Stock investors curious about crypto are not comfortable with the rally in shares of companies tied to the world of digital assets last week, with the sector underperforming almost every other risky corner of financial markets. this year by a wide margin.
Coinbase Global Inc., touted last year as one of the best ways to get crypto exposure when it was first listed on Nasdaq, is down 75% since December. MicroStategy Inc. is down 62%, or more than Bitcoin, for which the software company has been seen as a proxy since Chief Executive Michael Saylor loaded its balance sheet with the coins. Digital token mining leaders Marathon Digital Holdings Inc. and Riot Blockchain Inc. are down similar amounts, while smaller rivals like Stronghold Digital Mining Inc. have slumped further.
As the second quarter ends, cryptocurrency-related stocks are grouped with digital tokens as one of the riskiest asset classes in the world . The Nyse FactSet Global Blockchain Technologies Index has fallen 65% this year, underperforming not only Bitcoin, but also an index that tracks highly volatile so-called meme stocks, as well as a proxy for names of acquisition vehicles. special purpose.
Crypto stocks are “essentially a leveraged bet on one of the riskiest risk assets out there,” said Steve Sosnick, chief strategist at Interactive Brokers LLC. He added that there are only a few other bets that he had deemed riskier for investors, including certain meme and penny stocks.
While Bitcoin ‘s run-downs are nothing new throughout its roughly 12-year history, the most recent sell-off has been particularly brutal given the extent of the losses seen in the broader crypto industry. In less than six months, the crypto market has seen over $1 trillion in value wiped out, with an index of the 100 largest digital assets sinking around 59% and on track for its worst year since the previous bear market in 2018.
The sell-off in crypto names, which began in early November after Bitcoin hit an all-time high of nearly $69,000, has accelerated this year as investors around the world began to move out of riskier asset classes in amid fears of a batch of aggressive rate hikes by the federal government. The reserve earmarked to cool inflation would plunge the US economy into a recession. The implosion of the Terra/Luna ecosystem in May triggered a series of industry-wide sell-offs and triggered a wave of panic selling.
Despite the risks and deeply depressed stock prices, Wall Street analysts have remained largely bullish on the vast majority of crypto-exposed stocks .
Coinbase, which has lost more than $60 billion in value since hitting a record high in November, currently has 20 buy recommendations, according to data compiled by Bloomberg. That’s exactly the same number it had in early January, when the stock was worth more than triple its current value.
“While we are by no means dismissive of the impact of the current crypto market downturn, we also believe that any notion that Coinbase could not survive this latest challenge is misguided in light of the facts on the ground,” according to BTIG analyst Mark . Palmer, who this week cut his price target on the stock to $290, below the high street of $380. It closed on Friday at US$62.71, after rising 22% this week.
Other crypto stocks have seen similar bullish dedication from the analyst community. Bitcoin miners Riot Blockchain and Marathon Digital each have at least 75% buy-equivalent ratings and have 12-month average price targets that are approximately 379% and 293%, respectively, above current prices. of their actions.
They are not alone either. Among the 33 stocks that make up the NYSE FactSet Global Blockchain Technologies Index, the projected average return over the next year is nearly 200%, more than five times higher than the Nasdaq 100 Index average.
To be sure, the largely positive long-term outlook for the cryptocurrency market does not come without warnings.
“We remain skeptical that cryptocurrency prices are completely out of the woods,” said Chris Allen, an analyst at Compass Point. “We could see more headwinds to come given the uncertainty of Celsius/3AC’s insolvency situation and the pending asset sales that are likely to result.”
A particularly worrying sign for investors looking to buy falling crypto stocks , despite the already historically deep sell-off of some names, stocks like Voyager Digital Ltd. have shown that there is always room to drop further.
Shares of the cryptocurrency brokerage firm plunged 53% on Wednesday, the biggest drop since 2001, after it said it may issue a default notice to hedge fund Three Arrows Capital Ltd. for failing to repay a loan worth of approximately USD 660 million. Before that drop, the stock had already lost about 90% of its value this year.
“Given the size of the exposure, and given the uncertainty regarding Voyager’s collection on any of these balances, we believe it is difficult to arrive at a reasonable estimate of Voyager’s equity value per share,” KBW analyst Kyle wrote. Voigt in a note. after removing its out performance rating on the stock.