{"id":7127,"date":"2023-05-11T04:04:57","date_gmt":"2023-05-11T08:04:57","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/crypto-stocks-like-coinbase-keep-rising-whether-the-rally-can-last\/"},"modified":"2023-05-11T04:04:58","modified_gmt":"2023-05-11T08:04:58","slug":"crypto-stocks-like-coinbase-keep-rising-whether-the-rally-can-last","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=7127","title":{"rendered":"Crypto Stocks Like Coinbase Keep Rising. Whether the Rally Can Last."},"content":{"rendered":"
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<\/p>\n<\/figure><\/div>\n

Bitcoin might be one of the best-performing investments this year, but the prices of some of crypto companies put it to shame. Tread carefully\u2014Uncle Sam might soon crash the party.<\/p>\n

Bitcoin has risen about 65% in 2023 to $27,350. That\u2019s after the oldest cryptocurrency limped through 2022 as a series of scandals and bankruptcies sent the industry into a tailspin. Few had expected token prices to recover so quickly. Some analysts have attributed the recent run since March to the regional banking crisis, which token proponents say bolsters Bitcoin\u2019s case as an alternative to the traditional financial system.<\/p>\n

\n

But tokens\u2019 performance is nothing compared to that of some of the companies that do business in them. Crypto trading platform
\n Coinbase Global
\n (ticker: COIN) has skyrocketed 81% to $60.94 so far this year. Shares of Bitcoin miners
\n Marathon Digital Holdings
\n (MARA) and
\n Riot Blockchain
\n (RIOT) have risen 192% and 254% respectively. <\/p>\n

Even enterprise software company
\n MicroStrategy
\n (MSTR)\u2014whose CEO Michael Saylor stepped back from the top role during last year\u2019s crypto downturn\u2014has more than doubled this year to $310 per share, bolstered by the company\u2019s large holdings of Bitcoin.<\/p>\n

Investors counting on those gains to continue in the long-term should take heed. Crypto companies depend both on token prices continuing to rise and on their ability to keep making money from the market. Both of those pillars are under threat.<\/p>\n

On the token side, the recent gains have largely been driven by the same factors that have helped all risky assets: the prospect that interest rates are poised to pause or even start falling.<\/p>\n

Higher rates tend to hurt the returns of investments with the least prospect of near-term profits. By design, Bitcoin and other crypto tokens generally don\u2019t throw off income. Proponents say that Bitcoin will one day be widely used as a store of value\u2014and that other tokens will eventually have practical value as their blockchains become useful to the real world. But since those days still seem years away, higher rates have an outsize negative impact on returns, as they do on other higher-risk investments.<\/p>\n

So this year, the prospect that the Federal Reserve is nearing the end of its rate-hiking campaign was a huge boost to token prices. The problem now is that tailwind has likely passed. Investors have not only priced in a pause in rates, but expect the Fed will start cuts later this year. That\u2019s a risky bet, and if cuts aren\u2019t in the offing, token prices could turn on a dime.<\/p>\n

\u201cAny indication of further rate hikes could lead to crypto assets trading sideways to down until there\u2019s more clarity,\u201d said Compass Point Research & Trading analysts in a note last week.<\/p>\n

Crypto companies\u2019 second big problem extends beyond token prices themselves and into a regulatory sphere that is as negative on the industry as it has ever been.<\/p>\n

Even since the crash of FTX last year, \u201cthe tone in Washington changed from one where they were open to talking about crypto to one of \u2018We really want to stamp this out,’\u201d says Marathon Digital Holdings CEO Fred Thiel. \u201cWhile I\u2019m not a conspiracy theorist, there\u2019s definitely a concerted effort, coordinated or not, from different branches of government to put pressure on the industry.\u201d<\/p>\n

To wit, last week, the White House proposed a 30% tax on electricity used by crypto miners, a move the Biden administration said was needed to offset mining\u2019s environmental impact. Miners, for their part, say their practices encourage the development of sustainable energy sources and help power companies sell excess energy that would otherwise be wasted.<\/p>\n

For crypto platforms like Coinbase, the biggest threat is from the Securities and Exchange Commission, which in March sent the company a notice that it is likely to sue the firm for securities violations. While the firm said the agency\u2019s target wasn\u2019t completely clear, executives say they believe it is likely looking at what tokens it lists, as well as products it offers customers that generate yield. Coinbase has long denied that it offers securities on its platform.<\/p>\n

Coinbase executives on an earnings call last week noted that the smaller tokens and staking products that the SEC could be targeting represent a relatively small portion of the company\u2019s current profits. However, analysts who cover the stock have seen the yield business as one of the most promising areas of growth for the firm.<\/p>\n

\u201cWe continue to think retail crypto volumes will remain weak and the regulatory overhang will linger for some time,\u201d wrote BofA Global Research analysts in a note after the earnings report. The analysts rate the stock \u201cUnderperform.\u201d<\/p>\n

And while last year it seemed that there was growing support in Congress to pass legislation that might limit the SEC\u2019s powers, now crypto skeptics appear to have the upper hand and are cheering the crackdown.<\/p>\n

\u201cThe problem is not regulatory ambiguity, it is mass noncompliance,\u201d said Rep. Stephen Lynch (D., Mass.) at a hearing on Wednesday.<\/p>\n

That isn\u2019t a good sign that crypto firms will get Congressional protection from enforcement agencies\u2014and certainly not a good environment for their profits while the scrutiny persists.<\/p>\n

Whether it\u2019s through a rude awakening from the Fed on token prices or an assault by the SEC on firms\u2019 profit centers, the risks for crypto stock investors abound.<\/p>\n

Write to Joe Light at joe.light@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Bitcoin might be one of the best-performing investments this year, but the prices of some of crypto companies put it to shame. Tread carefully\u2014Uncle Sam might soon crash the party. Bitcoin has risen about 65% in 2023 to $27,350. That\u2019s after the oldest cryptocurrency limped through 2022 as a series of scandals and bankruptcies sent […]<\/p>\n","protected":false},"author":1,"featured_media":7128,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-7127","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nCrypto Stocks Like Coinbase Keep Rising. 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