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.
SEC CHARGES FORMER COINBASE MANAGER: The Securities and Exchange Commission announced Thursday insider trading charges against a former Coinbase (COIN) product manager, his brother, and his friend "for perpetrating a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform." The SEC's complaint alleges that, while employed at Coinbase, Ishan Wahi helped to coordinate the platform's public listing announcements that included what crypto assets or tokens would be made available for trading. According to the SEC's complaint, Coinbase treated such information as confidential and warned its employees not to trade on the basis of, or tip others with, that information. The insider trading scheme generated illicit profits totaling more than $1.1M, according to the SEC.
Brian Armstrong, co-founder and CEO of Coinbase, said in a series of Thursday tweets: "At Coinbase, we actively monitor for illegal activity and investigate any alleged misconduct. In April, we received information about possible frontrunning of assets shortly before being listed on Coinbase. We immediately launched an investigation into this. [...] As a result of our investigation we identified 3 suspects and provided this information to law enforcement. One person was a Coinbase employee who we terminated. Today, the DOJ has criminally charged this former employee and the two other individuals for this abusive conduct."
Additionally on Thursday, Coinbase announced it had filed a petition asking the SEC to make applicable rules for crypto firms. Coinbase said in a blog post: "Crypto assets that are securities need an updated rulebook to help guide safe and efficient practices...IF the SEC were to write rules permitting the tokenization of securities, the opportunities for innovation would be significant. The crypto markets could be expanded to offer crypto securities, subject to SEC regulation and governance, thereby giving investors new ways to invest in crypto. And opening debt and equity securities to tokenization would promote efficiency and resiliency in traditional markets. While the SEC has refused to develop new rules for digital asset securities, several governments and other organizations around the world are well on their way to new, workable crypto rules…We believe the SEC should follow the lead of these jurisdictions by helping to develop a robust and vibrant crypto securities market, with all of the excellent protections that investors have come to expect from American financial markets. That is why we filed our petition with the SEC that requests such a rulemaking to take place.”
Coinbase also announced Wednesday that the company has no exposure to Celsius, Three Arrows Capital or Voyager (VYGVF). Brett Tejpaul, head of Coinbase Institutional, Matt Boyd, head of prime finance and Caroline Tarnok, head of credit and market risk, said "The shocks to the crypto credit environment over the last few weeks are likely to be a major inflection point for the industry. Solvency concerns surrounding entities like Celsius, Three Arrows Capital, Voyager, and other similar counterparties were a reflection of insufficient risk controls, and reports of additional struggling firms are fast becoming stories of bankruptcy, restructuring, and failure. Notably, the issues here were foreseeable and actually credit specific, not crypto specific in nature. Many of these firms were overleveraged with short term liabilities mismatched against longer duration illiquid assets. We believe these market participants were caught up in the frenzy of a crypto bull market and forgot the basics of risk management. Unhedged bets, huge investments in the Terra ecosystem, and massive leverage provided to and deployed by 3AC meant that risk was too high and too concentrated…Coinbase had no financing exposure to the groups above. We have not engaged in these types of risky lending practices and instead have focused on building our financing business with prudence and deliberate focus on the client.”
APPLIED, MARATHON ENTER HOSTING CONTRACT: Applied Blockchain (APLD) announced Monday it has entered into a five-year hosting contract with Marathon Digital (MARA) for 200-Megawatts of bitcoin mining capacity. The company will provide hosting services for Marathon's bitcoin miners at Applied Blockchain's owned and operated co-hosting datacenters.
Applied Blockchain also raised its Q4 revenue guidance on Monday to $7M-$7.4M from $5.7M-$6.2M, which compared to analyst estimates of $5.68M. “Since we reported our fiscal third quarter 2022 results in mid-May, our operations have continued at or better than expectations, driving our financial performance above the guidance we previously communicated,” said chairman and CEO Wes Cummins.
Following the news, Lake Street analyst Rob Brown estimated Tuesday Applied Blockchain's contract with Marathon is worth roughly $100M in annual revenue and he thinks the deal should be a catalyst for shares given that the market was pricing in low expectations for growth. Brown, who said that this contract and the stronger-than-expected May quarter results give him confidence that the near and mid-term growth trajectory is intact for Applied, expects significant growth over the next 18 months and kept a Buy rating and $10 price target on Applied shares.
Additionally on Monday, Marathon announced that the company has secured approximately 254 megawatts of new hosting arrangements for its bitcoin mining operations, with an option to increase to 324 megawatts, from a variety of hosting providers. As a result, Marathon believes it has now secured ample hosting arrangements to support the company's previously stated goal of approximately 23.3 exahashes per second of computing power for bitcoin mining.
TESLA CONVERTS BITCOIN INTO FIAT: Tesla (TSLA) said in its quarterly update on Wednesday: "Quarter-end cash, cash equivalents and short-term marketable securities increased sequentially by $902M to $18.9B in Q2, driven mainly by free cash flow of $621M, partially offset by debt repayments of $402M. As of the end of Q2, we have converted approximately 75% of our bitcoin purchases into fiat currency. Conversions in Q2 added $936M of cash to our balance sheet."
CEO Elon Musk clarified on Wednesday’s earnings conference call: "It should be mentioned that the reason we sold a bunch of our bitcoin holdings was that we were uncertain as to when the COVID lockdowns in China would alleviate. So it was important for us to maximize our cash position, given the uncertainty of the COVID lockdowns in China. We are certainly open to increasing our bitcoin holdings in future, so this should not be taken as some verdict on bitcoin. It's just that we were concerned about overall liquidity for the company, given COVID shutdowns in China."
SILVERGATE PRICE TARGET RAISE: Wells Fargo analyst Jared Shaw raised the firm's price target on Silvergate Capital to $115 from $100 and kept an Overweight rating on the shares on Wednesday. "We are in the nascent stages of crypto and blockchain adoption," the analyst said, with Silvergate providing a regulated and FDIC-insured platform for participants looking to on-ramp and off-ramp USD into the crypto ecosystem. Shaw believes much of the bear case is priced in at current levels, which makes for an attractive entry point.
BAKKT INITIATED WITH NEUTRAL: Citi analyst Peter Christiansen initiated coverage of Bakkt (BKKT) on Tuesday with a Neutral rating and $3 price target. The analyst views Bakkt's "Swiss Army Knife" approach towards facilitating a broader definition of digital assets as "quite novel." That being said, the company faces a classic "chicken and egg" execution challenge in developing a scaled network, Christiansen said. He cautions that it is "very early days" in Bakkt's mission to scale. The analyst expects the stock to "linger with other tech de-SPACs until evidence of scaling milestones become tangible."
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 rose about 13% this week to $23,570 in U.S. dollars, according to TradeBlock.
Voyager Digital
+
Applied Digital
+0.19 (+8.48%)
Bitcoin
+
Bitcoin
+
Bitcoin
+
Ethereum
+
Litecoin
+
Dogecoin
+
Coinbase
+1.14 (+1.54%)
Marathon Digital
-0.05 (-0.37%)
Tesla
+9.6 (+1.18%)
Silvergate Capital
+1.1 (+1.18%)
Bakkt
-0.05 (-1.69%)
AMD
-1.3 (-1.43%)
Nvidia
-2.68 (-1.49%)
Ideanomics
+
Riot Platforms
-0.1 (-1.31%)
OSTK
+
Pareteum
+
Srax
+ (+0.00%)