The current market selloff suggests that when stocks sneeze, cryptocurrencies can come down with something worse than a cold.
Crypto’s correlation with stocks had become well established last year as institutional investors piled into the assets and it became more established. The link managed to hold even after Russia’s invasion of Ukraine roiled markets in February.
But Bitcoin, the first and biggest cryptocurrency, is down about 34% this year, having slipped below $30,000 on Tuesday. By contrast, the
Nasdaq
is down 25%. Crypto intelligence provider Glassnode reports that some 40% of Bitcoin holders are now underwater.
Other digital assets have fared worse. Ether, the second-largest cryptocurrency, slipped to its lowest since 2021. TerraUSD, a stablecoin intended to be closely tied to the U.S. dollar, fell as low as 30 cents. The cryptocurrency that backs it, Luna, has also plummeted.
Shares of
Coinbase
,
the platform for crypto trading, reported a wider than expected loss on Wednesday. Its shares tanked, falling 83% from their all-time high in November.
Everyone expects crypto to be volatile. That is part of its charm, and has allowed many traders to profit from it. What goes up very quickly can also sink fast. Bank of England Governor Andrew Bailey warned investors to only get into crypto if they are prepared to lose all their money.
The question was always whether crypto assets are a bubble whose value can sink to zero when market optimism evaporates.
We may have an answer in the very near future.
—Brian Swint
*** Join Barron’s senior writer Lauren Foster today at noon as she chats with bestselling author Robert G. Hagstrom, CIO and a senior portfolio manager at EquityCompass, about the investing mind-set and ideas that have shaped Warren Buffett’s legendary career. Sign up here.
***
Musk Would Reverse Twitter’s Ban on Donald Trump
Tesla
CEO Elon Musk said he would reverse Twitter’s ban of former President Donald Trump from the platform after he buys the social-media company, calling the decision last year a mistake that alienated a large part of the country.
-
Twitter
permanently suspended Trump’s account in January 2021 for violating its Glorification of Violence policy, saying allowing tweets could lead to further violence after the Jan. 6 breach of the U.S. Capitol. “I would reverse the permaban,” Musk said during an interview at a Financial Times virtual conference on autos. - Musk said he had spoken to Twitter founder and former CEO Jack Dorsey and that the two agreed that permanent bans of accounts should be extremely rare and more for bots or spam scams. Dorsey tweeted that “permanent bans of individuals are directionally wrong.”
- Musk has offered to buy Twitter for $44 billion, which Twitter’s board has accepted. Musk pointed out that the transaction still has to be approved by Twitter’s shareholders, among other steps, so the ban reversal isn’t definite.
- Musk has compared Twitter to a public square, but said it suffers from a politically left-leaning bias and needs to be more evenhanded. He has called for changes including making Twitter’s software open code and reducing advertising.
What’s Next: Trump, a prolific tweeter who once had 88 million followers, was also banned from Twitch,
Snapchat
,
YouTube,
Facebook
,
and Instagram after the Jan. 6 attack, and has since started his own social-media platform, Truth Social. He has said he doesn’t plan to return to Twitter.
—Janet H. Cho
***
Coinbase’s Shares Plunge After First-Quarter Loss
Coinbase’s earnings fell short of estimates, and revenue fell 27% from last year, the effect of lower cryptocurrency asset prices plus volatility that began in late 2021 and has persisted. With Bitcoin at half its November peak price, Coinbase shares are at their lowest since last year’s initial public offering.
- The crypto exchange operator had a net loss of $430 million and revenue of $1.165 billion for the first quarter. Analysts expected revenue of $1.476 billion. Its shares sank as much as 19% in after-hours trading before recovering some ground.
- Coinbase said it believes current market conditions aren’t permanent and it remains focused on the long-term. Both transaction fees and the volume of monthly transacting users declined, and Coinbase said it expects trading volumes to fall again in the second quarter.
-
Coinbase shares are down 83% from a high of $368.90 last November and down 74% from its much-anticipated IPO a year ago. Shares of
Roblox
,
a digital gaming platform, are also down 67% from its IPO one year ago. - El Salvador President Nayib Bukele said Bitcoin’s price drop below $30,000 was a buying opportunity. The country made the crypto a legal tender last year when it owned 400 Bitcoins. With the most recent dip, it bought another 500 tokens, he said. It now has 2,301 Bitcoins, or $72 million.
What’s Next: Coinbase has started Coinbase NFT, a web3 social marketplace for nonfungible tokens designed to help users discover, buy and sell NFTs.
—Ben Levisohn and Janet H. Cho
***
Biden Continues to Push Against Inflation as Midterms Loom
President Joe Biden has been talking up how he plans to combat inflation as the midterm elections loom in the fall, trying to draw a contrast between his administration and the Democrats and Republican opponents who have seized on high inflation as a campaign issue.
- Biden said again on Tuesday that lowering inflation is his top domestic priority, including plans to ease supply-chain bottlenecks within the U.S. food supply, and bring down the rising cost of gasoline at the pump, which the president has blamed on Russia’s war on Ukraine.
