ANN/THE STRAITS TIMES – Analysts and investors are struggling to call a bottom in crypto stocks in the wake of a brutal month that ended with the head of BlackRock saying most digital-asset firms will not survive.
Cryptocurrency firms including Coinbase Global, Galaxy Digital Holdings and MicroStrategy all plunged more than 25 per cent in November. The declines added to the pain of a dismal year amid a deep and extended plunge in Bitcoin and other digital tokens.
While that trio of firms rallied last week, they have still wiped out roughly USD52 billion of shareholder value in 2022. A Schwab index tracking crypto-linked stocks is coming off its worst month since June, and is down 63 per cent this year.
Already reeling from the so-called crypto winter, investors were dealt a major blow with the high-profile collapse of Sam Bankman-Fried’s FTX exchange in early November, which sent Bitcoin tumbling.
To top it off, BlackRock chief executive Larry Fink said during the New York Times DealBook Summit on November 30 that he expects most crypto companies will fold after FTX’s demise.
Few, if any, companies connected to the sector have been spared during the sell-off, with even banks like Silvergate Capital Corp and Signature Bank taking hits. Mining stocks have been among the worst performers, with Marathon Digital Holdings and Hut 8 Mining both seeing their share prices cut roughly in half in November.
FTX’s sudden downfall sparked fears of contagion across the industry, which ultimately became a reality last week when crypto lender BlockFi also filed for bankruptcy.
“We expect the crypto space to continue to be toxic for investors in the near term and expect overall chain activity to be relatively quiet among users as we continue to wait out potential contagion effects as a result of the bankruptcy of FTX,” analyst at Compass Point Chase White wrote in a note to clients.
Silvergate now finds itself playing damage control. The company, whose shares tumbled by a record 52 per cent in November, said several weeks ago that its exposure to FTX represented less than 10 per cent of its digital-asset deposits. Last week, it said exposure to BlockFi was less than USD20 million.
It has been a similar situation for Coinbase. Chief executive officer Brian Armstrong took to Twitter multiple times in recent weeks in an attempt to reassure investors that the crypto exchange remains on solid footing. So far, it seems to have done little to sway traders and analysts.
Coinbase closed at a record low on November 21 and has been downgraded by analysts at firms, leaving it with its lowest number of buy ratings since August 2021, data compiled by Bloomberg show. Coinbase shares just snapped a four-week slide, but they are still down about 80 per cent this year, erasing about USD44 billion in value.
Crypto mining stocks have fared even worse as soaring energy costs add to the challenge of sinking cryptocurrency values. Core Scientific has seen its share price crumble nearly 99 per cent this year. In its third-quarter earnings release, the company said losses for the nine months through September had reached USD1.7 billion and it has also said it might have to file for bankruptcy if it cannot find additional funding.
The slump in crypto-mining stocks is problematic for a group that was already struggling to pay back USD4 billion in loans tied to mining equipment.
To be sure, BlackRock’s Fink, whose firm had invested roughly USD24 million in FTX, said he still sees potential in the technology underlying crypto, including instant settlement of securities.
