What happened
Cryptocurrencies and crypto-related stocks took a breather today after rallying over the last several days, and as the market continued to have concerns about the future of the economy.
Over the last 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -5.56%), had fallen roughly 5% as of 12:55 p.m. ET today. Meanwhile, shares of the large crypto exchange Coinbase Global (COIN -12.12%) traded more than 12% lower, while crypto bank Silvergate Capital (SI -8.98%) was down nearly 10%.
So what
Bitcoin rebounded over the weekend and early this week, with some investors eying a potential bottom. At one point, the price of Bitcoin had risen back to over $32,000, but today Bitcoin is back down to around $30,300, as of this writing. Because Coinbase and Silvergate Capital both operate in the crypto industry, they will likely always have at least some correlation to the price of Bitcoin.
Image source: Getty Images.
Investors seemed to get spooked today after Jamie Dimon, the CEO of JPMorgan Chase, the largest bank in the U.S., warned of the potentially tough economic outlook still to come.
“We’re bracing ourselves,” Dimon said at a conference today. “It’s a hurricane. That hurricane is right there, down the road, and coming our way. We don’t know if it’s a minor storm or if it’s a Superstorm Sandy.”
Dimon is referring to issues brought on by Russia’s ongoing invasion of Ukraine and higher oil prices. Dimon also said he is concerned about the declining number of public companies and that “we’re driving public companies out of the market.”
In other news, the famous short-seller Jim Chanos has set his sights on Coinbase and continued to warn that the stock will collapse. In a recent podcast, Chanos called Coinbase “tremendously overvalued” and said he expects the fees the company charges on trades to contract significantly.
“Money-losing broker dealers, if you witness Robinhood, generally trade at one to one and a half times tangible book value [per share],” Chanos said. Coinbase currently trades close to 300%, or three times, tangible book value, so if Chanos is right that means shares of Coinbase could still have a long way to fall.
Now what
With so much uncertainty in the economy, I would not be surprised to see more volatility among cryptocurrencies or in the stock market. Some analysts believe Bitcoin could still fall significantly, all the way down to $14,000, which obviously would be tough for the rest of the crypto industry.
But I still think Bitcoin is here to stay and will be a good long-term buy at current levels. Because of this, I am also optimistic about Coinbase. Chanos has some good points, but in the long term, if Bitcoin and cryptocurrencies are here to stay, I expect there will be way more crypto trading volume down the road and Coinbase is still arguably the most trusted brokerage among retailers.
Silvergate Capital tends to get clumped into the crypto sell-off, but it’s my favorite crypto stock because it’s also a bank. Silvergate has created a real-time trading platform for institutional investors and crypto exchanges. The business model brings in lots of deposits the bank pays no interest on and that it can deploy into higher-yielding assets. Silvergate is a huge beneficiary of rising interest rates because of this.
If the price of Bitcoin falls to very low levels, that could hurt deposit inflows at Silvergate, but overall I still think the bank has a great long-term use case and great long-term potential.