- Biden said Ukraine has 20 million tons of grain in its storage silos that it is trying to get to market, which would ease high food prices worldwide, but that Russian President Vladimir Putin’s war is preventing those exports.
- But Republicans say their political opponents are trying to shift blame for soaring price increases on everything from food to fuel.
- Total household debt rose 1.7% to $15.84 trillion in the first quarter, higher than even before the Covid-19 pandemic, the Federal Reserve Bank of New York said. Mortgage balances rose by $250 billion, auto loans increased $11 billion, and credit-card balances dropped $15 billion.
What’s Next: Biden said the passage of spending on green and renewable energy projects could cut household utility bills by up to $500 a year. The president will travel to Illinois today to visit a family farm and talk about food prices.
—Janet H. Cho
***
Occidental Posts Record Profit as Energy Concerns Boost Prices
Occidental Petroleum
was the latest energy giant to post record quarterly profit late Tuesday, as concerns about global energy supplies lifted prices. Shares in what is one of the biggest producers of U.S. onshore oil and gas, were rising around 1.5% in the Wednesday premarket.
- Occidental’s first-quarter profit rose to a record $4.7 billion on the back of a 65% increase in realized oil prices in the period, despite seeing production fall back. The spike in prices has bolstered oil companies everywhere.
- But Occidental’s huge footprint in the Permian Basin of West Texas and New Mexico, which allows it to produce 80% of its oil in the U.S., gives it more security than those who rely more on fields overseas.
- Brent, the international oil benchmark, was also up, more than 2.7% to $105.28 a barrel, and futures for West Texas Intermediate crude, the U.S. benchmark, jumped 3.3% to $102.97 a barrel on relief over a dip in Covid-19 cases in China. Lockdowns in Shanghai had caused concerns about demand.
What’s Next: Occidental maintained its dividend level for now but says it will consider raising it after it pays down more debt. The company has ambitious plans to build facilities to capture greenhouse gas emissions from the air as it aims to become a major carbon management company.
—Brian Swint
***
Carvana to Cut Jobs as Used-Car Business Hits Road Blocks
Carvana
,
the online car dealer that expanded aggressively during the pandemic’s used-car sales boom, plans to cut 12% of its workers. CEO Ernie Garcia III told employees the company overshot its growth strategy.
- Founded in 2012, Carvana reached one million vehicles sold in January. It has spent the past few years opening its auto “vending machine” towers all over the country. But market conditions have deteriorated recently, Garcia said in an email to employees reviewed by Barron’s.
- Carvana’s first-quarter sales fell from the fourth quarter, the first time it slipped in a back-to-back quarter, and its shares have fallen 59% in the weeks since that late April report.
-
Sales were strong during the pandemic, when people didn’t want to venture far from home and had bank accounts puffed up with federal stimulus funds. Online car shopping took off. Carvana’s recent troubles echo those of other hot pandemic companies such as
Peloton
and
Netflix
. -
Carvana closed its purchase of the Adesa U.S. operations of used-car auction sites from
KAR Auction Services
for $2.2 billion, adding 56 locations with 6.5 million square feet of facilities.
What’s Next: Carvana said it was already seeing positive trends and expected to continue to gain market share in 2022, but it won’t give specific near-term guidance this year, citing high used-vehicle prices, rising interest rates, and high fuel prices potentially affecting consumer behavior.
—Liz Moyer
***
Dear Quentin,
I have a boy and a girl, both great kids and both in college. When they were teenagers my wife died which left them with varying levels of trauma. My son was 14 and my daughter was 16, and it hit my daughter harder. My son is naturally very gifted and is about to graduate with a degree in mathematics from a major university. He works hard, but not too hard. He is gifted.
My daughter is three semesters away from graduating with a degree in mechanical engineering from a branch campus of a major university. She is smart, but not gifted like my son so she has had to work harder than anyone I have ever seen to be an engineer. I am very proud of her willingness to do what most kids would not do.
My son, because of his degree and his gifts, was able to work during school. He had a job in the cafeteria so when Covid-19 hit he lost his job. He made more from unemployment than if he was working. My daughter cleaned houses and did odd jobs when she could. She had worked her first year and it was just too hard.
My daughter struggled more than my son after my wife’s death and went to college with little direction for a couple of years, majoring in communications. When she changed schools and majors to go into engineering very little of her degree transferred. I have given my daughter far more money for college. I have paid tuition for both kids, they pay their own living expenses after two years in the dorms.
However, because my son is on track and my daughter has been going much longer I have paid $20,000 more in tuition for her than for him. In addition, my son received unemployment and had 19 months of Social Security.
How can I be fair to both? I have given my daughter a lot more money than my son and she has taken that gift and used it wisely to better herself and set up a bright future. My son has not squandered his, but I do not feel he will have the same outlook and I worry. I was wondering if I should take the difference between what I gave her and what I gave him, and invest it for him: $20,000 now will be more than half a million for him at retirement.
I would appreciate your thoughts. I love my kids and want them to have the life they deserve but I want to be fair to both.
—The Father
Read The Moneyist’s response here.
—Quentin Fottrell
***
—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner
