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.
COINBASE REDUCING TEAM BY ABOUT 18%: On Tuesday, Coinbase (COIN) shared on its blog a message from Coinbase CEO and Cofounder, Brian Armstrong, which stated in part: "Today I am making the difficult decision to reduce the size of our team by about 18%, to ensure we stay healthy during this economic downturn... We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period. In past crypto winters, trading revenue has declined significantly. While it's hard to predict the economy or the markets, we always plan for the worst so we can operate the business through any environment…It's challenging to grow at just the right pace given the scale of our growth. While we tried our best to get this just right, in this case it is now clear to me that we over-hired... As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn.”
The company also announced the plan involves a reduction of the company's workforce by approximately 1,100 employees, representing approximately 18% of its global workforce as of June 10, following which the company expects to have approximately 5,000 total employees as of the end of its current fiscal quarter on June 30. The company expects execution of the plan to be substantially complete in Q2. In connection with these actions, Coinbase estimates that it will incur approximately $40M to $45M in total restructuring expenses, all of which are future cash-based expenditures and substantially all of which are related to employee severance and other termination benefits. The company expects to recognize substantially all of these charges in Q2. Coinbase also said it was not updating its outlook provided on May 10.
Following the news, Piper Sandler analyst Richard Repetto lowered the firm's price target on Coinbase to $120 from $180 and kept an Overweight rating on the shares. The analyst updated estimates to incorporate a lower expense run rate resulting from the headcount reduction and a lower revenue run rate due to lower volume expectations and fee capture.
Additionally, Mizuho analyst Dan Dolev lowered the firm's price target on Coinbase to $45 from $60 and kept a Neutral rating on the shares. The workforce reduction could hurt the company's efforts to find new revenue streams as competition mounts, which may result in a potential pricing war, Dolev said. In addition, if the current volume weakness persists, consensus revenue estimates may need a 30% cut, saif the analyst. Dolev's recent survey showed that $21,000 bitcoin is a "critical level," reflecting the cost basis for the median retail investor on the Coinbase platform.
Meanwhile, Needham analyst John Todaro lowered the firm's price target on Coinbase to $89 from $173 but kept a Buy rating on the shares. The analyst is updating his valuation model after the company restructuring announcement that reflects lower volumes, though he sees volumes bottoming in Q3 and then modestly rising in Q4. The staff cuts are also "a step in the right direction" given the crypto bear market and the broader concerns about the macro environment, Todaro said.
MICROSTRATEGY CEO DEFENDS BITCOIN BET: In a Wednesday interview with CNBC, MicroStrategy (MSTR) CEO Michael Saylor call bitcoin a “risk-off asset” when looking at the cryptocurrency long-term and said bitcoin is “on sale” at current levels. The CEO also said margin call concerns were “much ado about nothing” and that the margin is “well managed”. Saylor added that 98% of the world doesn’t understand the concept of digital scarcity and MicroStrategy’s excess cash will be used to buy more bitcoin. He reaffirmed the company’s strategy is to be “levered, long bitcoin”.
On Thursday, Jefferies analyst Brent Thill lowered the firm's price target on MicroStrategy to $180 from $215 and kept a Hold rating on the shares. The 25% selloff in bitcoin over the past week has driven concerns around MicroStrategy's $2.4B leverage, Thill said. In a research note titled "Is MSTR Ready For Crypto Winter?," the analyst saif MicroStrategy does not face liquidity risk as it has enough free cash flow to cover interest nor solvency risk as it can use additional bitcoins for collateral to avoid margin call in the near-term. Management needs to focus on the core business that declined 3% in Q1, said Thill. He remains on the sidelines until the company's "execution improves."
