Crypto Stocks Perform Worse Than Cryptocurrencies
Coinbase is off 42% so far this year as trading volume sinks; Silvergate Capital, Marathon Digital and Riot Blockchain are down sharply as well
The picks and shovels of the cryptocurrency world have been a worse bet lately than cryptocurrencies themselves.
The cryptocurrency market has been in selloff mode recently even as hundreds of millions of people now trade bitcoin, ether and other digital assets. Bitcoin is down 12% this year. Ether is down 19%. The entire crypto market has fallen about 19%, though prices are off their year lows, according to data from CoinMarketCap.
Stocks of publicly traded, crypto-focused companies, however, are doing worse, falling as much as 60% so far this year, according to FactSet.
The largest U.S. exchange, Coinbase COIN +3.78% Global Inc., is down 42% year to date. Silvergate Capital Corp. SI +13.40% is down 22%. Marathon Digital MARA +4.16% Holdings Inc. is down 36%. Riot Blockchain Inc. RIOT +1.56% is down 34%. Easton, Md.-based miner TeraWulf Inc. WULF +3.68% is down 60%.
The combined market capitalization of crypto companies that trade publicly has fallen to roughly $60 billion from $100 billion in November, when bitcoin rose to a record, according to JPMorgan analysts. More than half that slide—roughly $20 billion—came from Coinbase alone.
On Monday, Coinbase closed at $145.16, the lowest price since its public debut in April 2021.
The divergence between cryptocurrencies and cryptocurrency companies shouldn’t be a surprise, said Nicholas Colas, co-founder of research firm DataTrek. There is always some difference between the value of an asset and the companies that build businesses around that asset, he said.
Bitcoin and its peers, Mr. Colas said, are driven by consumer interest and usage, but companies such as Coinbase, Silvergate and Marathon derive their value from how well they sell their products to customers
The same dynamic can be seen in the oil and gold markets, as well as for other commodities.
For Coinbase, whose $32 billion market cap makes it the largest U.S. crypto company, the overriding issue is simply that trading volume has fallen sharply. For the top 10 exchanges, trading volume declined 40% from the fourth quarter to the first, according to research firm CoinGecko.
Coinbase derives substantially all of its revenue from transaction fees. Coinbase was averaging about $4 billion in trading volume a day in January, according to data from analytics firm Nomics. So far in April, it has averaged $2.6 billion a day.
Additionally, Coinbase said it planned to invest heavily in the business in 2022 and that could push the company into a loss if trading continued to fall.
Analysts slashed their estimates of Coinbase’s first-quarter earnings per share from $1.89 in November to 2 cents in April, according to analysts on FactSet.
Crypto stocks have also been swept up in the fintech selloff that began in the fall and have decoupled to an extent from the underlying crypto market, said BTIG analyst Mark Palmer.
Technology stocks have been slumping since the Federal Reserve and other central banks signaled a rise in interest rates. The higher rates make riskier investments relatively less attractive. Affirm Holdings Inc. is down 65% this year, while PayPal Holdings Inc. and Lemonade Inc. are each down 47%.
The stock prices of crypto mining companies—the companies that actually process crypto transactions and keep the networks alive—tend to be volatile because their shareholder base is mostly individual investors, said D.A. Davidson analyst Chris Brendler.
“Miners are a different animal in a lot of ways,” he said.
Miners do nothing but run hardware that processes crypto transactions, mostly bitcoin. The category doesn’t attract a lot of institutional investment. The fewer number of long-term holders tends to lead to a boom-and-bust trade, he said.
Mining hardware is expensive and must run 24 hours a day, seven days a week. Investors are concerned about how they will finance new equipment purchases with stock prices down and lower crypto prices cutting into mining profitability, Mr. Brendler said.
Emerging markets risk financial distress as rates begin to rise, IMF warns
Heavy borrowing in dollars and euros, coupled with surge in food and energy prices, hits public finances
Surging inflation and sharply higher borrowing costs in the US and Europe threaten to push indebted emerging market and developing economies into further financial distress, a top IMF official has warned.
Almost a quarter of emerging market countries that have issued “hard currency” debt have bonds now trading in distressed territory, with spreads more than 1,000 basis points above US Treasuries, according to the multilateral lender.
Borrowers around the world have taken advantage of aggressive monetary easing by the Federal Reserve and the European Central Bank and issued dollar- and euro-denominated debt at ultra-low rates. But borrowing has become more expensive as central banks seek to tackle price pressures with tighter monetary policy.
