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Bitcoin is down 10% in 24 hours.
Dream time
A bear market may be forming in Bitcoin, possibly contributing to the sell-off in some high-flying stocks – if not the broader market.
Tesla
(ticker:
Tesla
PayPal Holdings
(PYPL), and
Square
Square
), to name a few, trade in a closer correlation with the digital currency. Tesla recently purchased $ 1.5 billion of the digital currency and said it plans to accept it as payment, which will result in an increase in inventory.
High growth stocks are under pressure from fears of rising interest rates and bond yields, which lower the present value of future cash flows. Tesla and the online payment stocks are also overflowing transactions, leaving them vulnerable to a sale.
PayPal Holdings
and Square will become digital currency brokers, allowing consumers to buy and store Bitcoin in their apps, with the ultimate goal of enabling people to use it to make purchases.
Stocks are shifting as Bitcoin is in free fall. The digital currency recently traded around $ 47,300, down 10% in the past 24 hours and 18% lower from its highs around $ 58,000 on Feb. 21, according to CoinDesk.
Falling Bitcoin prices can help drag it wider
Nasdaq Composite
Index, which fell 2.5% on Monday and fell 2.2% on Tuesday.
The sell-off in Bitcoin may have been late after the surge in recent months, and it may have received a boost from Treasury Secretary Janet Yellen. She called Bitcoin an “inefficient” currency and warned it could be a sign of speculative excesses, in an interview published by the New York Times on Tuesday.
Traders seem to view Yellen’s comments as a sign that regulators in the Biden administration can raise more regulatory hurdles for crypto, making it more difficult for banks and brokers to offer commercial services in digital currencies.
The
Nasdaq Composite
and other large-cap indices may be more closely tied to Bitcoin as the number of companies involved in crpyto technology or services grows. It now includes the chip manufacturer
Nvidia
(NVDA), the internet store
Overstock.com
(OSTK), and banks like
Signature Bank
(SBNY). Stock exchanges and brokers such as
CME Group
(CME),
Cboe Global markets
(CBOE) and Interactive Brokers (IBKR) are also turning to crypto betting as they expand options trading and futures contracts related to digital currencies.
Tesla’s push in Bitcoin was a vote of confidence in crypto, but it may also have turned Tesla into a proxy for the currency, sparking an exodus from the stock of investors wanting a car maker, not a crypto game.
“With Musk and Tesla aggressively embracing Bitcoin (also from a transaction perspective), investors are starting to tie Bitcoin and Tesla in the hip,” Wedbush Securities analyst Dan Ives wrote in a note on Tuesday, referring to Tesla CEO Elon Musk.
Bitcoin’s surge has also worked wonders for stocks left for dead. For example, overstock was up 850% from $ 2.50 to $ 85 in the past year, including a 77% gain this year. The company has built a portfolio of blockchain and crypto companies under its Medici Ventures division. It now plans to convert that unit into a limited partnership called Pelion Venture Partners Fund.
Excess inventory fell 10% on Tuesday and continued to decline in recent days as Bitcoin prices fell.
The impact of Bitcoin can be felt strongly in PayPal and Square. The companies earn transaction fees on cryptocurrencies and they seem to increase customer engagement and revenue per user, compared to clients not involved in crypto.
Neither company is making much profit on Bitcoin so far, and transactions with the currency make a minimal contribution to the revenue. Wolfe analyst Darrin Peller estimates that Bitcoin contributes less than 1% to PayPal’s revenue and slightly more to Square’s revenue.
“It’s not a major revenue driver, but it’s a useful tool for getting customers more engaged,” he says. “As more people are working with the apps, they use their digital wallets more often and more money goes to the ecosystem.”
Indeed, the apps can be channels for Bitcoin to become mainstream. That, in turn, has fueled excitement about the stocks.
But they now coincide with Bitcoin. The PayPal stock fell 6% to $ 258 on Tuesday, and is down 15% in the past five sessions from record highs around $ 305.
Square, which reports earnings after the closing Tuesday, fell 7% to $ 248, down 9% from its record of $ 272.75 on Feb. 12.
Bitcoin’s total value remains formidable at nearly $ 1 trillion. The blockchain technology behind it is being embraced by banks and other financial companies.
JPMorgan Chase
(JPM)
Citigroup
(C), and
Wells Fargo
(WFC) have all invested in blockchain. The custodian bank
Bank of New York Mellon
recently announced that it would hold, transfer and issue crypto for wealth management clients.
More banks are eager to offer crypto services
bank of America
in a report on Tuesday, but they are waiting for guidance from Washington. However, it may take a while for investors to see any impact on their income statement, especially if the Bitcoin bubble is now bursting.
Write to Daren Fonda at [email protected]