Shares of Coinbase global (NASDAQ:CURRENCY) were demolished today. The stock was down nearly 12% at 3:45 p.m. ET on Friday, adding to an absolutely brutal week for it and other companies tied to the crypto market. Along with the crypto exchange, the crypto bank Silvergate Capitalit is (NYSE:IF) stocks also fell today (down 12%), as did stocks of the best Bitcoin (CRYPTO: BTC) holders like MicroStrategy (NASDAQ: MSTR) (down nearly 16%) and Bitcoin funds Grayscale Bitcoin Trust (OTC: GBTC) (down nearly 13%).
The reason for the sale is Bitcoin itself. The leading cryptocurrency has seen a spill of more than 10% in the past 24 hours. For companies and funds like MicroStrategy that hold large bitcoin positions on their balance sheets, the reason for their stock’s fall is quite simple: a lower bitcoin value means the company is worth less.
Coinbase and Silvergate are a slightly different story, however. Coinbase doesn’t own a lot of Bitcoin directly, and Silvergate is just a bank that operates a crypto exchange from which institutional investors can send US dollars to customers 24/7 (a key feature since exchanges crypto never close).
The concern for Coinbase is therefore more about the trading volume of Bitcoin and related cryptos, since the company receives a commission each time someone makes a transaction. And for Silvergate, lower crypto prices could mean lower customer funds on deposit for it to earn interest. Nonetheless, a drop in Bitcoin does not automatically equate to a drop in earnings or revenue for either company.
The nascent crypto industry is prone to wild swings in value, and so stocks related to the actual prices of digital currency will tend to follow suit. However, the strong sell-off in recent weeks is accompanied by a more widespread correction in high-growth stocks. The Federal Reserve has signaled it will raise interest rates this year, and highly valued investments are particularly sensitive to rate hikes.
It’s unclear when the crypto market crash will stop, but if you still like the long-term prospects of companies enabling blockchain technology and its commerce, big sell-offs like this tend to be opportune times to snack and invest more for the long term. Remember to be patient and expect a lot more volatility in the coming weeks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.