Investing in companies operating in the cryptocurrency industry allows investors to gain exposure to the crypto market without owning them directly. But shares in these companies are seeing sharp declines in recent months.
Share performance at half mast since the beginning of the year
While Bitcoin hovers around the $30,000 mark, cryptocurrency stocks have been performing poorly for several months now, especially for this year 2022, which is recording a sharp decline in the crypto market.
Since January 1, shares of crypto platform Coinbase (COIN) are down 71% while MicroStrategy (MSTR) shares are down 59%. For Coinbase, which made its IPO in April 2021, this performance is very disappointing. It was heralded at the time by several analysts as the great crypto company to invest in to get a foothold in the cryptocurrency market, and since then its stock has only fallen. It has accumulated nearly 80% decline since its IPO just over a year ago, far more than major cryptocurrencies like Bitcoin (BTC) or Ether (ETH).
As for MicroStrategy, the company does not operate directly in Bitcoin (BTC) but its founder, the well-known American CEO Michael Saylor, is a cryptocurrency enthusiast. He and his team made their first Bitcoin purchase with company cash in August 2020 at a cost price of $11,650. Further purchases after that date brought holdings to a total of about 129,000 bitcoins at an average price of $30,700 each, meaning the company is slightly at a loss on this investment.
On the cryptocurrency mining side of the equation, similar performances have been recorded: shares in Marathon Digital (MARA) and Riot Blockchain (RIOT) are down 64% and 67% respectively since the start of the year. Both companies operate Bitcoin mining farms across the US.
Banks directly or indirectly linked to cryptocurrencies such as Galaxy Digital (GLXY.TO) and Silvergate Capital (SI) have seen their shares fall by 55% and 42% since the beginning of the year.
Edward Moya, market analyst at Oanda, an investment firm said:
“Bitcoin’s long-term fundamentals haven’t changed in months, but the growth/recession issues have made it a very difficult environment for cryptos. “
All of this then makes it clear that the performance of crypto-currencies is highly correlated with the macroeconomic context we live in, and with traditional stock market indices.
Disappointing financial results
To top it all off, these cryptocurrency companies announced their financial results for Q1 2022 this week. And the least we can say is that for most of them, these results are very disappointing.
Coinbase, which announced its results last night, reported Q1 revenue of $1.17bn, well short of analysts’ expectations of $1.47bn in revenue. The number of monthly active users in this quarter was 9.2 million, up from 6.1 million a year ago, but down sharply from 11.4 million monthly active users in the previous quarter. Finally, the company recorded a large loss.
Coinbase shares lost 17% following the announcement of its results after the close of the Nasdaq yesterday. So it still doesn’t seem to have hit bottom.
But the CEO of the company, Brian Armstrong, is reassuring:
“We tend to do our best in a downturn, so ironically I’ve never been more optimistic about our position as a company. “
Riot Blockchain reported results below expectations but with good year-on-year growth. After a very quick rebound of the stock by 2% post-market following the results, it was losing another 1% like its competitors’ shares.
In reality, the price correction of all these companies is not surprising when you see how the market has been evolving for several months. However, they often lose much more than the main crypto-currencies when comparing performance over the same period. This is simply because they are technology stocks first and foremost and therefore they suffer both the decline in technology stocks and the parallel decline in crypto-currencies. We should not forget that unlike Bitcoin, they are accountable to investors through their financial results. A rather explosive cocktail.
