

Between the lines: The sell-off has been even worse for the tech-heavy Nasdaq composite index.

Big tech is also a major driver of the S&P 500. Apple, Alphabet, Microsoft and Tesla generated over 25% of the index’s total return last year.

Tech shares tend to get disproportionately dinged up when interest rates rise.

What’s next: Big Tech earnings are on tap this week, and any surprises could add to the pressure on stocks — or provide relief. Microsoft released good numbers last night, and Tesla and Apple are on deck Wednesday and Thursday.

Go deeper: Investors reset their compass

Zomato, Paytm, Nykaa, PB Fintech shares tank as bears run riot on Dalal Street; should you buy?

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Zomato, Paytm, Nykaa, Policybazaar, and other new-age internet companies were witnessing some strong selling pressure on Dalal Street on Monday.

Zomato, Paytm, Nykaa, Policybazaar, and other new-age internet companies were witnessing some strong selling pressure on Dalal Street on Monday. Foreign investors pulling funds out, concern over faster than expected US Federal Reserve policy tightening, and a global sell-off in tech stocks is aiding the worst rout seen by these new-age platform companies since those got listed in recent quarters. While Paytm’s stock price has largely only seen bearish movement on Dalal Street, all others have had their fair share of bulls; but all witnessed heavy correction today.

Funds moving away from technology sector

The fall in domestic technology names comes at a time when foreign investors can be spotted moving funds. “Rally in IT/Technology stocks across the globe is coming to an end and funds are moving towards banking, auto, and power sector,” Vishal Wagh, Head of Research Bonanza Portfolio said. FPI data available on NSDL shows that foreign investors have been net buyers of the banking, auto, and power sectors in the first 15 days of the current year.

Zomato, the food-tech behemoth that listed on the stock exchanges in July last year has tanked 33% since the year began. The stock tanked 20% to hit a 52-week low of Rs 91.7 per share. Paytm hit a new low of Rs 881.5 per share, falling more than 8%. Nykaa share price tanked more than 12% to hit a low of Rs 1,740.05 per share. Shares of PB Fintech (PolicyBazaar) were down 11.4% to hit a new 52-week low of Rs 766 apiece.

US tech rout, premium valuations weigh in on domestic internet stocks

Another factor hitting technology names is the rout seen in US internet companies. The trend in global stock markets has turned distinctly bearish. Last week S&P 500 and Nasdaq closed 8% and 15% below their all-time highs. The sell-off in tech stocks has been brutal last week,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “An important feature of the tech sell-off is that bulk of the selling is happening in non-profitable tech stocks. This trend is impacting stocks like Zomato and Paytm in India too,” he added.

Stocks of Zomato, Nykaa, and Policybazaar – all listed at premiums to their IPO prices. Shares have also enjoyed a decent run on Dalal Street, taking prices higher. Vishal Wagh added that these premium valuations of the new-age internet startups have also played the role of dampening spirits on Dalal Street.

Trading at new lows, should you buy?

After a sharp correction, a large number of internet stocks are now trading at new all-time lows after having erased massive investor wealth. However, Vishal Wagh is not keen on buying any of the stocks. He advises investors to look at the stocks if they regain their listing day levels, below which he says, the stocks may not sustain. On the other hand, Rahul Sharma, Co-owner, of Equity99 believes long-term investors can use this opportunity to buy these shares. “We see this as a good opportunity for long-term investors to add these counters at a considerable discount as they might be reporting losses now but have huge growth potential considering their business models,” he added.

The 4 Most Dangerous Bitcoin Stocks in 2022

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Despite volatility picking up during the fourth quarter, it was another fantastic year for the major indexes and the cryptocurrency space. The benchmark S&P 500 ended 27% higher last year, with the kingpin of all digital currencies, Bitcoin (CRYPTO:BTC), more than doubling up the S&P 500’s gain.

But take a few steps back and adjust your focus for a completely different view. Whereas the S&P 500 has doubled over the trailing five years, Bitcoin has catapulted higher by more than 5,000%.

Although I’m not personally a fan of Bitcoin as an investment, for reasons I’ve extensively laid out in recent weeks, it’s treated buy-and-hold investors incredibly well for more than a decade. Bitcoin’s 21 million token cap, along with its first-mover advantage and highly secure transaction model, has made it the blue chip of cryptocurrencies.

Investors who want exposure to Bitcoin have a number of ways to get it. The most obvious and direct way would be to purchase Bitcoin on a cryptocurrency exchange. Directly owning Bitcoin allows investors to precisely mirror its movements.

Another really smart way to gain Bitcoin exposure for those with less of an appetite for risk and volatility would be to buy a company like Block, which was formerly known as Square. Though Block is known best for its seller ecosystem, the company’s rapidly growing Cash App service allows investors to trade Bitcoin. Block also holds a small of percentage of its assets in Bitcoin.

Avoid these dangerous Bitcoin stocks

On the flipside, there are some truly undesirable ways to gain exposure to the world’s largest cryptocurrency. Below are four of the most dangerous Bitcoin stocks, along with explanations of why they should be avoided in 2022 (and beyond).

MicroStrategy

If there’s one Bitcoin stock I’d strongly suggest investors shy away from, it’s enterprise analytics software company MicroStrategy (NASDAQ:MSTR). At this point, it’s almost not worth considering the company’s analytics software operations given that founder and CEO Michael Saylor has turned his company into a leveraged bet on Bitcoin.

