On Thursday, stocks related to cryptocurrencies experienced a decline, reversing earlier gains after the US Securities and Exchange Commission (SEC) approved exchange-traded funds (ETFs) that directly invest in Bitcoin. This landmark decision, which came as a game-changer for the digital asset sector worth $1.7 trillion, has expanded access to the largest cryptocurrency on Wall Street and beyond. Notable firms like BlackRock Inc., Invesco Ltd., and smaller competitors such as Valkyrie have been authorized to offer these funds.
However, shares in Coinbase Global Inc., Robinhood Markets Inc., and miners Cleanspark Inc. and Marathon Digital Holdings Inc. fell on Thursday, erasing premarket gains as the broader market turned lower due to a hotter-than-expected inflation report. Coinbase, a popular crypto-equity company, closed at about $141 per share, a 6.7% decline that reduced its gains over the last 12 months, which were over 250%.
Now that the SEC has approved these ETFs, industry experts are considering the potential upside for crypto-linked stocks, which have already seen significant gains in 2021. According to Mizuho Securities USA LLC analyst Dan Dolev, the potential upside for Coinbase may be more limited than expected, with only 1-2% benefit from custody fees and a total benefit of 5-10% if the ETFs drive additional spot Bitcoin trading. Dolev has an underperform rating and a $54 price target for the company’s shares. Similarly, Citigroup Inc. analyst Christopher Allen expressed a similar sentiment in a note before the SEC’s decision, stating that he is watching for a potential downside over the next 90 days for shares of Robinhood, which currently has a neutral rating and a $12.50 price target.
As for Bitcoin, it briefly topped $49,000 on Thursday before paring its gains. The cryptocurrency has seen a 160% increase in the past year, partly in anticipation of the regulatory approval and expectations for looser monetary policies.
While some analysts see potential upside for certain companies, such as Wedbush Securities Inc. who raised their price target for Coinbase to $180 from $110 following the SEC’s approval, not all are as optimistic. Deutsche Bank analysts Marion Laboure and Cassidy Ainsworth-Grace noted that while they expect Bitcoin to continue gaining throughout the year, investors should not confuse this with predictions of cryptocurrency overtaking traditional finance. They also warned that volatile conditions are likely to persist in the market.
Overall, the SEC’s approval of a Bitcoin ETF marks a significant milestone, according to analysts from Deutsche Bank, but it does not necessarily signal a complete shift towards cryptocurrency overtaking traditional finance. The stock market moves were updated at market close, and the most read articles from Bloomberg Businessweek were included. ©2024 Bloomberg L.P. All rights reserved.
