A version of this story originally appeared in CNN Business’ Bell the Bell newsletter. Not a subscriber? You can register here.
The Collapse of FTX has seen the price of bitcoin and other cryptocurrencies drop more than 60% this year… and the carnage has spread to publicly traded companies with exposure to digital assets.
stocks CoinbaseField owner Block
(SQ)top bitcoin miners Hive
(HVBTF) and Riot
(RIOT)cryptocurrency bank Silvergate
(yes) and software firm MicroStrategy
(MSTR)managed by a crypto evangelist Michael Saylorall decreased in the last month.
But is the worst almost over? After all, volatility has been a constant in this nascent industry. Crypto is famous for big dips and amazing epic comebacks.
This is not the first crypto winter, longtime fans of bitcoin can attest. There were also major corrections in 2018, early 2020 and summer 2021.
So, could cryptocurrency prices and stocks be bullish again in 2023? Some crypto bulls think so… but they believe investors should have more reasonable expectations.
“It’s very clear that as an industry we need to build better products,” said Hany Rashwan, CEO of 21.co, a crypto investment firm. “There was a lot of fluff in the past bull market. People were chasing enthusiasm.”
Still, Rashwan said he was a little surprised that the crypto carnage wasn’t even worse.
As bad as the recent selloff has been (bitcoin fell more than 15% in November alone), the price of bitcoin is still hovering around $17,000. That’s nearly three times where prices were at the depths of the crypto bear market in the early pandemic days of 2020.
“How do we still get close to $17,000? That says something. This shows that people are still using cryptocurrencies and trying to protect their assets. Trust has not been shaken to its core,” Rashwan said.
Others point out that the blockchain technology behind bitcoin and cryptocurrency remains strong.
“We will see some challenges for the near future. But we expect improvements in the end. This will be the catalyst. There will be increased institutional adoption,” said John Avery, head of strategy and product for cryptocurrency, Web3 and capital markets at FIS.
Avery said he expects to see more regulatory clarity for cryptocurrencies in 2023. This will ultimately be a good thing.
“There is always a need to balance innovation and investor protection,” he said. “Regulation doesn’t always solve all of these things. But this is important.”
Others point out that the rapid demise of FTX should also serve to strengthen the companies that survived this cryptocurrency crisis. Coinbase, in particular, could stand to gain over the long term, despite the stock’s current weakness.
“The rapid failure of FTX will require additional regulatory oversight and scrutiny of the sector, which we expect will translate into clearer guidelines for crypto market participants,” said Fadi Massih, vice president of the financial institutions group with Moody’s Investors Service. “This is likely to benefit Coinbase given its size and more entrenched position in the sector.”
But the cryptocurrency’s troubles should hopefully prove to investors once and for all that bitcoin is not (nor will it ever be) a substitute for the US dollar or other government-backed currencies. Cryptocurrencies are still a speculative asset. This is not a problem in itself. But investors just need to be aware of the risks.
“Cryptocurrencies are praised by some for their decentralized nature, ease of transactions and low transaction costs, but even the oldest cryptocurrency, bitcoin, continues to be more volatile than stocks and bonds, preventing it from being a reliable store of value,” he said. Private Wealth Chief Investment Officer Jason Pride and Glenmede’s Vice President of Investment Strategy Michael Reynolds in a report.
Pride and Reynolds added that it’s a mistake to think that bitcoin can hold up well during stock market volatility. Instead, this year has proven that cryptocurrency is not a good hedge, especially when tech stocks tank. As such, it also “severely limits its use as a portfolio diversifier.”
The chaos in cryptocurrency comes at a time when the broader stock market has made a truly stunning comeback. Investors welcome the prospect of a smaller rate hike from the Federal Reserve. As consumers and businesses continue to spend, they are hopeful that corporate profits will beat forecasts.
A number of key sectors, including AutoZone, will have some fairly high-profile companies reporting earnings next week.
(AZO)home builder Toll Brothers
(CPB)spirits manufacturer Brown-Forman
(COST) and Lululemon
But one market strategist worries that the fourth-quarter and 2023 results could disappoint Wall Street. A rate hike by the Fed could eventually affect demand.
“Earnings are starting to come down,” said Kevin Barry, chief investment officer at Summit Financial.
Barry pointed out that pockets of the market thought to be immune to economic pressures, especially from social media and technology, are cyclical after all. Facebook owner Meta platforms for example, this year has been a terrible stock. Cloud software leader Salesforce
(CRM) recently reported extraordinary leadership.
Monday: US ISM services index; China Caixin services PMI
Tuesday: Earnings from AutoZone, Signet
(GIS)Toll Brothers, Dave & Buster’s
(PLAY) and Stitch Fix
Wednesday: Chinese trade history; India rate decision; Bargains from Campbell Soup, Brown-Forman, Ollie’s Bargain Outlet
(OLLY) and GameStop
Thursday: US weekly jobless claims; Japan’s GDP earnings from Ciena
(HUNDRED)Costco, Broadcom, Chewy and Lululemon
Friday: US Producer Price Index; Chinese inflation; Consumer sentiment from Michigan, USA; revenues from Lee Auto
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