The cryptocurrency market is probably in store for a “washout,” billionaire investor Mike Novogratz has said, after the Coinbase listing created a frenzy that drove up bitcoin and the likes of Dogecoin and XRP.
Novogratz, the founder and chief executive of crypto-focused investment company Galaxy Digital, told MarketWatch in a virtual event: “I’ve seen a lot of weird coins like dogecoin and even XRP have huge retail spikes, which means there’s a lot of frenzy right now.”
He added: “That never ends well, and so we’ll probably have a washout at one point.”
Novogratz also said: “In the next week, certainly we could have some volatility because of the excitement around Coinbase.”
Cryptocurrency exchange Coinbase went public on Wednesday, closing with a valuation of $65.4 billion, in what analysts have heralded as a coming-of-age moment for the crypto word.
Coinbase’s direct listing to the Nasdaq generated a lot of excitement around cryptocurrencies. It sent bitcoin soaring to an all-time high close to $65,000 and also pushed the ether, XRP and Dogecoin cryptocurrencies to records.
But bitcoin (BTC) has fallen quite sharply since Coinbase’s debut to below $62,959 on Thursday.
Despite his words of warning about the short-term outlook, Novogratz remains highly bullish on bitcoin, saying Coinbase’s IPO is “monumental” for the industry.
He predicted that bitcoin could hit $100,000 by the end of the year and may even be worth $500,000 in three years’ time.
Crypto entrepreneur Bobby Lee, who founded one of the first cryptocurrency exchanges, told Insider in March bitcoin investors should be more aware of the token’s wild bull and bear cycles.
He predicted there will be another “winter” when the currency falls dramatically and stays low for two or three years. But Lee is also bullish over the long term, saying bitcoin could even hit $1 million in future bull runs.
Ripple Labs’ XRP token reached its highest point in over three years Tuesday morning after the cryptocurrency company executives filed a motion to dismiss the US Securities and Exchange Commission’s lawsuit against themselves and the company.
XRP gained 28% to reach a 24-hour high of $1.73 Tuesday. Earlier this month, XRP topped $1 for the first time since 2018 on the back of a broader rally in the crypto space. XRP’s price moves now make it the world’s fourth largest cryptocurrency by market capitalization.
Legal filings from April 12 show that CEO Brad Garlinghouse and chairman Chris Larsen filed a motion to dismiss the SEC’s lawsuit against them permanently. If granted, it would end the lawsuit against them.
The SEC lawsuit filed in December accused Ripple of effectively running a $1.3 billion unregistered securities offering with its sales of XRP, which the regulator deemed a security and not a cryptocurrency.
The motion to dismiss comes after two small victories for Ripple last week, when the court denied the SEC’s request for eight years of financial data belonging to Garlinghouse and Larsen, and rejected the subpoenas served by the SEC on a number of firms that had sought to obtain the executives’ financial records.
The potential $100 billion valuation of Coinbase Global ahead of the cryptocurrency exchange’s trading debut is “ridiculously high,” said New Constructs CEO David Trainer, with an outline from the veteran stock analyst including his view that the company’s profitability faces the risk of being slashed.
Coinbase is set for a direct listing on the Nasdaq exchange on April 14. This week, the San Francisco-based company estimated a more than 800% jump in first-quarter revenue to $1.8 billion from a year earlier but noted that it is “very difficult to accurately forecast” revenue going forward because of market volatility.
“Even though Coinbase’s revenue surged over the past 12 months, the company has little-to-no chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion,” said Trainer in a research note from New Constructs released Friday.
Coinbase is currently the largest cryptocurrency exchange in the US by revenue, and its platform offers access to Bitcoin, Ethereum, and Litecoin, among other digital currencies.
Coinbase is a standout among companies with recent IPOs because it makes a profit, said Trainer, with core earnings rising to $317 million from about $17 million in 2020 year-over-year.
But overall, Trainer said his “calculations suggest Coinbase’s valuation should be closer to $18.9 billion — an 81% decrease from the $100 billion expected valuation.”
Among Coinbase’s risks is competition as the cryptocurrency market matures, and that could lead to transaction margins at the company to fall “precipitously.”
He pointed to sharp competition in late 2019 between brokerages over stock-trading fees and said such a “race-to-the-bottom phenomenon” is likely to emerge among cryptocurrency exchanges.
