A version of this story first appeared in CNN Business’s Before the Bell newsletter. Not a subscriber? you can register right here.
the FTX Fusion it has driven the price of bitcoin and other cryptocurrencies down more than 60% this year… and the carnage has spread to publicly traded companies with exposure to digital assets.
Actions of coin baseSquare owner block
(SQ)best bitcoin hive miners
(HVBTF) and riot
(RIOT)silvergate crypto bank
(YES) and MicroStrategy company software
(MSTR)led by crypto evangelist michael saylorThey have plummeted in the last month.
But is the worst yet to end? After all, volatility has been a constant in this still-fledgling industry. Crypto is known for huge crashes and incredibly epic comebacks.
this is not the first crypto winter, as long-time bitcoin fans can attest. There were massive fixes in 2018, the early part of 2020, and the summer of 2021 as well.
So could cryptocurrency and stock prices rebound in 2023? Some crypto bulls think so… but believe investors should have more reasonable expectations.
“It’s very clear that we as an industry need to create better products,” said Hany Rashwan, chief executive of 21.co, a cryptocurrency investment firm. “There has been a lot of fluff in the past bull market. People were chasing exuberance.”
Still, Rashwan said he’s a bit surprised the crypto carnage hasn’t been even worse.
As bad as the recent sell-off has been (bitcoin plunged more than 15% in November alone), the bitcoin price is still around $17,000. That is roughly triple where prices were during the depths of the crypto bear market in the early days of the 2020 pandemic.
“How are we getting closer to $17,000? That says something. It is indicative that people are still using crypto and trying to safeguard assets. Trust has not been shaken to the core,” Rashwan said.
Others point out that the underlying blockchain technology behind bitcoin and crypto remains strong.
“We are going to see some challenges for the foreseeable future. But we expect improvements. This will be a catalyst. There will be increasing institutional adoption,” said John Avery, strategy and product lead for crypto, Web3 and capital markets at FIS.
Avery said that he also hopes to see more regulatory clarity for cryptocurrencies in 2023. That will ultimately be a good thing.
“There is always the 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 strengthen companies that survive this crypto crash. Coinbase, in particular, could end up benefiting in the long run, even though stocks are currently taking a beating.
“FTX’s rapid failure will invite increased regulatory oversight and scrutiny of the sector, which we hope will ultimately translate into clearer guidance for crypto market participants,” said Fadi Massih, vice president, financial institutions group at Moody’s Investors Service. . “This would likely benefit Coinbase, given its size and more established position in the industry.”
But hopefully the problems with cryptocurrency will prove once and for all to investors that Bitcoin is not (and probably never will be) a replacement for the US dollar or other government-backed currencies. Cryptocurrencies remain a speculative asset. That’s not a problem per se. But investors just have to know the risks.
Some have praised cryptocurrencies for their decentralized nature, ease of transaction, and low transaction costs, but even Bitcoin, the oldest cryptocurrency, remains more volatile than stocks and bonds, preventing it from being a viable store of value. “, said. Jason Pride, chief investment officer of private equity and Michael Reynolds, vice president of investment strategy at Glenmede, in a report.
Pride and Reynolds added that it is a misconception that Bitcoin can hold up well during stock market volatility. Instead, this year has shown that cryptocurrencies are not a good hedge, especially when tech stocks stall. So that also “greatly limits its use as a portfolio diversifier.”
The cryptocurrency chaos comes at a time when the broader stock market has enjoyed a surprising comeback. Investors have been rooting for the prospect of smaller interest rate hikes from the Federal Reserve. They have also expressed hope that corporate profits will beat forecasts as consumers and businesses continue to spend.
There will be a fair number of high-profile companies reporting earnings next week in a variety of key sectors, including AutoZone
(AZO)home builder Toll Brothers
(CPB)alcoholic beverage manufacturer Brown-Forman
(COST) and Lululemon
But one market strategist worries that fourth-quarter and 2023 results could disappoint Wall Street. Fed rate hikes may eventually affect demand.
“The earnings shoe is starting to fall,” said Kevin Barry, chief investment officer at Summit Financial.
Barry noted that market sectors that were thought to be immune to economic pressures, particularly social media and technology, are proving to be cyclical after all. facebook owner metaplatforms It has been a terrible action this year, for example. And the cloud software leader, Salesforce
(CRM) recently reported disappointing orientation.
Monday: US ISM Services Index; China Caixin Services PMI
Tuesday: AutoZone, Signet earnings
(NEXT)Toll Brothers, Dave & Buster’s
(PLAY) and fix the stitch
Wednesday: China trade data; India rate decision; profits from Campbell Soup, Brown-Forman, Ollie’s Bargain Outlet
(OLLI) and GameStop
Thursday: weekly US unemployment claims; Ciena Japan GDP revenue
(ONE HUNDRED)Costco, Broadcom, Chewy, and Lululemon
Friday: US Producer Price Index; Chinese inflation; US Michigan Consumer Sentiment; earnings from LiAuto
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