At the end of December, MicroStrategy acquired 1,914 Bitcoins for an average price of $49,229. This increased its aggregate ownership to 124,391 Bitcoin at an average price of $30,159. In total, we’re talking about an investment of $3.75 billion that, as of Jan. 14, had appreciated to $5.3 billion.

Though Saylor has been correct in his leveraged bet, thus far, there are some glaring red flags with the company. Namely, MicroStrategy went from having over $560 million in cash, cash equivalents, and short-term investments and no debt at the end of 2019 to just $57 million in cash and $2.15 billion in various forms of debt by the third quarter of 2021. Saylor has rolled the dice on his company’s balance sheet and may have to issue a mountain of shares to repay its obligations if Bitcoin doesn’t head higher in the coming years.

Additionally, Saylor has seemingly ignored his company’s analytics software operations. Though product license and subscription service sales are modestly higher through the first nine months of 2021, they’ve been in a six-year downtrend leading up to 2021. With Saylor spending most of his time pumping Bitcoin in interviews or on social media, the company’s tangible products and services have languished.

Marathon Digital Holdings & Riot Blockchain

The second and third dangerous Bitcoin stocks that should be avoided by investors are cryptocurrency miners Marathon Digital Holdings (NASDAQ:MARA) and Riot Blockchain (NASDAQ:RIOT). I’m lumping these two together because of their extremely similar operating models.

Cryptocurrency miners are people or businesses using high-powered computers to solve complex mathematical equations that validate groups of transactions (known as a block) on blockchain. In the case of Marathon and Riot, they’re both mining Bitcoin. For being the first to solve a block and validate transactions as true, a block reward of 6.25 Bitcoin is paid. That’s worth about $267,000.

On one hand, bigger is certainly better when it comes to Bitcoin mining. Marathon and Riot will eventually have full mining operations containing around 199,000 and 120,000 mining units, respectively. On the other hand, the mining space has virtually no barrier to entry, and new competitors are targeting Bitcoin on a regular basis.

To make matters worse, Bitcoin’s block reward halves every four years – the next halving should take place in 2024. This means a larger number of companies is fighting over what will eventually be a shrinking pie. Marathon and Riot will need Bitcoin to double in price simply to break even on a revenue basis once block rewards halve.

But the biggest issue of all is Marathon Digital and Riot Blockchain are completely reliant on external factors (i.e., the price of Bitcoin) and not on innovation. With so much competition and risk involved, it makes no sense for Bitcoin bulls to put their money to work in crypto mining stocks.

Grayscale Bitcoin Trust

The fourth dangerous Bitcoin “stock” I’d suggest avoiding in 2022 is the Grayscale Bitcoin Trust (OTC:GBTC). If you’re wondering why “stock” is in quotations, it’s because, as its name implies, this security is a trust and acts more like a closed-end fund than an actual stock.

The premise here is simple: Grayscale Bitcoin Trust acquires Bitcoin to hold for the trust, and those assets should, in theory, increase or decrease in value on par with the price of Bitcoin. It’s an alternative investment option for those who don’t feel comfortable directly buying Bitcoin through a cryptocurrency exchange.

However, history has shown that the Grayscale Bitcoin Trust has a poor track record of accurately mirroring the price moves of its underlying security. A few years ago, its share premium could be up to 100% above its net asset value (NAV). Nowadays, it’s valued at more than a 20% discount to its NAV.

In November, Bobby Blue of Morningstar laid out Grayscale’s dilemma for the world to better understand. Because it’s a trust, the only entity able to create and remove shares from the market is Grayscale; and Grayscale only does this through a serious of private placements and redemptions to accredited investors at sporadic times throughout the year. Instead of the number of shares outstanding matching demand, the restrictions placed on this trust lead to wild disparities between its share price and its NAV. Unless Grayscale Bitcoin Trust can convert to an exchange-traded fund (ETF), these inefficiencies will persist.

As one final note, paying a 2% management fee seems excessive for a trust that’s merely handling private placements and redemptions a few dozen times a year.

Robinhood and Coinbase shares hit their lowest levels ever

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New York (CNN Business) The bloodbath in the cryptocurrency market is taking a gigantic toll on online brokerage stocks Robinhood and Coinbase. Shares of both companies, which each went public last year, slid Monday to new all-time lows before bouncing back.

Robinhood ended Monday up 1% after plunging earlier along with the broader market. The stock is still down more than 25% already this year and is about 85% below its record high. Coinbase , which fell slightly Monday after plunging nearly 15% at one point, has plummeted almost 25% in 2022 and is now about 55% off its peak price.

Bitcoin prices , which did rebound slightly Monday, have dropped nearly 25% this year and are about 50% below their all-time high from November. That hurts companies like Robinhood and Coinbase, which allow traders to buy and sell bitcoin, ethereum and other digital currencies.

Marathon Digital MARA Hive HVBTF Riot Blockchain RIOT Shares of bitcoin minersandrallied to end the day higher in volatile trading, but each has lost nearly a third of their market value so far this year.

Coinbase is a pure-play cryptocurrency exchange while Robinhood generated about 20% of its trading revenue from crypto in the third quarter, down from 41% in the second quarter.

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