Bitcoin and other cryptocurrency are on the decline, with at least 5% falling in the last 24 hours.
Shares of crypto-related stocks are under pressure, including Coinbase global (ticker : COIN), down 2.6% to $245 on Thursday. Other crypto stocks also fell, including Grayscale Bitcoin Trust(GBTC), Riot Blockchain(RIOT), MicroStrategy [MSTR], Silvergate Capital (“SI”) and (SQ).
There are many reasons why crypto is under threat: regulatory and government crackdowns on Bitcoin and environmental concerns about mining crypto tokens.
Converging technical trading pressures could also be a possibility. The summer has seen a decrease in trading volume, which has made cryptos more volatile. This makes them more vulnerable to selling pressure.
Fundstrat’s lead digital asset strategist David Grider stated that Bitcoin has been taking in large gains starting in 2020 and early 2021. However, the cryptocurrency market is still in a volatile consolidation market.
Some Wall Street bulls aren’t deterred by the fact that crypto tokens, and blockchain technology, are becoming more embedded in the financial system.
MoffettNathanson analyst Lisa Ellis maintained a $600 price target and reiterated her bullish call for Coinbase. She listed four reasons why Coinbase investors can feel optimistic about crypto’s long-term success.
One is that blockchain technology provides improvements over traditional financial networks. It allows secure arm’s length transactions without a central third party (like a bank, government entity) and without a centralized third-party. She notes that transactions recorded in blockchain are part of an “immutable record” and are not subject to manipulation or fraud.
Second, technology is maturing and overcoming technological obstacles, even though it has its challenges.
Crytpos are also gaining popularity for more uses. Although Bitcoin can’t be used as a means of exchange because it is too volatile, it can still be used as a’store-of-value’ like digital gold. Ether and other cryptos may be used for transactions or smart contracts. Cryptos can also be used to create and identify digital assets such as non-fungible tokens, NFTs.
Fourth, she argues that crypto ecosystem is becoming mainstream, with major companies adopting it, custodianing crypto assets and creating new uses cases.
Fidelity Investments and PayPal Holdings are two examples of mainstream companies that are now involved with crypto, Ellis explains. JPMorgan Chase (JPM) is also developing a JPM Coin to facilitate digital payments. (FB) and other supporters of the pending Diem stablecoin could soon be able to provide a major digital token.
Another positive for Coinbase is the launch of central bank digital currencies also known as CBDCs. China has launched a digital version for the yuan already in a pilot phase. All the major central banks, including Federal Reserve, are currently studying or actively developing digital tokens for their currencies.
Ellis writes that the issuance of CBDCs is a positive move for Coinbase. It would give crypto technology ‘tremendous credibility and drive adoption. CBDCs may also replace stablecoins, privately issued digital tokens – a dynamic that could benefit Coinbase. The exchange could also be involved in the development of CBDC infrastructure to store and transact.
All of these points are valid. These points may be already well-known to market. It may take a complete reversal in the bearish crypto narrative to get stocks moving again.
El Salvador is now proving to be a case study for how difficult it will be for Bitcoins to become mainstream. In June, the country passed a law that will give Bitcoin legal status beginning in September.
J.P. Morgan analysts warn that the “Bitcoinization” of El Salvador is not going as planned. They wrote that there were some signs early on that adoption might be difficult, at least initially, in a note they sent out Thursday.
Surveys of consumers and businesses in the country revealed widespread distrust in Bitcoin transactions. According to the El Salvador Chamber of Industry and Trade, nearly all respondents said that they do not want to receive or be paid in Bitcoin.
International banks and financial institutions are not keen to accept Bitcoin in their financial models, further complicating the situation. El Salvador was informed by the International Monetary Fund that using Bitcoin as legal tender could complicate any aid package.