Tobias Adrian, who heads the fund’s monetary and capital markets department, suggested levels of distress were at risk of rising further if central banks in advanced economies moved too abruptly or aggressively to unwind the monetary policy stimulus injected at the onset of the pandemic.
“There are certainly many countries that are either already in distress or will potentially be in distress in the near future,” he said in an interview with the Financial Times. The IMF on Tuesday cut its forecast for growth in emerging markets and developing economies to 3.8 per cent this year — down one percentage point from its January estimate.
“At some point, some major emerging market could also come into distress and the picture could change . . . That is not in our baseline right now, but it depends on how adverse the evolution of financial sector shocks is going to be,” Adrian added, noting that the amount of debt at risk is not “systemic in nature at this point”.
Countries that were particularly vulnerable included commodity and food importers such as Egypt and Bhutan, he said. Tunisia and Sri Lanka have also run into trouble, with the latter defaulting on its debts this month.
In its twice-yearly Global Financial Stability Report, published on Tuesday, the IMF said central banks in advanced economies were walking a narrow “tightrope” as they attempted to tame the highest inflation in roughly four decades against the backdrop of mounting geopolitical tensions, weakening global growth and whipsawing financial markets.
Traders now expect the federal funds rate to jump to 2.5 per cent by the end of the year from its current level of between 0.25 and 0.50 per cent. The ECB is also expected to lift rates for the first time in more than a decade later this year.
The Fed’s attempts to combat price pressures could hit emerging markets laden with foreign currency debt, the IMF warned on Tuesday.
The fund said: “A disorderly tightening of global financial conditions would be particularly challenging for countries with high financial vulnerabilities, unresolved pandemic-related challenges and significant external financing needs.”
Debt levels across emerging market economies have risen sharply in recent years, with the total amount outstanding jumping to nearly $100tn at the end of 2021 from less than $65tn roughly five years ago, according to the Institute of International Finance.
Global financial conditions have already tightened in recent months as inflationary pressures have become more acute following Russia’s invasion of Ukraine.
Adrian said the shift towards less accommodative monetary policy had been smooth, but warned the Fed and other central banks would have to proceed carefully and communicate clearly to ensure that remained the case.
“Right now, monetary policy in the vast majority of countries is being tightened and so this is exacerbating downward movements in sovereign debt.”
In addition to raising rates, the Fed will shrink its $9tn balance sheet by halting reinvestments of the proceeds from maturing Treasuries and agency mortgage-backed securities it holds. Should its actions roil markets and lead to a destabilising sell-off, Adrian said he expected the US central bank to moderate the pace at which it allowed its holdings of securities to shrink.
The shift in central bank policy — coupled with the fallout from the Ukraine war and sanctions imposed by the US and its allies on Russia — has also dented market liquidity, leading to larger price swings. The IMF on Tuesday warned that there were “some signs” that the uptick in volatility could be weighing on the ability of banks to lend and trade.
The fund pointed to the chaos in commodity markets that led to an eight-day suspension of trading in nickel on the London Metal Exchange this year. JPMorgan Chase disclosed a $120mn loss tied to the trade last week.
Huge swings in commodity prices have triggered big margin calls on short positions. Those margin calls were, the fund said, “testing the resilience of corners of global financial markets that were little known by the broader public only a few weeks ago”.
Rolls-Royce/nuclear power: mini-nukes could close the generation gap
Fans of small modular reactors say they are cheap and quick to build, but they also come with challenges
Nuclear power enthusiasts are thinking big about going small. Engineering groups worldwide are developing 70 different types of small, modular nuclear reactors (SMRs). Rolls-Royce expects its mini-nuke design to receive regulatory approval by mid-2024. Its plants could be producing grid power as early as 2029.
Soaring energy costs, a renewed emphasis on energy security and the shift to net zero should benefit businesses specialising in SMRs. Advocates say the plants will be cheap and quick to build. Parts would be mass-produced in factories to cut costs, before being quickly assembled on site.
Compatibility with renewables is another selling point of SMRs. At times of plentiful wind or solar electricity, their energy would be used to make hydrogen or synthetic aviation fuel.
Rolls-Royce expects shorter lead times will help keep costs below one-twelfth of the £23bn bill for the Hinkley Point C reactor under construction in Somerset. Estimates suggest the mega project should come on stream in 2026.
