Shares of any stock related to cryptocurrencies had a rough start to the week Monday and some were down over 10%. Bitcoin (BTC 1.63%) fell from about $62,000 when the market closed Friday to $55,880 as of this writing, although its low yesterday was below $54,000. Ethereum (ETH 0.76%) was over $2,400 when the market closed Friday and is now at $2,176.
There are a number of stocks that have taken it on the chin as a result, but Square's (SQ 3.97%) drop of 5.3% was notable today. MicroStrategy (MSTR 1.50%) and Ebang International Holdings (EBON 5.93%) also fell 10.1% and 15.1% at their lows. The three stocks are down 3.9%, 8.5%, and 9.3% respectively as of 4 p.m. EDT.
The crypto sell-off over the weekend was driven by fears that the U.S. government will crack down on some crypto activity. In particular, the U.S. Treasury is reportedly planning to increase oversight of financial institutions for carrying out money laundering through digital assets. The Central Bank of Turkey also banned the use of cryptocurrencies for use as payment late last week, which isn't a good sign if the trend continues.
A company like Square makes money off cryptocurrency trades on its platform, so any drop in the price will likely lead to lower commissions.
For MicroStrategy, the impact is more direct: It holds 90,531 Bitcoins with a value of $2.171 billion as of Feb. 24 on the balance sheet. The drop in crypto value is a direct loss to the company.
Ebang International makes chips for Bitcoin mining and has launched its own cryptocurrency exchange, so the drop in crypto assets could be a direct hit to the bottom line. Crypto mining relies on high prices for crypto assets, so if the drop continues demand could be hit in 2021.
These three companies show how broadly cryptocurrencies are now impacting big businesses on the market. There are transaction companies that make money off crypto trading, companies that hold crypto, and the hardware and software companies that are building crypto infrastructure. Like any commodity, they all drop when crypto does.
The reality of the market in 2021 is that volatility in cryptocurrencies is part of the market dynamics, especially for companies that have an interest in the asset class. And with a volatile asset like Bitcoin or Ethereum, stocks will inherently be volatile as well. With that said, if crypto assets jump tomorrow these stocks could as well; the volatility works both ways.