Bitcoin, after surging to a price of almost $70,000 last year, has crashed back to around $40,000 as the red-hot crypto market cools.
The bitcoin price has somewhat recovered from lows of $35,000 per bitcoin last month but has failed to rally convincingly amid fears of increased regulation and the looming end of pandemic-era stimulus measures.
Now, veteran fund manager Jim Chanos has issued a serious warning over bitcoin and crypto exchange Coinbase—calling it a “bubble stock.”
Want to stay ahead of the bear market and understand what Fed interest rate hikes mean for crypto? Sign up now for the free CryptoCodex—A daily newsletter for crypto investors and the crypto-curious
The bitcoin price has fallen sharply in recent months, raising fears over the future of crypto … [+]
2018 Chesnot
“Coinbase is what we would call one of the bubble stocks,” Chanos, the founder of Kynikos Associates, told CNBC in an interview, revealing he’s now shorting Coinbase—meaning he’s betting the price of Coinbase stock will fall.
“We think that as competition increases in crypto, and this is not a call on crypto or bitcoin prices or anything like that, but we think as competition increases amongst the exchanges, you’re going to see fee compression, and as it is Coinbase will probably not be profitable this year with a $40 billion market cap.”
Coinbase, which made its closely-watched Nasdaq debut in April last year, has seen its value plunge by almost half, falling sharply along with the bitcoin price.
“We’re seeing the economics starting to diverge,” said Chanos, referring to Coinbase stock’s link to the bitcoin price and somewhat pouring cold water on expectations the exchange will be able to diversify its earnings with expansion into the non-fungible token (NFT) market that has seen huge growth over the last year.
This week, Needham equity research analyst John Todaro said Coinbase could see an additional $1.2 billion in revenue via the NFT market. Late last year, Coinbase chief executive Brian Armstrong said the exchange’s still-to-launch NFT trading service had a waiting list of 1 million users, recently adding the NFT market remained strong despite trading volumes falling sharply.
“There are plenty of companies that are in the new economy that have real growth, real cash flows with real earnings, but there’s a lot that are just being sold on stories. And we would argue that Coinbase is one that’s being sold on a story,” Chanos added.
Sign up now for CryptoCodex—A free, daily newsletter for the crypto-curious
The bitcoin price has swung wildly over the last year, twice soaring over $60,000 per bitcoin only … [+]
Coinbase
However, many bitcoin and crypto investors remain upbeat despite the latest price crash.
“The $40,000 level remains an important psychological barrier and the fact that it was reclaimed despite the backdrop of mounting geopolitical and macroeconomic pressures actually shows bitcoin’s relative strength,” Mikkel Morch, investment fund ARK36’s executive director, said in emailed comments.
“The volatility hasn’t been particularly high if we take into account a barrage of largely negative news over the past few days with Covid cases rising and China’s Shenzhen province going into lockdown, which will surely aggravate the supply chain issues.”
Morch predicts that “institutional investors have once again started contemplating bitcoin as a safe haven, store-of-value kind of asset,” adding: “If we are seeing the beginnings of a new monetary world order with a weaker dollar, bitcoin will likely be one of the long-term beneficiaries of this shift.”
Earlier this month, legendary investor Jim Rogers warned unprecedented sanctions on Russia’s banks, wealthy individuals and the country’s central bank means “the end of the U.S. dollar”—forecasting countries will start to “look for a competitor” to the dollar and naming China, Russia, India, Iran, Brazil as all interested in reducing their dollar reliance.
