Crypto stocks show why they are among the riskiest venture assets

(Bloomberg) – Crypto-curious equity investors take little reassurance from the rebound in stocks of companies tied to the world of digital assets over the past week, with the sector underperforming just about every other risky corner of the markets financiers this year by a wide margin.

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Coinbase Global Inc., touted as one of the best ways to gain exposure to crypto last year when it first listed on the Nasdaq, has fallen 75% since December. MicroStategy Inc. is down 62%, or more, than Bitcoin, which the software company has been seen as a proxy for since chief executive Michael Saylor loaded its balance sheet with the coins. Digital token mining leaders Marathon Digital Holdings Inc. and Riot Blockchain Inc. are down similar amounts, while smaller rivals such as Stronghold Digital Mining Inc. have plunged even further.

As the second quarter draws to a close, cryptocurrency-related stocks are lumped in with digital tokens as one of the riskiest asset classes in the world. The NYSE FactSet Global Blockchain Technologies Index has fallen 65% this year, underperforming not only Bitcoin, but also an index that tracks highly volatile so-called meme stocks as well as a special purpose acquisition vehicle name gauge. .

Crypto stocks are “essentially a leveraged bet on one of the riskiest risk assets around,” said Steve Sosnick, chief strategist at Interactive Brokers LLC. He added that there were only a few other bets that he considered higher risk for investors, including some memes and penny stocks.

While Bitcoin’s outsized drawdowns aren’t new in its roughly 12-year history, the most recent selloff has been particularly brutal given the scale of the losses seen across the cryptocurrency industry. cryptography. In less than six months, the crypto market has seen over $1 trillion in value wiped out, with an index of the 100 largest digital assets down around 59% and on track for its worst year since previous bear market of 2018.

The crypto name sell-off, which began in early November after Bitcoin hit an all-time high of nearly $69,000, accelerated this year as investors around the world began to shy away from asset classes riskier amid fears that a batch of aggressive rate hikes by the federal government’s reserve aimed at cooling inflation would push the US economy into a recession. The implosion of the Terra/Luna ecosystem in May, which sparked a series of sell-offs in the industry and sparked a wave of panic selling, further compounded the pain for investors.

Despite the risks and deeply depressed stock prices, Wall Street analysts remained largely bullish on the vast majority of crypto-exposed stocks.

Coinbase, which has lost more than $60 billion in value since hitting a record high in November, currently has 20 buy recommendations, according to data compiled by Bloomberg. That’s exactly the same number it had in early January, when the stock was worth more than triple its current value.

“While we don’t dismiss the impact of the current crypto market downturn in the least, we also believe that any notion that Coinbase would be unable to survive this latest challenge is misguided in light of the facts on the ground,” according to BTIG analyst Mark. Palmer who this week cut his price target on the stock to $290 from a high of $380. It closed Friday at $62.71, having rebounded 22% this week.

Other crypto stocks have seen similar bullish dedication from the analyst community. Bitcoin miners Riot Blockchain and Marathon Digital each have at least 75% buy matches and 12-month average price targets that are around 379% and 293% above their current prices, respectively.

They are not alone either. Among the 33 stocks that make up the NYSE FactSet Global Blockchain Technologies Index, the average return projected over the next year is nearly 200%, more than five times the average of the Nasdaq 100 index.

Admittedly, the broadly positive long-term outlook for the cryptocurrency market is not without its caveats.

“We remain skeptical that crypto prices are completely out of the woods,” said Compass Point analyst Chris Allen. “We could see more downside coming given the uncertainty of Celsius/3AC’s insolvency situation and the likely resultant pending asset sales.”

A particularly troubling sign for investors looking to buy the drop in crypto stocks, despite some names already historically deep selling, stocks like Voyager Digital Ltd. have proven that there is always room to fall more.

Shares of the cryptocurrency brokerage fell 53% on Wednesday, the most since 2001, after announcing it may issue a notice of default to hedge fund Three Arrows Capital Ltd. for its failure to repay a loan worth approximately $660 million. Prior to this plunge, the stock had already lost around 90% of its value this year.

“Given the size of the exposure and the uncertainty of whether Voyager will collect on any of these balances, we believe it is difficult to arrive at a reasonable estimate of the equity value of Traveling by action,” KBW analyst Kyle Voigt wrote in a note. after withdrawing its outperformance rating on the title.

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