A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber ? You can register here.
The collapse of FTX has sent the price of bitcoin and other cryptocurrencies plummeting by more than 60% this year…and the carnage has spread to publicly traded companies with exposure to digital assets.
Shares of Coinbase, owner of Square Block (SQ), leading bitcoin miners Hive (HVBTF) and Riot (RIOT), crypto bank Silvergate (SI) and software company MicroStrategy (MSTR), led by crypto evangelist Michael Saylor, all fell in the past month.
But is the worst almost over? After all, volatility is a constant in this still nascent industry. The crypto is known for its big dips and incredibly epic comebacks.
This isn’t the first crypto winter, as longtime bitcoin fans can attest. There were massive corrections in 2018, early 2020 and summer 2021 as well.
So could crypto prices and stocks rebound in 2023? Some crypto bulls think so…but they think investors need to have more reasonable expectations.
“It’s very clear that we as an industry need to create better products,” said Hany Rashwan, CEO of 21.co, a crypto investment firm. “There was a lot of fluff in the last bull market. People were looking for exuberance.
Still, Rashwan said he was a bit surprised the crypto carnage hadn’t been even worse.
As bad as the recent selloff has been (bitcoin plunged more than 15% in November alone), the price of bitcoin is still hovering around $17,000. This is about triple where prices were at the deepest point of the crypto bear market at the start of the 2020 pandemic.
“How do we approach $17,000 again? That says something. This indicates that people are still using cryptos and trying to protect their assets. Confidence has not been deeply shaken,” Rashwan said.
Others point out that the underlying blockchain technology behind bitcoin and crypto remains strong.
“We are going to see challenges for the foreseeable future. But we expect improvements down the line. It will be a catalyst. There will be increasing institutional adoption,” said John Avery, Head of Strategy and Products for Crypto, Web3 and Capital Markets at FIS.
Avery said he also expects to see more regulatory clarity for cryptos in 2023. That will ultimately be a good thing.
“There’s always this need to balance innovation and investor protection,” he said. “Regulation doesn’t always solve all of this. But it is important. »
Others point out that the rapid demise of FTX should also serve to bolster companies that survive this crypto meltdown. Coinbase in particular could end up benefiting from this in the long run, even though the title is currently struggling.
“FTX’s early failure will invite regulatory oversight and industry scrutiny, which we believe will ultimately result in clearer guidelines for crypto market participants,” said Fadi Massih, Vice-President. President of the Financial Institutions Group at Moody’s Investors Service. “This would likely benefit Coinbase, given its size and more established position in the industry.”
But the crypto troubles should hopefully prove to investors once and for all that bitcoin is not (and probably never will be) a replacement for the US dollar or other government-backed currencies. Cryptos are always a speculative asset. This is not a problem in itself. But investors just need to know the risks.
“Cryptocurrencies have been hailed by some for their decentralized nature, ease of transaction and low transaction costs, but even bitcoin, the oldest cryptocurrency, continues to be more volatile than stocks and bonds. , preventing it from being a viable store of value,” Jason Pride, chief investment officer of private wealth and Michael Reynolds, vice president of investment strategy at Glenmede, said in a report.
Pride and Reynolds added that it is wrong to think that bitcoin can weather stock market volatility well. Instead, this year has proven that crypto is no good hedge, especially when tech stocks are crashing. This therefore also considerably limits its use as a portfolio diversifier.
The chaos on crypto comes at a time when the broader stock market has actually seen a stunning comeback. Investors cheered the prospect of lower interest rate hikes from the Federal Reserve. They also expressed hope that corporate earnings will beat forecasts as consumers and businesses continue to spend.
There will be a number of high-profile companies reporting earnings over the coming week in various key sectors including AutoZone (AZO), homebuilder Toll Brothers (TOL), Campbell Soup (CPB), alcoholic beverage maker Brown-Forman (BFB), GameStop (GME), Chewy (CHWY), Broadcom (AVGO), Costco (COST) and Lululemon (LULU).
But a market strategist fears the fourth quarter and 2023 results could disappoint Wall Street. Fed rate hikes could potentially weigh on demand.
“The earnings shoe is starting to drop,” said Kevin Barry, chief investment officer at Summit Financial.
Barry noted that pockets of the market that were thought to be immune to economic pressures, including social media and technology, are turning out to be cyclical after all. Facebook owner Meta Platforms has been a terrible stock this year, for example. And cloud software leader Salesforce (CRM) recently reported disappointing advice.
Monday: US ISM services index; China Caixin PMI Services
Tuesday: Earnings from AutoZone, Signet (SIG), Toll Brothers, Dave & Buster’s (PLAY) and Stitch Fix (SFIX)
Wednesday: China trade data; tariff decision in India; revenue from Campbell Soup, Brown-Forman, Ollie’s Bargain Outlet (OLLI), and GameStop
Thursday: weekly jobless claims in the United States; Japanese GDP revenue from Ciena (CIEN), Costco, Broadcom, Chewy and Lululemon
Friday: producer price index in the United States; inflation in China; consumer sentiment in the U. from Michigan to the United States; Li Auto’s revenue
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