Rolls-Royce, a jet engine maker hurt by pandemic lockdowns, badly needs to generate some good news. It owns 80 per cent of its SMR special purpose vehicle. It has invested £280mn in collaboration with BNF Resources UK Limited, Constellation (formerly Exelon Generation) and the Qatar Investment Authority. The UK government has put in £210mn.
SMRs have much to prove. The first plants would spring up on existing nuclear sites. Getting public approval for greenfield developments would be harder. There would be engineering challenges too. Analysts foresee a high risk the first reactors would be well over budget.
Champions of SMRs such as Rolls-Royce need to demonstrate big savings to counterbalance the diseconomies of scale of the small plants. The reason why big nuclear plants have been favoured until now is that building costs do not expand in proportion to power output.
Savings would need to come in part from a few developers making most of the world’s SMRs. So only a few of the 70-odd contenders can ultimately succeed. To make that cut, Rolls-Royce must prove its SMR is a world-beater.
Russia plans to sue over frozen currency reserves, central bank says
Western sanctions have cut off Moscow from nearly half of its foreign exchange holdings
Russia plans to take legal steps to recover $300bn of its foreign currency reserves frozen by western governments in a bid to overturn one of the most painful measures imposed on Moscow in response to its invasion of Ukraine.
The pledge to mount a legal challenge against the measure was announced by the head of Russia’s central bank without any details or timeframe.
“Of course, this is an unprecedented freeze, so we will be preparing lawsuits, and we are preparing to apply them, as this is unprecedented on a global scale,” Elvira Nabiullina was quoted as saying by Interfax on Tuesday.
Two days after Russia began its invasion of Ukraine in late February, G7 countries and the European Commission announced they would impose sanctions on Russia’s central bank to block it from accessing its foreign exchange holdings.
The central bank is unable to access nearly half of its $609.4bn in reserves to support the rouble, which fell sharply after the invasion. This has forced Russia to impose capital controls and instruct exporters to convert their foreign revenues into roubles.
A central bank official declined to say which jurisdictions Russia was planning to sue in or what grounds it would claim for the legal action.
Russia has also threatened legal action if the sanctions force it to default on its sovereign debt. It missed two payments on dollar-denominated debt when US authorities refused to let American banks process them.
There have been few examples of successful efforts by individuals or governments to overturn western economic sanctions.
The UK Supreme Court last year blocked a bid by Venezuela to release gold reserves frozen by the Bank of England, while the US has rejected a lawsuit by Russian oligarch Oleg Deripaska to have personal sanctions against him lifted.
While some individuals have challenged EU sanctions that affect them personally, no EU sectoral sanctions imposed on Russia since the 2014 annexation of Crimea have been overturned by a legal challenge.
“The European sanctions are based on a very clear legal framework and part of the EU sanctions mechanism is the ability for all those who have been sanctioned to appeal the sanctions decision at the European Court. There is a perfect legal pathway to be explored,” said Peter Stano, a spokesperson for the European Commission.
“What the Russian authorities, what the Russian institutions will do is fully in their hands,” he added. “The reason for us to impose the sanctions are very clear, they are based on a clear legal framework, and the reasons are the illegal aggression against Ukraine and its people.”
Robinhood to acquire UK crypto group Ziglu
Acquisition by US retail brokerage comes almost 2 years after it abandoned a plan to expand into Britain
Robinhood has agreed to buy UK crypto company Ziglu, as the US retail brokerage steps up its expansion beyond share trading and makes a second attempt to push into Britain.
The Californian company said on Tuesday that London-based Ziglu’s “impressive team of deeply experienced financial services and crypto experts [will help] accelerate our global expansion efforts”.
Ziglu, founded in 2014 by entrepreneur Mark Hipperson who helped establish UK digital lender Starling Bank, allows retail investors to buy cryptocurrencies. Robinhood did not say how much it was paying for Ziglu.
The group, which was valued at £85mn last November when it raised £7mn, said its customer base grew fourfold last year as investor enthusiasm for crypto exploded and the sector attracted more investment from mainstream financial companies.
The acquisition by Robinhood comes just over two months after the brokerage warned that the pandemic-driven retail trading boom was cooling. Shares in Robinhood have fallen more than 30 per cent this year.
The Ziglu purchase also hands Robinhood one of the few crypto groups to have won approval from the UK’s financial regulator.
The Financial Conduct Authority’s registration regime, which focuses on an applicant’s money laundering controls and has been plagued by delays, has given the green light to just 33 of the more than 100 crypto companies that have applied since early last year. The regulator has put new applications on hold while it deals with the backlog.
