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Low Prices: Crypto Stock Bloodbath: Cheap Entry? | news

• Doom and gloom on the cryptocurrency market: cyber currencies and crypto stocks under pressure
• Numerous negative factors lead to sales
• Low prices. Opportunity to start?

The cryptocurrency market is in a state of doom right now. After the new all-time highs were set at the end of 2021, 2022 has so far been in steady decline. However, cryptocurrency companies have been punished even more severely than actual cyber currencies. Because while Bitcoin has lost around 54% since the beginning of the year, the Coinbase card has dropped by almost 80%. And the crypto platform is by no means alone in this. Bakkt shares fell more than 74% this year, while bitcoin mining company Marathon Digital also fell 80%. In light of this discrepancy, the question arises as to whether crypto stocks are already oversold and low prices can be used to get started.

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Numerous stressors

Various factors are responsible for the recession. Therefore, global inflation is at a very high level, which is now getting tighter monetary policy led by central banks. Liquidity is withdrawn from the markets, which depresses sales and profits for companies. Furthermore, the macroeconomic environment has also clouded. High energy prices weigh on national economies, which has prompted the OECD, for example, to downgrade its growth prospects for the global economy. Not a few experts and economists even expect a recession. In this context, investors avoid risk and increasingly separate themselves from riskier assets such as cryptocurrencies and stocks. “Cryptocurrency fans are used to volatility, but this roller coaster to the bottom is getting harder and harder to digest. Now that the era of cheap money is coming to an abrupt end, traders are becoming much more risk averse. and turn their backs on cryptocurrency assets, ”comments Susannah Streeter Lansdown of Hargreaves against Bloomberg.

Difficult to make a prediction

As a result, it is difficult to predict whether the downward trend in cryptocurrencies will continue longer or whether a low has now been found. Oanda analyst Ed Moya told Bloomberg: “The sentiment for cryptocurrencies is horrifying as the global cryptocurrency market cap has dropped below the $ 1 trillion mark. Bitcoin is trying to find a low, but if prices drop below 20,000 – If dollar levels drop, it could get even uglier. ”

A look at P / E

When asked what the situation is with cryptocurrencies, it is worth taking a look at the price / earnings ratio (P / E). This is calculated by dividing the market price by the earnings per share. This metric helps identify whether a company is currently rated low or high. In general, a P / E ratio of 20 or more is considered overvalued, below this a stock is considered cheap. However, if the P / E ratio is negative, it means that the rated company is in the red. If you look at various cryptocurrency stocks now, it quickly becomes clear that the P / E ratio doesn’t speak for a rumor here. This translates into a negative price-to-earnings ratio for Marathon Digital and Bakkt. Only Coinbase shares have a positive P / E ratio of 4.53 (as of June 14, 2022).

Beware of mining stocks

A look at several cryptocurrency stocks also reveals that stocks of mining companies are coming under particular pressure in the current environment of high energy prices, high inflation and rising interest rates. After all, they run the risk of energy-intensive Bitcoin mining becoming unprofitable as electricity prices skyrocket. For this reason, numerous mining companies have already been forced in recent months to separate from their holdings in BTC in order to cover their operating costs. These companies also suffer from the fact that they have no pricing power and are solely dependent on the prices of computer currencies. So you can’t pass higher costs on to customers.

This should also be kept in mind by investors who do not invest directly in cryptocurrencies or cryptocurrencies, but instead rely on Bitcoin ETFs. Because these often consist largely of those Bitcoin prospecting companies, as BTC-ECHO points out. This can prove to be an opportunity if the market mood changes and things start to bounce back. However, as no one knows when this will happen, there is also a risk that a mining company will not be able to hold out until then and will fail before then.

Be careful when entering

According to BTC-ECHO, anyone who is playing with the idea of ​​using the currently low prices to (re) enter cryptocurrency stocks should first take small steps, i.e. expand their investment in tranches. However, it should always be borne in mind that sentiment on the cryptocurrency market depends even more on the psychology of the market. This means that when things go wrong, panic selling occurs more quickly, but on the other hand it can also rise disproportionately if the mood turns positive. Ultimately, each investor has to decide for himself whether it can be assumed that the current negative factors are already sufficiently priced in the prices. In any case, strong nerves are needed.

Financeen.net editorial staff

This text is for information purposes only and does not constitute an investment recommendation. Finanzen.net GmbH excludes any claim for recourse.

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