BERLIN, GERMANY – APRIL 21: A man wears a mask with the Bitcoin logo during a protest against new … [+]
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Bitcoin has plunged in the month since it peaked. As of 6pm May 19, it had lost 40% of it value since topping at $64,606 a coin, according to CBS News. Meanwhile shares of cryptocurrency trading platform, Coinbase, have tumbled by a third since its direct listing on April 14.
Elon Musk’s tweets are a big driver of Bitcoin’s price. When he tweeted that Tesla would let people use it as a currency, Bitcoin rose; when he called cryptocurrency a “hustle” on SNL and later tweeted that Tesla would no longer accept Bitcoin because it uses up too much energy, the price went down.
The cause of the latest plunge was a May 19 statement posted on the Chinese Banking Association’s website saying that financial institutions should “resolutely refrain” from providing services using digital currencies because of their volatility. Virtually every cryptocurrency fell after the industry group’s statement.
If you have owned Bitcoin since mid-2011 when the price was a few pennies, you probably don’t care about this. As I wrote here in February 2014, people who have been infected with the Bitcoin brain virus are not dissuaded from owning it by a plunge in its price.
Does this make the drop in Coinbase stock a buying opportunity? The answer depends on whether Coinbase’s optimistic growth forecast is realistic. If Elon Musk changes his mind and starts accepting Bitcoin for buying Teslas again, I expect Coinbase stock will soar.
If not, Coinbase will keep going down. But that won’t cost you the precious dopamine hit you can still get from upvotes of your Reddit post about how much you lost.
Bitcoin’s Energy Use And Volatile Price
Bitcoin is a digital currency started in 2009 that lets users spend money anonymously. It’s not tied to a bank or government and is created by using computers that operate 24 x 7 to solve difficult math problems — dubbed Bitcoin mining. There are about 18.7 million Bitcoins in circulation and only 2.3 million yet to be mined.
CBS News reported “that a 2019 study by the Technical University of Munich and the Massachusetts Institute of Technology found that the Bitcoin network generates an amount of CO2 similar to a large Western city or an entire developing country like Sri Lanka.”
A 2020 University of Cambridge study estimated that on average, 39% of “proof-of-work” crypto mining was powered by renewable energy, primarily hydroelectric energy. As I wrote in February 2018, the demand for continuous, cheap hydroelectric power makes Wenatchee, Washington a popular place for bitcoin miners.
Bitcoin peaked April 13 and is down since then. Yet it is still up 31% in 2021 and about 300% higher from May 2020. A five-year holder is sitting on gains of over 6,000%, noted the Wall Street Journal.
Is Bitcoin A Currency?
Cryptocurrencies are worth an amazingly large amount — $1.5 trillion — but their value is still much smaller than stocks ($46.9), residential real estate ($41.3 trillion), and treasury securities ($21 trillion).
The anonymity of cryptocurrencies make them ideal for criminals. And since banks are subject to Know Your Customer regulations, in theory banks will never allow them to be used for conducting transactions.
According to CBS News, the European Central Bank said that the risk of cryptocurrencies affecting the financial system’s stability looks “limited at present” because they’re not used for payments.
Washington officials have been talking about regulating digital currencies more — however, they appear to be afraid of the financial turmoil that might ensue if they try to ban them completely.
Cryptocurrencies will have to solve some hard problems to become useful for transacting business. As the Journal pointed out they are too volatile to be relied on as a medium of exchange and few libertarians would want their fortunes to depend on what Chinese regulators do.
I do not know why the Journal did not seem to think those libertarians are happy to bet their financial status on the whims of Elon Musk.
Coinbase’s Great Financial Report and Forecast
Coinbase met its ambitious forecast for the quarter ending in March 2021. Its revenue of $1.8 billion was up 843% from the year before while its adjusted EBITDA of $1.1 billion soared over 19-fold, according to Coinbase. This was inline with its forecast, according to Coindesk.
On May 13, Coinbase said forecast a continuation of this pace of growth into the quarter ending June 2021. For Q2, Coinbase said it expects “all of its business metrics to meet or exceed the results recorded in Q1. Q2 trading volume will ‘slightly’ exceed Q1 trading volume if it persists at the same pace,” reported Coindesk.
Coinbase raised by 32% its 2021 annual forecast range for monthly transacting users (MTUs) from a range of 4 million to 7 million to between 5.5 million and 9 million.
What’s Next For Crypto And Coinbase?
As goes cryptocurrency values, so goes Coinbase’s stock price.
The basis for predicting their future strikes me as flimsy.
If you are a crypto bull, you will gobble up information that confirms your bullishness and ignore all that contradicts it and vice versa.
Bulls such as Ark Invest CEO Cathie Wood and tech entrepreneur Justin Sun see opportunity in the price plunge. Wood saw the drop as “capitulation” and sees Bitcoin as being “on sale.” Sun, founder of cryptocurrency platform Tron, “tweeted that he bought $152 million in Bitcoin for around $37,000 a coin,” according to Bloomberg.
Galaxy Digital CEO and Chairman Mike Novogratz remains a Bitcoin bull. As he said, “You had a confluence of events…where you started breaking down the positivity in the price action, and now we’ve got a liquidation event. The market will consolidate. It will find a bottom somewhere. I’m hoping its close to here,” reported CNBC.
Not everyone’s a Bitcoin bull. Indeed, Edward Moya, senior market analyst at OANDA, said, “Coinbase’s trading debut coincides with the top for Bitcoin and many traders can’t make a convincing argument that it will be able to recover all those losses since then,” according to CNBC.
An institutional analyst sees investors moving out of crypto and into gold. JPMorgan Chase & Co.
JPM
Elon Musk tweeted emojis for Diamond and Hands — meaning he is not selling his Bitcoin.