Ziglu is the third UK crypto company with FCA approval to draw the interest of a potential buyer this year. In February, Austrian exchange Bitpanda bought Trustology. The following month, Binance announced a partnership with exchange Eqonex, which owns an FCA-registered unit, in a deal the companies said could lead to a tie-up.
The UK regulator has said that while it does not have the authority to investigate any change in ownership of registered crypto businesses before a deal is completed, it can “take steps to suspend or cancel the registration of a cryptoasset business if it is not satisfied the firm or its beneficial owner is fit and proper” following a transaction.
Robinhood said it eventually planned to integrate Ziglu and expand its operations into Europe. The deal is the first time the US brokerage has targeted the UK since it abandoned a plan to expand into the market in July 2020.
The UK government earlier this month laid out plans to become a “global hub” for crypto as competition among countries to grab a share of the fast-growing but controversial industry intensifies.
3 Factors Which Are About To Make The Coming Food Shortages Even Worse
A confluence of circumstances has come together to create a “perfect storm” for global food production, and now that “perfect storm” is about to get even worse. For months I warned that this crisis was coming, and in recent weeks I have been documenting how dire conditions have already become all over the globe. The head of the UN World Food Program is warning that this is going to be the worst worldwide food crisis since World War II, and even Joe Biden is admitting that the approaching food shortages “are going to be real”. Unfortunately, there have been some new developments which threaten to significantly escalate things.
In recent days, the number of newly confirmed COVID cases in China has soared to record highs, and Chinese authorities have responded to this with unprecedented lockdowns.
As a result, almost 400 million Chinese are now “under full or partial lockdown”…
Nearly 400 million people across 45 cities in China are under full or partial lockdown as part of China’s strict zero-Covid policy. Together they represent 40%, or $7.2 trillion, of annual gross domestic product for the world’s second-largest economy, according to data from Nomura Holdings.Analysts are ringing warning bells, but say investors aren’t properly assessing how serious the global economic fallout might be from these prolonged isolation orders.
Chinese lockdowns are a lot more brutal than lockdowns in the western world.
By now, you have probably seen video footage of Shanghai residents literally screaming from their apartment windows.
I have never seen anything like that before, and these lockdowns will continue as long as COVID keeps spreading.
To put this in perspective, the number of people that are currently locked down in China is greater than the total population of the United States.
Needless to say, these lockdowns are bringing the Chinese economy to a grinding halt, and that is going to affect the entire planet. At the Port of Shanghai, activity “is essentially at a standstill”…
The Port of Shanghai, which handled over 20% of Chinese freight traffic in 2021, is essentially at a standstill. Food supplies stuck in shipping containers without access to refrigeration are rotting.
This is an enormous problem for those of us in the western world, because our stores are normally filled with goods that have been made in China.
And this even extends to our food supply. For example, we send giant mountains of apples to China where they are processed and sent back to us as apple juice.
We need to hope that the lockdowns in China end soon, because if that does not happen it will likely create tremendous shortages all over the planet.
Meanwhile, the fertilizer crisis in the United States is about to get even worse.
Previously, I have written about how the skyrocketing cost of fertilizer is going to cause massive problems for many U.S. farmers, and now many of those farmers may not be able to get the fertilizer that they need at all due to “railroad-mandated shipping reductions”. The following comes directly from a notice released by CF Industries…
CF Industries Holdings, Inc. (NYSE: CF), a leading global manufacturer of hydrogen and nitrogen products, today informed customers it serves by Union Pacific rail lines that railroad-mandated shipping reductions would result in nitrogen fertilizer shipment delays during the spring application season and that it would be unable to accept new rail sales involving Union Pacific for the foreseeable future. The Company understands that it is one of only 30 companies to face these restrictions.CF Industries ships to customers via Union Pacific rail lines primarily from its Donaldsonville Complex in Louisiana and its Port Neal Complex in Iowa. The rail lines serve key agricultural areas such as Iowa, Illinois, Kansas, Nebraska, Texas and California. Products that will be affected include nitrogen fertilizers such as urea and urea ammonium nitrate (UAN) as well as diesel exhaust fluid (DEF), an emissions control product required for diesel trucks. CF Industries is the largest producer of urea, UAN and DEF in North America, and its Donaldsonville Complex is the largest single production facility for the products in North America.
I was astounded to hear that 30 different companies will be affected by these reductions.
