What happened
Crypto prices and stocks fell today along with the broader market, as investors continued to weigh future economic conditions and monetary policy from the Federal Reserve.
Over the past 24 hours, the price of the world's largest cryptocurrency, Bitcoin (BTC +1.67%), traded down more than 2% as of 3:16 p.m. ET today. Shares of the large cryptocurrency exchange Coinbase (COIN +2.57%) had fallen roughly 9.3%, and shares of the crypto bank Silvergate Capital (SI +4.54%) were down roughly 7%.
CRYPTO: BTC
Key Data Points
So what
The price of Bitcoin is tremendously impactful on the entire crypto industry, so its movement tends to take other crypto stocks and cryptocurrencies with it. As of this writing, Bitcoin traded around $20,293 and is down more than 57% this year.
Investors are trying to figure out whether the token has bottomed yet, but it's nearly impossible to know, considering digital assets are tough to value and all of the uncertainty still in the environment. Many investors are preparing for a potential recession, the Fed is still planning to raise interest rates, and it has also begun to reduce its balance sheet, which essentially pulls liquidity out of the economy.
NASDAQ: COIN
Key Data Points
The poor performance in the crypto market has really hurt crypto stocks like Coinbase, which is down close to 80% this year. Goldman Sachs analyst Will Nance believes more pain could be ahead. He recently downgraded the stock from neutral to sell and reduced his price target from $70 per share to $45.
"We believe current crypto asset levels and trading volumes imply further degradation in COIN's revenue base," Nance wrote in a research note.
He added, "While COIN recently announced a significant restructuring, laying off 18% of its workforce, we believe further cuts are needed, as the announced cost reduction effort merely brings headcount back to end-1Q22 levels and resulted in COIN moving to the low end of its previous expense guidance."
OTC: SI
Key Data Points
Silvergate Capital, which has built a proprietary real-time payments system to better facilitate crypto trading, has also struggled as crypto prices have faded. The payments system brings in lots of deposits from institutional investors and crypto exchanges seeking to use the platform. But deposit growth could potentially slow or there could even be outflows if traders lose interest in crypto trading.
Now what
It's hard to say whether crypto prices have bottomed, and I could certainly see Bitcoin falling further, given that more rate hikes are expected and the Fed has just begun to reduce its balance sheet.
But overall, I am expecting Bitcoin to be here long term and at substantially larger prices than it is now given its growing adoption. As a result, I also expect Coinbase to eventually rebound, as it is one of the largest crypto brokerages, although I would like to see the company further diversify revenue. I also would agree with Nance that more pain could be ahead.
Silvergate Capital is definitely my favorite of this group because its deposit-gathering capabilities make it a huge beneficiary of rising interest rates. Perhaps a further decline in crypto prices could give it some issues, but I think it will continue to play a big role in institutional crypto trading, which I think will continue to gain traction.
