Crypto stocks swing near the abyss as Fink’s warning adds to the anguish

(Bloomberg) — Analysts and investors are struggling to call a crypto stock bottom in the wake of a brutal month that ended with the head of BlackRock Inc. saying most digital asset firms won’t survive.

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Cryptocurrency companies, including Coinbase Global Inc., Galaxy Digital Holdings Ltd. and MicroStrategy Inc., plunged more than 25% last month. The declines added to the pain of a dismal year amid a deep and expansive dip in Bitcoin and other digital tokens. While that trio of companies rallied this week, they still wiped out an estimated $52 billion in shareholder value in 2022.

Already reeling from the so-called cryptocurrency winter, investors took a major hit with the high-profile crash of Sam Bankman-Fried’s FTX exchange in early November, sending Bitcoin tumbling. Finally, BlackRock Chief Executive Officer Larry Fink said this week that he expects most cryptocurrency firms to retire after FTX’s demise. A Schwab index tracking cryptocurrency-related stocks is coming off its worst month since June and is down 63% this year.

“Questions about the future of cryptocurrencies have become prevalent after a year during which many tokens lost more than 70% of their value and the FTX crash exacerbated a crisis of confidence that started in the spring,” said Mark Palmer, an analyst at BTIG LLC.

Few, if any, industry-related companies were spared in the sell-off, with even banks like Silvergate Capital Corp. and Signature Bank taking a hit. Mining stocks were among the worst performers, with Marathon Digital Holdings Inc. and Hut 8 Mining Corp. both seeing their share prices halve in November.

FTX’s sudden fall sparked fears of contagion across the industry, which finally came true this week when cryptocurrency lender BlockFi Inc. also filed for bankruptcy.

“We expect the crypto space to continue to be toxic to investors in the near term and expect overall chain activity to be relatively quiet among users as we continue to wait for potential contagion effects following the FTX bust,” Chase White, an analyst at Compass Point, wrote in a note to clients.

Silvergate now finds itself playing damage control. The company, whose shares plunged a record 52% in November, said several weeks ago that its FTX exposure accounted for less than 10% of its digital asset deposits. This week, he said exposure to BlockFi was under $20 million.

It was a similar situation for Coinbase. Chief Executive Officer Brian Armstrong has taken to Twitter several times in recent weeks in an effort to reassure investors that the cryptocurrency exchange remains on solid footing. So far, he seems to have done little to influence traders and analysts.

Coinbase closed at an all-time low on Nov. 21 and was downgraded by analysts at firms including Bank of America Corp. and Daiwa Securities, leaving it with its lowest number of buy ratings since August 2021, according to data compiled by Bloomberg. Shares of Coinbase just experienced a four-week slip, but are still down about 80% this year, wiping out about $44 billion in value.

Cryptocurrency mining stocks fared even worse as rising energy costs add to the challenge of sinking cryptocurrency values. Core Scientific Inc. has seen its stock price plummet nearly 99% this year. In its third-quarter earnings release, the company said losses for the nine months through September reached $1.7 billion and also said it may have to file for bankruptcy if it can’t find additional financing.

The collapse of cryptocurrency mining shares is troubling for a group that was already struggling to repay $4 billion in loans tied to mining equipment.

Read More: Fink Says Most Crypto Firms Will Die After FTX Implosion

Truth be told, Fink, whose firm had invested about $24 million in FTX, said he still sees potential in the technology behind cryptocurrencies, including instant settlement of securities.

And some money managers see an opportunity in downed stocks. Cathie Wood’s Ark Investment Management added cryptocurrency investments in the weeks following the FTX bankruptcy, including Coinbase, Silvergate and Grayscale Bitcoin Trust. Wood also told Bloomberg TV that she stands by her prediction that Bitcoin, which traded at around $17,000 on Friday afternoon in New York, will hit $1 million by 2030.

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