Cryptocurrencies Perform better than Crypto Stocks

Coinbase has lost 40% in 2022 as trading volume dips; Riot Blockchain, Marathon Digital, and TeraWulf are all on a sharp downtrend.

The predictions on the crypto stocks have been very poor, way worse than crypto assets themselves. 

The crypto market is in a selloff mode even as millions of people are shifting to trading ether, Bitcoin, and other cryptos. Bitcoin is already down 6%, and ether is even further down by 16%. By Monday this week, the whole crypto market was down 19%, according to the data gathered from CoinMarketCap

When it comes to stocks of crypto-focused and publicly traded firms, the performance is even worse, dropping by as much as 60% in 2022 (FactSet). 

Coinbase (COIN), the largest US exchange, stock fell by 2.74%, Global Inc down 40%, Silvergate Capital Corp gained 3.34%, Holding Inc down 35%, and TeraWulf (WULF) down 7.89%. The sum of the market cap of crypto companies dropped by about USD 60 billion from USD 100 billion in November 2021, when BTC hit a record high. 

The Divergence Between Cryptos and Crypto Companies 

On Monday this week, Coinbase closed at its lowest point (USD 145.16) since going public one year ago. On Tuesday, the price rose to USD 151.27. 

According to the co-founder of Data-Trek, Nicholas Colas, the difference between crypto companies and cryptos is not surprising. He points out that there will always be a difference in the value of an asset and the creator of the same asset. 

Mr. Colas argues that Bitcoin and other cryptos are pushed by consumer interest and usage in the market, but companies like Marathon and Coinbase, derive value from how well their products are sold. It is pretty the same thing that happens in the oil market. 

If you take the case of Coinbase, whose market cap of USD 33 billion makes it the biggest crypto firm in the United States, the main issue is a fall in trading volume. Indeed, the top 10 exchanges reported an approximately 40% drop in trading volume.

Almost all the revenue for Coinbase is drawn from the transaction fee. Now, the company has indicated that it is targeting to invest heavily in business in 2022 to be able to remain in the profit range when the trading falls. 

Crypto stocks have also not been spared. Mark Palmer, a BTIG analyst, said they had been swept up in the recent selloff that started in the fall and gained momentum recently. Tech stocks have been on a downtrend since the signal from the Federal Reserve that interest rates will be reviewed upwards. 

  • PayPal Holding is down 45%. 
  • Lemonade Inc is off 44%.
  • Affirm Holdings Inc is down 63%.

Chris Brendler, a D.A. Davidson analyst, explained that the prices of stocks for mining firms, which actually process crypto transactions and keep alive blockchains, are very volatile since shareholders are individual investors. Miners only run hardware rigs to process transactions, especially Bitcoin, and rarely attract institutional investors. 

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