The cryptocurrency market is witnessing a rangebound trading in August. This space is likely to remain rangebound in the near future. At present, cryptocurrencies are suffering from both positive and negative factors of equal weight. These factors are unlikely to allow this space to tilt toward any specific direction.
Positive Factors
The largest thrust for the crypto space has come from institutional investors. BlackRock Inc.’s (BLK) decision to launch a Bitcoin ETF and the decision of The Charles Schwab Corp. (SCHW)-led consortium to create a new crypto exchange called EDX Markets, have attracted several investors toward cryptocurrencies.
The latest addition to this league is PayPal Holdings Inc. (PYPL), which has become the first major U.S. fintech company to offer its own crypto token with a dollar-pegged stablecoin known as PayPal USD.
U.S. banks are currently under rating watch. Moody’s Investors Service cut the rating of 10 small and mid-sized U.S. banks by a single notch. Moreover, the rating agency put six big banks under review for a potential downgrade. Fitch Ratings warned that it might downgrade the ratings of more than a dozen U.S. heavyweight banks in the near future.
Moreover, S&P Global cut credit ratings on some regional lenders with high commercial real estate exposure. Cryptocurrencies are generally recognized as an alternative to the banking sector. Therefore, the banking sector turmoil is likely to boost cryptocurrencies.
Finally, the blockbuster second-quarter fiscal 2024 earnings results of NVIDIA Corp. (NVDA) — the leading generative AI-based chipset developer — has provided a boost to the crypto space. This is because its graphic processing units are pivotal to data centers, artificial intelligence, and the creation of crypto assets.
Negative Factors
On Aug 25, at the Jackson Hole Annual Policy Symposium of the Fed, Chairman Jerome Powell warned that the inflation rate remains highly elevated despite steady progress in the past year. Consequently, the central bank is open for more hikes in the interest rate in the near future.
According to Powell, “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
Higher interest rate is detrimental to high-growth sectors such as technology, consumer discretionary and cryptocurrencies. The debacle of the crypto market in 2022 was the result of the central bank’s aggressive rate hike and tight monetary control policies.
Moreover, yields on U.S. sovereign bonds remain highly elevated. The yield on the short-term 2-Year U.S. Treasury Note climbed to 5.076%. This yield is closely linked to the movement of the Fed fund rate. The yield on the benchmark 10-Year U.S. Treasury Note is currently at 4.23%. This yield touched 4.35% on Aug 21, its highest since November 2007.
Finally, the Wall Street Journal reported that SpaceX, the space travel company promoted by Elon Musk, wrote down the value of its bitcoin holdings by a total of $373 million in 2022 and 2021, and sold the crypto currency.
Stocks to Watch
NVIDIA Corp. NVDA reported second-quarter fiscal 2024 adjusted earnings of $2.70 per share, surpassing the Zacks Consensus Estimate of $2.09. NVDA posted revenues of $13.51 billion for the quarter, outpacing the Zacks Consensus Estimate by 20.89%. This compares to year-ago revenues of $6.7 billion. Management sees third-quarter revenues of $16 billion versus the Zacks Consensus Estimate of $12.34 billion.
NVIDIA has an expected revenue and earnings growth rate of 62.9% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 12.8% over the last seven days. NVDA currently sports a Zacks Rank #1 (Strong Buy).
Robinhood Markets Inc. HOOD operates a financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds, options, gold, and cryptocurrencies. HOOD buys and sells Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), and other cryptocurrencies using its Robinhood Crypto platform.
Robinhood Markets has an expected earnings growth rate of 57.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 18% over the last 30 days. HOOD currently carries a Zacks Rank #2 (Buy).
Coinbase Global Inc. COIN provides financial infrastructure and technology for the crypto economy in the United States and internationally. COIN offers the primary financial account in the crypto space for consumers, a marketplace with a pool of liquidity for transacting in crypto assets for institutions; and technology and services that enable developers to build crypto-based applications and securely accept crypto assets as payment.
Coinbase Global has an expected earnings growth rate of 84.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 21.7% over the last 30 days. COIN currently carries a Zacks Rank #3 (Hold).
PayPal Holdings Inc. PYPL operates digital wallets and allows users to buy, transfer and sell cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash and Litecoin. PYPL’s users can check out and pay using crypto to online merchants. Its mobile wallet Venmo also allows users to buy and sell cryptocurrency. PYPL has become the first major U.S. fintech company to offer its own crypto token with a dollar-pegged stablecoin known as PayPal USD.
PayPal Holdings has an expected earnings growth rate of 19.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 90 days. PYPL currently carries a Zacks Rank #3.
Interactive Brokers Group Inc. IBKR is a global automated electronic broker. IBKR executes, processes and trades in cryptocurrencies. IBKR’s commodities futures trading desk also offers customers a chance to trade cryptocurrency futures.
Interactive Brokers Group has an expected earnings growth rate of 39.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. IBKR currently carries a Zacks Rank #3.
Interactive Brokers Group, Inc. (IBKR): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report
Coinbase Global, Inc. (COIN): Free Stock Analysis Report
Robinhood Markets, Inc. (HOOD): Free Stock Analysis Report
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