“Competitors such as Gemini, Bitstamp, Kraken, Binance, and others will likely offer lower or zero trading fees as a strategy to take market share,” he said. Also, if traditional brokerages begin offering customers the ability to trade cryptocurrencies, that would “most certainly cut down on the unnaturally wide spreads in the immature cryptocurrency market.”
He said, for example, if Coinbase’s revenue share of trading volume fell to 0.01%, which is equal to traditional stock exchanges, its estimated transaction revenue in the first quarter of 2021 would have been just $35 million, instead of the estimated $1.5 billion.
“The crypto markets are very young and we expect many more companies to compete for the profits Coinbase enjoys today,” Trainer said.
Crypto network Ripple Labs said on Tuesday it will acquire a 40% stake in cross-border payment hub Tranglo in an effort to strengthen its market presence in the Asia-Pacific region.
Tranglo’s infrastructure will support existing payment corridors, as well as enable RippleNet customers in additional countries to use the firm’s On-Demand Liquidity service. “RippleNet customers using ODL will also be able to leverage Ripple’s Line of Credit to free up working capital and scale cross-border payments into more markets than ever before” the company said in a statement.
Cross-border payment processing firm Tranglo will support the expansion of the offer in Southeast Asia, starting with the Philippines and then rolling out to other countries, the company said, adding it also offers credit lines to users.
RippleNet uses blockchain technology to make cross-border transactions easier. The XRP token, which runs on Ripple’s network, is one of the most widely traded, alongside bitcoin and Ethereum’s ether.
The digital asset market has been gaining momentum in Asia, despite India’s recent ban on bitcoin. Over 30% of cryptocurrency transactions between mid 2019 and mid 2020 took place in Asia, according to a Chainalysis report.
“Tranglo’s robust payments infrastructure coupled with their unparalleled customer service and quality makes them an ideal partner to support our expansion of On-Demand Liquidity starting with the Southeast Asia region.” Asheesh Birla, general manager of RippleNet, said.
Ripple is currently dealing with legal issues in the US due to its use of the XRP token. The Securities and Exchange Commission said the company had raised $1.3 billion worth of unregistered securities in the form of XRP, which the regulator believes is a security and not a cryptocurrency. Ripple has repeatedly disagreed.
This story has been corrected to reflect that Ripple does not operate or control XRP.
The army of amateur investors appeared to have locked on to a broader array of targets on Monday, with silver hitting its highest level in 8 years and XRP and Dogecoin both jumping.
XRP is both a cryptocurrency and digital payments network created by US firm Ripple, which stumbled last year after the firm ran into legal trouble. It denies allegations of wrongdoing.
Dogecoin is a “meme” cryptocurrency created in 2013, seemingly as a joke, but which has picked up a growing following. A cryptocurrency is a secure digital currency, often without a central controlling authority.
Tesla founder Elon Musk has encouraged the recent surge in interest in cryptocurrencies. In a Sunday night video on the app Clubhouse, Musk said it would be funny if “Dogecoin becomes the currency of Earth in the future.”
Part of the early-morning XRP price rise was driven by a concerted effort among the currency’s fans, echoing the GameStop phenomenon. A group on the messaging app Telegram called Buy & Hold XRP hit the maximum 200,000 member threshold.
Yet the strategy looked shaky shortly after 7am ET, as the price stumbled. One popular post on the XRP channel on the social network Reddit said: “Stop panic selling!! We can do this! We just had it to .74 USD, let it rise!”
Another Reddit user posted: “People that sell now are the ones that are going to be the most disappointed! HOLD.”
Bitcoin fell on Wednesday, heading for its largest weekly fall since late August, as a combination of a stronger dollar and a bout of profit-taking swept $172 billion in value from the cryptocurrency market since the start of the week, leaving the price at a pivotal point on the charts.
Rival coins such as Ethereum and Ripple Labs’ XRP, along with smaller alt-coins Litecoin and Cardano, sagged after several days of heightened volatility.
Trade in cryptocurrencies has been booming for the last five months in particular. Bitcoin has risen by 230% in that time, hitting a record above $41,000 on January 8, while Ethereum has gained 217%, prompting a number of prominent investors to warn about the dangers of speculative bubbles.
Shark Tank star investor Mark Cuban on Tuesday compared the crypto trade to the dot-com bubble of the 1990s in a series of tweets, and like the crash that ensued in early 2000, said any bursting would see some coins survive, and others fail.
