Crypto Firms See Stock Prices Fall In Line With Bitcoin’s Weekend Crash
The flagship cryptocurrency tanked Saturday early morning, plunging by double-digit percentages in a matter of hours. Bitcoin is now 30% down from its all-time high of around $70,000, with prices now trading around $48,000. Coinciding with the drop, shares of crypto firms such as Coinbase, companies with exposure to Bitcoin like Microstrategy, and mining companies like Bitfarms also plummeted.
Shares of Crypto-Exposed Firms Closely Follow Bitcoin Price
Coinbase, the leading crypto exchange in the US, was listed on Nasdaq in mid-April under the ticker COIN. The initial evaluation priced the exchange’s stock at $250 per share, with a pre-trading evaluation of $66.5 billion. However, COIN made a splashy debut as shares traded at $381 when it became available, almost pushing Coinbase to a $100 billion valuation.
Corresponding with the crypto sell-off in May, when prices of crypto-assets including Bitcoin and Ethereum dropped by more than 50%, COIN also lost more than 40%. COIN plunged to as low as $224 in mid-May while it was trading at $342 at all-time highs in April.
However, this wasn’t the only time Coinbase shares followed Bitcoin price performance. A comparison between BTC and COIN price-performance reveals that Coinbase shares tend to rally when Bitcoin gains, and vice versa.
More recently, when Bitcoin plunged by around 13% on December 3, COIN also dropped by around that much. Similarly, crypto mining firm Bitfarms has also followed BTC price performance — with the company’s stock falling by more than 15% over the weekend.
Notably, crypto firms are not the only companies following BTC price performance. In October, The Tokenist examined how Microstrategy’s stock reacted to every Bitcoin purchase. Looking at the data, we found that the company’s stock price rose steadily in line with Bitcoin throughout 2020 from its March lows. Similarly, the company witnessed steep drops when Bitcoin’s price dipped.
According to Michael Saylor’s recent tweet, Microstrategy owns a total of 121,044 bitcoins, acquired for approximately $3.57 billion at an average price of around $29,000 per coin. At current rates, Microstrategy’s Bitcoin stake is worth just more than $5.7 billion.
This makes Microstrategy one the biggest “Bitcoin companies,” explaining why the company’s stock price follows Bitcoin even more closely than mining firms. Microstrategy shares have plunged by around 12% over the weekend.
Jack Dorsey’s Square, which is exposed to Bitcoin, has also been moving in accordance with BTC price. However, given that it holds much less BTC compared to Microstrategy (Square holds just over 8,000 BTC), it has been less affected by Bitcoin’s dip, with the correlation not being as close.
Meanwhile, the stock market index S&P 500, which tracks the performance of 500 large companies listed on stock exchanges in the US, dropped by 0.8% on December 3. This shows that the selloff was contained within the crypto markets, meaning the cause is not likely to be due to universal market forces, such as the March crash of 2020. Crucially though, this proves that the stocks of crypto firms are directly tied to the performance of Bitcoin’s price movements.
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Bitcoin Lost $10,000 in Value In Less Than 24 Hours
In less than 24 hours from Friday to early Saturday morning, Bitcoin price went from approximately $57,000 to $47,000, plunging by more than 17% and losing $10,000 in value. Prices of other cryptocurrencies also followed suit, with Ethereum losing more than 16% during the same time period.
While it is not exactly clear why the crypto market dipped all of a sudden, the majority speculates Louis Navellier’s warning might have prompted the sell-off. Prominent investor Louis Navellier warned that Federal Reserve “tapering” could burst the Bitcoin and crypto bubble. In comments first reported by BusinessInsider, he said:
“The Fed is tapering, and this should create a correction in risk assets, of which Bitcoin is a part. The more the Fed tapers, the more volatility we should see in both stocks and bonds—and yes, Bitcoin, too.”
Navellier added that Bitcoin price could drop by as much as 80%, falling below $10,000 per coin.
“I would take a decline below $46,000 (the 200-day moving average) to be a yellow flag and a decline below the spring low of $28,500 to be a completed massive double top which points to a decline to below $10,000, which incidentally would match many of the multiple 80%+ declines in its storied history.”
Meanwhile, some crypto analysts point out that even dips of more than 30% can be normal during a bull cycle. For instance, the quantitative analyst PlanB released a chart highlighting the dips that Bitcoin underwent during its 2017 bull cycle, implying that this could just be a bump in the road.
PlanB had previously predicted a $98,000 Bitcoin price by November. However, some crypto users now argue that PlanB’s prediction is invalidated, as well as pointing out that Michael Saylor’s entries are now in the red too.
Do you think the crypto market has entered a bear market? What is your BTC price prediction for the year-end? Let us know in the comments below.