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Cryptocurrency has been back in the news over the past week. The Treasury Select Committee think the government should treat crypto as gambling rather than investing.
Aside from regulatory news, we’ve seen crypto stocks continue to move lower, as general uncertainty around the industry continues. Here’s why I struggle to see another glory period for the sector in the coming year.
The areas of crypto in the stock market
When I’m talking about crypto stocks, there are two main camps included. The first relates to crypto exchanges, such as Coinbase. The other part of the sector is crypto mining companies and other similar related businesses. A good example here is Argo Blockchain.
Over the past year, Coinbase shares are down 17%, with Argo Blockchain down 83%. In fact, the market-cap of the latter is now below £50m.
Other companies do have some exposure to crypto, but indirectly. For example, PayPal is a global payments company which, technically, does support sending crypto. Yet because this isn’t the primary goal of the firm, I’m not including it in my conviction on crypto stocks.
Regulation is coming
Regardless of what actions stem from the UK government in coming months regarding crypto, regulation is definitely coming. It could be a global effort, or country specific, but either way there will be a clampdown on the sector.
Even though I see this as a positive years down the line, I think it’ll hurt crypto stocks in the short and medium term. The companies could face fines for lack of proper controls. The underlying coins could fall in value, reducing the mining efficiency and amount of transactions. It could scare off potential sponsors and investors until things materially settle down.
Lower prices hurt revenues
Aside from regulation, another struggle is simply the poor sentiment around crypto right now. The price of Bitcoin is down 11% over the past year. Concerns around a US recession and potential debt ceiling shutdown aren’t helping. Crypto might surge during good economic times, but the flipside of falling during tough times is also true.
This is damaging to crypto stocks. For mining companies, the value of what is mined has to be converted from Bitcoin to a fiat traditional currency (like GBP). So even if the business mined that same amount as last year, revenue would be down by 11%. This impacts the value of the share.
The long, long term
My view of crypto stocks being dead in the water relates to the next year, or so. I see little value in investors buying these type of stocks any time soon.
If we’re talking the next decade or more, I feel that crypto will have some place in society. It’s no longer simply a fad, but rather a mainstay that’s figuring out how exactly it fits into the financial system.
Yet as much as I feel there is value in the long term, I wouldn’t touch these stocks right now.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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