Crypto winter may eat away at fintech earnings

Depictions of cryptocurrencies in this illustration taken January 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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Aug 3 (Reuters) – Wall Street has lowered earnings expectations for once-high-flying fintechs Coinbase (COIN.O) and Block (SQ.N) as a slowdown in the cryptocurrency market hit companies already grappling with rising costs , causing even more pain and rapidly increasing rates.

Crypto exchange Coinbase is expected to report an adjusted loss in the second quarter, while Jack Dorsey-led payments firm Block is expected to see its adjusted earnings fall 70%.

Coinbase, which is the most exposed to crypto volatility, has lost more than three-quarters of its market cap this year.

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“This is going to be a very difficult 12 to 18 months for Coinbase,” said Dan Dolev, senior analyst, fintech equity research at Mizuho Securities USA.

Block, which changed its name from Square last year to better reflect its focus on blockchain, has lost more than half of its market value this year during the stock market crisis.

THE CONTEXT

The cryptocurrency sell-off has sent several companies in the industry into the abyss, with some even filing for bankruptcy protection. Bitcoin, the largest cryptocurrency, has almost halved in value in the first seven months of the year. Continue reading

“There could be potential for a double-digit downsizing (at Coinbase) at some point because the costs are too high,” Dolev said.

Estimate cuts and competitive pressures are also contributing to weakness in fintech stocks, according to analysts at Credit Suisse.

While the cryptocurrency sector is slowly recovering from a bloody selloff, it still has to contend with regulatory hurdles in the United States, the largest market for such assets.

Online trading app Robinhood Markets Inc (HOOD.O) on Tuesday reported a 44% fall in second-quarter profits, a day earlier than expected, and said it would also cut 23% of its workforce. Continue reading

THE BASICS

WALL STREET MOOD

** Coinbase Global – 14 out of 26 brokers rate the stock as a buy or higher, 10 as a hold, and two as a sell; Her median PT is $91 compared to $100 last month

** Block Inc – 37 out of 50 brokers rate the stock as a buy or higher, 11 rate it as a hold and two rate it as a sell; Her median PT is $117 compared to $140 last month

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Reporting by Manya Saini and Niket Nishant in Bengaluru; Edited by Anil D’Silva

Our standards: The Thomson Reuters Trust Principles.

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