Meanwhile on Tuesday, BTIG analyst Mark Palmer noted that shares of MicroStrategy declined by more than 25% Monday and were under further pressure in pre-market trading Tuesday with mainstream financial press and social media "abuzz" over the potential for the company to face a margin call on its bitcoin-backed term loan after the price of bitcoin fell below $21,000 overnight. However, "almost all of the media reports we have seen have neglected to provide much, if any, context around the provision that could cause" such a margin call and a margin call "would not trigger the kinds of dire consequences that media reports are implying," said Palmer, who believes the matter "has been blown out of proportion." The $205M, three-year bitcoin-backed loan issued to MicroStrategy by Silvergate Bank (SI) in late March is the only instrument in the company's capital structure that had any kind of covenant that could trigger a margin call, but the "reality" is that 95,643 of the 129,218 bitcoins held are unencumbered and available to the company to post as additional collateral to avoid or address a margin call, Palmer told investors.
SILVERGATE INITIATED WITH OVERWEIGHT: Wells Fargo analyst Jared Shaw initiated coverage of Silvergate Capital on Monday with an Overweight rating and $120 price target. Silvergate has created a strong network effect through its Silvergate Exchange Network, which is utilized by some of the largest exchanges and institutional clients in the crypto space, the analyst said. As rates rise, higher spread income will come from a zero-cost deposit base, and further growth in SEN Leverage and the rollout of an SI-issued stablecoin payments network represent future opportunities, he added, arguing that continued institutional adoption of crypto and product innovation at SI should help maintain the bank's growth profile. Shaw also believes much of the bear-case is priced in at current levels, which makes for an attractive entry point.
ETHEREUM WEAKENING FASTER THAN BITCOIN: Morgan Stanley analyst Sheena Shah said on Monday that, as cryptocurrencies appear to be underperforming, ethereum is weakening "faster" than bitcoin. Shah said that ether is down almost three quarters from its November peak and is underperforming bitcoin, and when the ETH/BTC relative cross falls, it is a sign that the broader crypto enthusiasm is waning. The analyst added ethereum's price cycle in U.S. dollar terms seems to be similar to 2018 when mapping it versus the peak.
Additionally, Citron Research stated in a series of Wednesday tweets: "Citron has spent the past year and a half not being vocal on the short side as whatever potential rewards did not justify the trolling of family members on and off line. But sometimes it becomes just too difficult not to bite your tongue and not chime in on the obvious…As ETH still trades above 1000 with a mkt cap of 140 billion. We say WTF? Every high-flying real software/cloud company is trading back to pre-pandemic levels which puts ETH at 200, which is still expensive…If you want to say that BTC is digital gold because it has collective thought than that is your choice. But to think that a 140 bil software company whose primary use case is to buy online collectibles then joke will be on you.”
CLEANSPARK ACQUIRES CONTRACT FOR MINING UNITS: CleanSpark (CLSK) announced Thursday it has taken over an existing purchase contract for 1800 Antminer S19 XP units as it continues to expand its infrastructure. Once fully deployed, the machines are expected to add over 252 petahashes per second, PH/s, to the company's bitcoin mining capacity. Further, the company announced a partnership with TMGcore to expand its immersion-cooled infrastructure for sustainable mining. As per the acquired contract, the Antminer S19 XP machines will start arriving at CleanSpark's facilities sometime in August, and shipping will continue through the next six months.
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. Ideanomics (IDEX), Riot Blockchain (RIOT), Overstock (OSTK), 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 about 20% this week at $20,415 in U.S. dollars, according to TradeBlock.
Bitcoin
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Bitcoin
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Bitcoin
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Ethereum
+
Litecoin
+
Dogecoin
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Coinbase
-1.28 (-2.51%)
MicroStrategy
-3.43 (-2.12%)
Silvergate Capital
-0.48 (-0.81%)
CleanSpark
+0.06 (+1.34%)
AMD
-1.76 (-2.15%)
Nvidia
-1.15 (-0.74%)
Ideanomics
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Riot Platforms
+0.07 (+1.55%)
OSTK
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Pareteum
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Srax
-0.055 (-1.72%)