Someone at Union Pacific needs to give us some straight answers about what is really going on, because the CEO of CF Industries says that this change “could not come at a worse time for farmers”…
“The timing of this action by Union Pacific could not come at a worse time for farmers,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “Not only will fertilizer be delayed by these shipping restrictions, but additional fertilizer needed to complete spring applications may be unable to reach farmers at all. By placing this arbitrary restriction on just a handful of shippers, Union Pacific is jeopardizing farmers’ harvests and increasing the cost of food for consumers.”
Of course this comes in the aftermath of a disastrous winter wheat harvest in the United States, and the winter wheat harvest over in China is being called the worst in history.
So we desperately need a really good growing season in the months ahead, and now that is being jeopardized by more supply chain issues.
At the same time, the new bird flu pandemic in the U.S. just continues to intensify.
On Friday, we learned that Idaho has become the 27th U.S. state to have confirmed cases at a commercial facility…
On Friday, the U.S. Department of Agriculture announced yet another outbreak, this one in two flocks in Idaho, making that the 27th state in which the virus has been found since February.According to the USDA, the price of a dozen eggs in November hovered around $1. Right now, that price is $2.95 and rising.
The cost of eggs has already gone completely nuts, and it is only going to go higher.
If you don’t eat eggs or anything that contains eggs, then this will not affect you.
Unfortunately, the vast majority of us will be affected by this, and we are being warned that this pandemic could get a lot worse in the months ahead.
Of course the cost of chicken meat and the cost of turkey meat will both continue to soar as well. In fact, one of my readers just wrote to let me know that the price of chicken breasts at his local store shot up 43 percent…
I thought I would give you a quick update on Inflation/Food Shortages.I just got back from The Dollar General Store in Holden, MO. I was going to buy some Tyson Chicken Breasts to stock up for the future. They went from $6.95 to $9.95. That’s a 43% jump in price!!! There was plenty of them (6 packages) but I just felt like I couldn’t afford them so I didn’t buy any.Michael have you heard anything about shortages of Crackers??? I had to wait 4 months for a certain type of Cracker to get restocked in The Dollar General Store. I also have been having a lot of trouble getting Saltine Crackers at our local Grocery Store. 2 weeks ago they finally had 1(!!!) box of the type I buy and I grabbed it up immediately. This week none again. Not sure what the problem is.Gas here is $3.49. Diesel Fuel is $4.69. I feel sorry for the guys that have these big Diesel Pickups with 40 gallon fuel tanks. I have been combining shopping and errands in 1 trip plus letting my Pickup set in the driveway to conserve Gas.
A lot of the factors that are contributing to this growing global food crisis are outside of our control.
But if we could at least bring a halt to the shooting in Ukraine, that would give us a ray of hope.
Unfortunately, negotiations have totally broken down, and U.S. Secretary of State Antony Blinken just told CNN that the war could continue through the end of the year…
Secretary of State Antony Blinken told Washington’s European allies that the US believes the war in Ukraine could last through the end of 2022, CNN reported Friday, citing two European officials.The report said that many Western officials have assessed there’s no short-term end in sight for the war, and public comments from US officials have reflected this. National Security Advisor Jake Sullivan has warned of a “protracted conflict” that he said could go on “for months or even longer.”
Ukraine and Russia usually account for approximately 30 percent of all global wheat exports, and so we desperately need that war to end.
Sadly, that isn’t going to happen.
These days, it seems as though almost everything that can go wrong for global food production is going wrong, and the stage is being set for the sort of horrific global famine that I have been relentlessly warning about.
Our leaders may be able to print money, but they can’t print food.
If you are waiting for them to wave their magic wands and conjure up a perfect solution to this crisis then I am afraid that you are going to be bitterly, bitterly disappointed
Gapping down
In reaction to earnings/guidance:
- NTGR -11.9%, HAL -2.9%, LMT -2.9%, PNFP -1.3%, ELS -0.8%, FNB -0.7%, JNJ -0.4%
Other news:
- ACAD -7.6% (provided top-line results for Phase 2 study of ACP-044)
- ACHR -2.8% (named Adam Goldstein as sole CEO)
- RVP -1.7% (terminated buyback plan)
Analyst comments:
- FOUR -4.5% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
- NXPI -2.4% (downgraded to Neutral from Buy at Citigroup)
- EMN -1.5% (downgraded to Neutral from Buy at BofA Securities)
- EA -1.4% (downgraded to Neutral from Buy at Goldman)