Crypto Stocks Bounce After $6 Billion Drop as Bitcoin Churns

Crypto Stocks Bounce After $6 Billion Drop as Bitcoin Churns

Bloomberg

(Bloomberg) – At their highs, five electric-vehicle startups that went public through mergers with special purpose acquisition companies were worth $60 billion. The corrections that followed have been brutal.Three of the companies plumbed new lows this week as short-seller attacks, management turmoil and execution issues lead investors to reconsider their prospects. They’ve lost more than $40 billion of market capitalization combined from their respective peaks.The sliding valuations of Nikola Corp., Fisker Inc., Lordstown Motors Corp., Canoo Inc. and Arrival Ltd. underscore the risks surrounding the blank-check boom. Unlike in a traditional initial public offering, going public via SPAC allows companies to make forward projections to investors during their listings. This was key to ginning up interest in EV companies – all five are still working on delivering their first vehicles to customers.Here’s a breakdown of what’s happened at each company:NikolaFounder Trevor Milton burst onto the scene last year boasting that he could “out-Elon” Tesla Inc.’s Elon Musk. Days after his battery-electric and hydrogen-powered truck maker debuted on the Nasdaq in June, it was worth almost $29 billion, rivaling Ford Motor Co. at the time.When Bloomberg News reported that Milton had exaggerated the capability of his first truck years before the company went public, it got the attention of Hindenburg Research. The small short-selling firm produced a lengthy report accusing the company of deceiving investors. The U.S. Securities and Exchange Commission opened an investigation, and Milton resigned soon after.Early this year, the company cut its projection for semi-truck production this year to 100 units, one-sixth of its earlier plan. The shares have recovered somewhat since dipping below $10 in April.FiskerThe second EV venture founded by longtime auto designer Henrik Fisker announced its reverse merger a month after Nikola’s listing. While the company was more than two years from starting production, its plan to market an under-$40,000 sport utility vehicle and outsource the manufacturing work to others turned heads. Its market value peaked at almost $8 billion in February.The catalysts for Fisker’s decline to below $3 billion this week have been less clear than some of its peers. The company appeared to lose out as investors grew more bullish about incumbent automakers’ EV prospects. Its shares are surging in early trading after an announcement late Thursday of plans to develop an EV with Foxconn Technology Group and build it in the U.S.Lordstown MotorsThen-Vice President Mike Pence attended Lordstown’s unveiling of its Endurance work truck in June at the factory the company took over from General Motors Co. While it was a risky move championing a company with just 70 full-time employees, the Trump administration was eager to embrace a startup trying to revive an Ohio plant that once employed 10,000 people.Less than six weeks later, Lordstown found a SPAC suitor. Boasts about non-binding orders gave way to another attack by Hindenburg Research, which leveled accusations similar to the ones aimed at Nikola – that Lordstown had misled investors. The SEC has been looking into the claims. Lordstown is now valued at $1.2 billion, less than a quarter what it was worth in mid February.CanooThe startup founded by a pair of former BMW AG executives unveiled a seven-seat prototype in late 2019, struck a deal early last year to help Hyundai Motor Group develop EVs, then another agreement in August to go public. In January, the Verge reported it had met with Apple Inc. about its car ambitions.That momentum is now long gone. The company announced a hard pivot in its business plans in March, deciding to de-emphasize engineering services for other companies and the subscription business model that was part of its original pitch to investors. It has replaced top executives, including its chief financial officer, and said it hasn’t addressed material weaknesses in its financial controls identified more than a year ago. Last month, one of its co-founders resigned the CEO position.ArrivalThe company pledging to build electric vans and buses as well as so-called microfactories to manufacture them had assembled big-name backers before its SPAC deal, including BlackRock Inc., Hyundai and United Parcel Service Inc.Last week, the London-based company founded by Denis Sverdlov, a former Russian deputy minister, said it will partner with Uber Technologies Inc. to develop an EV that’s purpose-built for ride-hailing. While Arrival shares haven’t sustained the immediate gain following that announcement, the company’s valuation is the highest among the five at $10.5 billion.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

Investors take note: Big crypto questions remain unanswered

Billionaire entrepreneur and Tesla founder Elon Musk went out of his way to mention his favorite cryptocurrency multiple times when hosting “Saturday Night Live” recently. This publicity stunt perfectly captured the current debate: Are cryptocurrencies worthy of prime-time attention? Or destined to be just another punchline?

Nobody knows for sure, despite social media threads trying to convince you otherwise. Your neighbor might already be a cryptomaniac, but as for its investment merits, there’s far more about digital currencies that remain uncertain.

Here are some of the biggest questions:

Does the world need crypto? Cryptocurrencies provide a digital alternative to traditional government-backed money (fiat currencies) such as the U.S. dollar. The fact that dollars are backed by the U.S. government is what makes them safe and reliable, but it also means each dollar’s relative value is affected by policies of central banks such as the Federal Reserve.

