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Bitcoin fell 10% in 24 hours.
Dream time
A bearish market in Bitcoin may be forming, potentially contributing to the liquidation of some bullish stocks – if not the broader market.
Tesla
(ticker:
Tesla
),
PayPal Holdings
(PYPL), and
Square
(
Square
), to name just a few, are trading in a closer correlation with the digital currency. Tesla recently bought $ 1.5 billion in digital currency and said it plans to accept it as a payment method, increasing the stock of its shares.
High-growth stocks are under pressure due to fears of rising interest rates and bond yields, which reduce the present value of future cash flows. Tesla and online payment stocks are also crowded businesses, making them vulnerable to a sale.
PayPal Holdings
and Square are becoming digital currency brokers, allowing consumers to buy and store Bitcoin in their apps, with the goal of eventually allowing people to use them to make purchases.
Shares fell with Bitcoin in a free fall. The digital currency was recently trading at around $ 47,300, down 10% in the past 24 hours and 18% below the $ 58,000 high on February 21, according to CoinDesk.
Falling Bitcoin prices may be helping to drag down the broader
Nasdaq Compound
Index, which fell 2.5% on Monday and 2.2% on Tuesday.
Bitcoin’s settlement may have been delayed after its increase in recent months, and may have received a nudge from Treasury Secretary Janet Yellen. She labeled Bitcoin an “inefficient” currency and warned that this could be a sign of speculative excesses, in an interview published by the New York Times on Tuesday.
Traders appear to be interpreting Yellen’s comments as a sign that regulators in the Biden government may raise further regulatory obstacles to cryptography, making it more difficult for banks and brokers to offer commercial services in digital currencies.
THE
Nasdaq Compound
and other higher-cap indices may be more closely linked to Bitcoin as the list of companies involved in technology or cryptographic services expands. Now includes the chip maker
Nvidia
(NVDA), the internet retailer
Overstock.com
(OSTK) and banks like
Subscription Bank
(SBNY). Stock exchanges and brokers, such as
CME Group
(CME),
Cboe Global Markets
(CBOE) and Interactive Brokers (IBKR) are also turning into cryptographic bets as they expand trades in options and futures contracts related to digital currencies.
Tesla’s push into Bitcoin was a vote of confidence in cryptography, but it may also have turned Tesla into a proxy for the currency, fueling an exodus from the shares of investors who wanted an automaker, not a crypto game.
“With the aggressive adoption of Bitcoin by Musk and Tesla (also from a transactional perspective), investors are starting to tie Bitcoin and Tesla on the hip,” wrote Dan Ives, an analyst at Wedbush Securities, in a note on Tuesday, referring to to Tesla CEO Elon Musk.
The rise of Bitcoin has also done wonders for stocks that were dead. The surplus stock, for example, increased 850% from $ 2.50 to $ 85 last year, including a 77% gain this year. The company has built a portfolio of blockchain and cryptocurrencies under its Medici Ventures division. Now it plans to convert that unit into a limited partnership called Pelion Venture Partners Fund.
Excess inventory fell 10% on Tuesday, continuing to fall in recent days, as Bitcoin prices have dropped.
Bitcoin’s impact is being felt strongly on PayPal and Square. Companies earn transaction fees in cryptocurrencies and appear to be increasing customer engagement and revenue per user, compared to customers who are not involved in cryptography.
None of the companies make much profit from Bitcoin so far, and transactions involving the currency make minimal contributions to revenue. Wolfe analyst Darrin Peller estimates that Bitcoin contributes less than 1% to PayPal’s revenue and slightly more to Square’s.
“It is not a major revenue driver, but it is a useful tool for increasing customer engagement,” he says. “As more people get involved with apps, they use their digital wallets more often and more money goes into the ecosystem.”
In fact, applications can be channels for Bitcoin to become popular. This, in turn, fueled the enthusiasm about the actions.
But now they are falling together with Bitcoin. PayPal shares fell 6% on Tuesday to $ 258, and fell 15% in the last five sessions, against record highs of around $ 305.
Square, which reports earnings after closing on Tuesday, fell 7% to $ 248, 9% below its record high of $ 272.75 on February 12.
The total value of Bitcoin remains formidable at almost $ 1 trillion. The blockchain technology behind this is being adopted by banks and other financial companies.
JPMorgan Chase
(JPM)
Citigroup
(C), and
Wells Fargo
(WFC) invested in blockchain. The custody bank
Bank of New York Mellon
recently announced that it would retain, transfer and issue encryption for asset management customers.
More banks are eager to offer crypto services, noted
Bank of America
in a report on Tuesday, but they are awaiting guidance from Washington. It may take a while for investors to see any impact on their income statements, especially if the Bitcoin bubble is now bursting.
Write to Daren Fonda at [email protected]