The whipsaw moves in cryptocurrencies this week has given investors an opportunity to snap up one crypto-related stock.
It has been quite a week for the world’s largest cryptocurrency.
Bitcoin started falling last week after Tesla (NASDAQ: TSLA) CEO Elon Musk said the electric carmaker had “suspended vehicle purchases using Bitcoin” out of concern over “rapidly increasing use of fossil fuels for Bitcoin mining and transactions.”
“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,” Musk said in a tweet. “Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.”
Then this Wednesday, Bitcoin plunged as low as $30, 201.96 after the People’s Bank of China released a statement reiterating that the digital tokens can’t be used as a form of payment. Retail investors panicked and crypto trading platforms broke down, only intensifying the sell-off early in the day.
But then ARK Invest’s Cathie Wood said she still believed Bitcoin would break above $500,000, and Musk tweeted about Tesla’s diamond hands sending a message to the crypto world that the carmaker was holding onto its Bitcoin even amid the wave of selling, and the coin surged 33%.
Similar whipsaw moves were seen across the cryptocurrency market with Ether dropping more than 30% to $2,235 before bouncing back to $2,797, and Dogecoin also falling around 32% to around $0.29 before it surged above $0.40 in less than 24 hours.
“This is going to be the first ‘welcome to crypto’ day for a lot of new entrants,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial, on Wednesday. “The history of these assets has been littered with aggressive rallies and sickening selloffs.”
Strategic Wealth Partners’ Mark Tepper says this week’s wild move in the space has set up an opportunity to buy one crypto-related stock and sell another.
“I would buy Silvergate Capital (NYSE: SI) and I would sell Coinbase (NASDAQ: COIN) and here’s why,” Tepper said. “Remember years ago when there were stock brokers. … They’re basically extinct today because over time the stock brokers were replaced with investment advisors who got paid a recurring asset under management fee. Coinbase is the stockbroker of cryptos.”
Coinbase is a crypto exchange that gets paid a commission on every transaction, and Tepper predicts it will get commoditized similar to no-fee industry changes for brokers such as TD Ameritrade.
The newly public stock plunged to a record low of $208 on Wednesday.
“Coinbase’s trading debut coincides with the top for Bitcoin and many traders can’t make a convincing argument that it will be able to recover all those losses since then,” said Edward Moya, senior market analyst at OANDA.
Silvergate, on the other hand, has a better business model, Tepper argues.
“Silvergate makes money off the money [such as interest on loans],” Tepper said. “Both companies are going to grow at about 40%, but Silvergate trades at about less than half the multiple of Coinbase.”
Silvergate looks good from a technical perspective as well.
The stock has surged nearly 27% over the last week, breaking out of a downward trading pattern, the bottom of which hit the 61.8% Fibonacci retracement of the stock rally from September 2020 through mid-February 2021.