“The cryptocurrency market has come under fire in recent days, with Bitcoin and Ethereum both sinking lower as a wave of risk aversion sweeps across global financial markets. Although the longer-term outlook for both cryptocurrencies remains skewed to the topside, further losses look likely in the coming days,” DailyFX strategist Daniel Moss said in a note.
Bitcoin was last trading around $34,580, up around 1.65% on the day on the Coinbase exchange.
With the retreat to $35,000, the Bitcoin price is hovering around key technical levels on the charts, and a break above, or below, those levels could pave the way for the next burst towards record highs, or a more protracted decline, analysts said.
“Failing to gain a firm foothold above last week’s close ($38,200) would probably open the door for sellers to drive prices back towards psychological support at $30,000. Clearing that may pave the way for a push back towards former resistance-turned-support at the 2017 high ($19,891), Moss said.
Bitcoin is still a full 95% above where it was a month ago, but the technical charts show that this latest retracement in price this week has brought a number of support levels – a level at which the price should hold in the event of a more aggressive sell-off – into play.
The Bitcoin price is nearing a key Fibonacci retracement level. Fibonacci retracements are a series of horizontal lines on a chart that show where support and resistance are likely to emerge based on an asset price’s recent highs and lows and a breach of a key line can often trigger a swift move higher, or lower.
Chris Svorcik, a technical analyst who writes for FXEmpire, said Bitcoin needed to stay above $29,762, which is the half-way point between the low of December 11 and the high on January 12, or 50% retracement, to avoid a drop towards $26,000.
“As long as price stays above the 50-61.8% Fibonacci support zone, an uptrend has the best chance of continuing higher (blue arrow) for new high. Only a break below the deep Fibonacci levels would change and invalidate that view,” he said.
Ethereum, which on Wednesday was trading up 2.8% on the day around $1,079 on the Kraken exchange, also finds itself at a tipping point on the technical charts. The price rattled to a three-year high at $1,350 late on Sunday, but its decline since then means it has now surrendered over half of the gains made since the start of 2021, leaving it hovering at a key Fibonacci retracement level.
“Ethereum would need to move through the 23.6% FIB and the pivot level at $1,069 to support a run at the first major resistance level at $1,131,” Bob Mason, a technical analyst who writes for FXEmpire, said.
“Support from the broader market would be needed, however, for Ethereum to break back through to $1,100 levels,” he said, adding: “In the event of an extended crypto rally, Ethereum could test resistance at $1,250 before any pullback. The second major resistance level sits at $1,212.”
Cryptocurrency firm Ripple is facing a lawsuit by the Securities and Exchange Commission for allegedly violating investor-protection laws by selling its XRP token, a security the regulator considers as unlicensed.
Ripple’s CEO Brad Garlinghouse tweeted that the SEC is unjustifiably attacking crypto and blasted chairman Jay Clayton’s decision to sue his firm right before the holidays.
“Jay Clayton is taking notes from the Grinch this holiday season, leaving the actual legal work to the next administration,” Garlinghouse said, referring to the chairman’s departure at the end of Trump’s presidential tenure.
The lawsuit hasn’t been filed yet, but Ripple is aware of the regulator’s impending action. The fact that the crypto firm disclosed that it’s about to be sued is uncommon, highlighting its intention to defend itself against legal action.
“We know crypto and blockchain technologies aren’t going anywhere,” Garlinghouse said. “Ripple has and will continue to use XRP because it is the best digital asset for payments – speed, cost, scalability and energy efficiency. It’s traded on 200+ exchanges globally and will continue to thrive.”
Garlinghouse went on to say that the regulator isn’t in line with the rest of the US government, and shouldn’t limit innovation especially if its decision “directly benefits China.”
Over the past years, the SEC has filed, and mostly won, civil lawsuits against startups that breached securities laws when raising money via cryptocurrency sales. But none of those firms are as big as Ripple. XRP’s current market cap stands at about $22 billion, and it is the third-largest cryptocurrency after Bitcoin and Ethereum, according to data from Coin Gecko.
The lawsuit would come after years of debate between both sides about whether XRP is a security, or a currency that exists beyond the SEC’s scope of regulation.
The SEC did not immediately respond to Business Insider’s request for comment.