Crypto believers argue there is global demand for a decentralized currency whose value cannot be manipulated by central banks or government actors. Many digital currencies, including Bitcoin, also have a purposely limited supply and may be more resistant to inflation.

What kind of investment is it? The name would imply these are currencies, but most trade with exceptionally high volatility more akin to penny stocks. The majority have limited volume and require specialized accounts to access. It has been suggested the proper way to view cryptocurrencies is as “digital gold.” That is, an asset uncorrelated to stocks and bonds that will hold its value in times of economic distress.

The right way to categorize crypto remains up for discussion, but in three weeks of COVID-induced economic distress in February and March 2020, it’s worth noting that Bitcoin lost 60% of its value. Gold, over the same period, was flat.

How will they be taxed and regulated? The short answer is crypto-related gains could be subject to less-favorable tax treatment than traditional investments. If a person owns several cryptocurrencies and uses more than one to purchase goods and services, you can see how “everyday transactions” could result in frequent short-term gains (or losses) upon buying and selling.

Central banks and federal governments, meanwhile, could decide to regulate digital currencies in a way that significantly restricts their appeal. Whether it’s to increase tax revenue or maintain authority, such a development could severely hurt crypto’s popularity and price.

Which ones will survive? If you are among the slim minority who can name five of the more than 6,700 publicly traded cryptocurrencies them, that leaves 99.9% you have never heard of. That matters because if there’s one thing we know about cryptocurrencies, it’s that there will be far fewer winners than losers.

Think back to the tech bubble of the late 1990s. Hundreds of startup companies raced to outrageous stock prices based on the premise the internet would change the world. Guess what? The internet did change the world, and most of those companies still either disappeared or lost most of their value anyway.

In other words, being right about a new technology or trend does not guarantee investment success.

Ben Marks is chief investment officer at Marks Group Wealth Management in Minnetonka. He can be reached at ben.marks@marksgroup.com. Brett Angel is a senior wealth adviser at the firm.

What crypto insiders think about Elon Musk’s Bitcoin U-Turn

Cyptocurrency enthusiasts got a nasty shock Wednesday when Elon Musk, founder of Tesla Inc. and the second-richest person on the planet, announced on Twitter that his automaker wouldn’t accept payment in Bitcoin any more due to environmental concerns.

After all, this is the same man who just a few months earlier said Tesla bought into Bitcoin, to the tune of $1.5 billion. He tweeted “True" in response to a thread citing research that mining the token might actually spur the uptake of renewable energy, from Ark Investment Management LLC. Bitcoin mining is known to be energy-intensive, with the industry prizing cheap and plentiful power supplies.

Bitcoin slid as much as 15% to nearly $46,000 before recovering. It was down 6.4% at $51,039 as of 2:45 p.m. in Hong Kong.

Here’s what some people in the crypto industry have to say about the development:

New Highs Await?

“This may be the selloff that sets Bitcoin up for new all-time highs," said David Grider of Fundstrat Global Advisors LLC. “We think the news is overblown and wouldn’t be surprised if Tesla is signaling plans to make crypto ‘greener.’" In a note Wednesday, Grider said Bitcoin has been consolidating for months as its market dominance has waned, but he’s still bullish, with a target of $100,000.

Seeking an Explanation

“The most logical answer is that he’s feeling pressure" from people who think “that one can’t be green and own crypto," said investor Michael Terpin, calling that position “uninformed."

“First, there’s virtually no energy expending in SENDING Bitcoin; and the mining of new coins to keep the network secure is still a far lower amount of energy (and 70% of it from renewable sources) than the amount of energy expended to mine the world’s gold or power the global banking systems."

Watching Other Cryptocurrencies

It wasn’t lost on some pundits that Musk might have his sights set on boosting a rival coin with a greener, perhaps even fluffier, profile. One of the most-liked replies on Twitter to Musk’s original statement was from Billy Markus, the co-creator of Dogecoin – the Shiba Inu-themed cryptocurrency that started as a joke in 2013. That token has become a favorite of Musk’s, and a darling among the retail set of investors and enthusiasts.

“If only there was a merge-mined cryptocurrency that had a much smaller carbon footprint than Bitcoin, and also had a dog on it," Markus said.

Doesn’t Add Up

“Broadly it’s a bit surprising given Tesla bought Bitcoin for their treasury in January and the argument is the same whether you’re using Bitcoin as a store of value or for transactional purposes," said Vijay Ayyar, head of Asia-Pacific at Luno Pte., in an email. “So it doesn’t add up. Usually in such cases there are unknown motives at play."

It Can’t Be

For some, the reaction bordered on disbelief.

“Tell me your account got hacked without telling me your account got hacked," said Yassine Elmandjra, crypto analyst at Ark, in a reply to Musk’s tweet.

Chance to Buy

“In retrospect, it was a great buying opportunity," quipped longtime crypto enthusiast and co-founder of Gemini Trust Co. LLC, Cameron Winklevoss, on Twitter.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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