Tesla suspends vehicle purchases using bitcoin as Coinbase reports Q1 earnings
As bitcoin, ethereum and other cryptocurrencies get increasing attention from investors, Wall Street and its traditional banks continue to adjust to the shift. Catch up on this week's top stories highlighting the intersection of these old guard and new school areas of finance with this recap compiled by The Fly.
TESLA SUSPENDS BITCOIN PAYMENTS: Tesla (TSLA) CEO Elon Musk posted the following statement to Twitter on Wednesday: "Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment. Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainably energy. We are also looking at other cryptocurrencies that use less than1% of Bitcoin's energy/transaction."
Following the news, Wedbush analyst Daniel Ives said Musk made a major U-turn on crypto in a head scratching move. Musk is now concerned about the use of fossil fuels in Bitcoin mining and transactions, yet the nature of Bitcoin mining has not changed in the last three months, which speaks to why backtracking on the crypto transaction three months later is a "very surprising and confusing move" to both Tesla and crypto investors, Ives said. The analyst believes that for Tesla and the stock, not accepting Bitcoin does not change the thesis or growth trajectory for the EV story. However, it does add to the noise and volatility around the name at a time in which risk assets are under enormous selling pressure on the Street with Tesla leading the charge, he added. Ives has an Outperform rating and a price target of $1,000 on the shares.
Musk said via Twitter on Thursday, "To be clear, I strongly believe in crypto, but it can't drive a massive increase in fossil fuel use, especially coal."
COINBASE REPORTS Q1 EARNINGS:On Thursday, Coinbase (COIN) reported first quarter earnings per share of $3.05 on a revenue of $1.8B, which compared to analyst estimates of $3.09 and $1.81B respectively. The company also reported verified users of 56M and Q1 monthly transacting users of 6.1M. Coinbase also announced assets on platform of $223B, representing 11.3% crypto asset market share. Reports Q1 trading volume of $335B. The company said, "Our strong Q1 2021 results reflect the strength of the crypto price cycle we entered in Q4 2020. We saw many crypto assets reach all time high prices, high levels of volatility, and increased interest across the entire cryptoeconomy. Crypto market capitalization reached nearly $2 trillion at the end of Q1 2021 compared to $782 billion at the end of Q4 2020. By the end of Q1, the price of Bitcoin had nearly doubled to approximately $59,000 compared to the end of 2020, and the price of Ethereum more than doubled during this same period to approximately $1,900. This market environment drove strong engagement with the Coinbase platform, reflected in retail, institutional and ecosystem partner growth across all key metrics including our Verified Users, retail Monthly Transacting Users, Trading Volume, and Assets on Platform."
Following the report, Piper Sandler analyst Richard Repetto initiated coverage of Coinbase with an Overweight rating and $335 price target. The analyst expects volatility but he believes Coinbase has a "trusted brand name" and "commanding position" in the cryptoeconomy. The company has the ability to grow organically through both new product offerings supporting additional cryptoassets and it faces positive industry trends, Repetto said. He believes Coinbase has expanded market share in a growing industry.
Additionally, Mizuho analyst Dan Dolev said he expected a "muted" stock reaction despite Coinbase's "strong" Q1 results. Despite the strength, the squeeze in retail yields and management's commentary citing "competition increasing as new market entrants join the crypto economy every month" will likely continue to cast doubt about the long-term durability of the business model, Dolev said. He kept a Neutral rating on Coinbase with a $315 price target.
BINANCE FACES JUSTICE DEPT. INVESTIGATION: Cryptocurrency exchange Binance is under investigation by the Justice Department and Internal Revenue Service, Bloomberg’s Tom Schoenberg reported Thursday, citing people familiar with the matter. Officials who probe money laundering and tax offenses are seeking information from individuals with insight into the business. “We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion,” a spokesperson for Binance said in an email, adding that the company does not comment on specific matters or inquiries. “We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”
BTIG analyst Mark Palmer said he believes that while the report of Justice Department/IRS probe of Binance exacerbates selloff in digital asset stocks, the news helps to underline Coinbase's position as compliant safe haven. Palmer noted that some other crypto exchanges during the past few years have embraced the anti-governmental ethos of the space as a means of emphasizing their decentralized stances, while Coinbase management decided to build its business around a centralized exchange and to cooperate with the U.S. government. As such, he expects the Binance news to serve as a net positive for Coinbase as it seeks to grow its retail and institutional business and to increase its share of the world's crypto assets on its platform. The analyst has a Buy rating and a price target of $500 on the shares.
MICROSTRATEGY ACQUIRES 271 BITCOIN: MicroStrategy (MSTR) disclosed Thursday that on May 13, it purchased approximately 271 bitcoins for $15M in cash, at an average price of approximately $55,387 per bitcoin, inclusive of fees and expenses. As of May 13, the company holds approximately 91,850 bitcoins that were acquired at an aggregate purchase price of $2.241B and an average purchase price of approximately $24,403 per bitcoin, inclusive of fees and expenses.
DIEM PARTNERS WITH SILVERGATE: The Diem Association announced Wednesday a partnership between its wholly-owned subsidiary, Diem Networks US, and Silvergate Capital Corporation (SI). Under this partnership, Silvergate Bank will become the exclusive issuer of the Diem USD stablecoin. The Association is also announcing a strategic shift to the United States, resulting in a move of Diem's primary operations from Switzerland to the United States. As a result, Diem is withdrawing its application for a payment system license from the Swiss Financial Markets Authority, or FINMA, as a FINMA license is not required under the new model. Silvergate is a California state-chartered bank and a member of the Federal Reserve, and Diem Networks US will register as a money services business with the US Department of the Treasury's Financial Crimes Enforcement Network. "Silvergate is a leader in financial innovation and an ideal partner for Diem as we move forward with a blockchain-based payment system that protects consumers and enhances the integrity of the financial system. We are committed to a payment system that is safe for consumers and businesses, makes payments faster and cheaper, and takes advantage of blockchain technology to bring the benefits of the financial system to more people around the world. We look forward to working with Silvergate to realize this shared vision," said Stuart Levey, CEO of Diem. Diem, formerly known as Libra, is a permissioned blockchain-based payment system proposed by Facebook (FB).
CRYPTO STOCK PLAYS: Cryptocurrency revenues have been pointed to as reasons to be bullish on Advanced Micro Devices (AMD) and Nvidia (NVDA) in select research. Overstock (OSTK), Ideanomics (IDEX), Riot Blockchain (RIOT), Pareteum (TEUM) and SRAX (SRAX) are other stocks that have been touted, or promoted themselves, as a way to play the crypto theme.
PRICE ACTION: As of time of writing, bitcoin dropped roughly 15% this week at $50,786 in U.S. dollars, according to TradeBlock.