MSTR - 3 Crypto Stocks to Sell Before Congress Strikes

2024-05-07 06:19:00 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Congress is considering legislation that would put strict limits on stablecoins. Specifically, the bill would reportedly ban unbacked algorithmic stablecoins. In other words, the measure would force stablecoin issuers to own $1 of U.S. currency for each $1 of stablecoins that they release. Since that provision would be very expensive for issuers, many if not most existing stablecoin providers would probably have to cease operations if the law is passed.

And under the bill, the Federal Reserve would have the authority to regulate stablecoins. As a result, if it passes the Fed is likely to make life difficult for stablecoin issuers. They could force many of them to fold. Since investors often use interest income from stablecoins to purchase cryptos , the demise of a high number of stablecoin issuers is likely to put downward pressure on crypto prices. Here are three crypto stocks to sell to avoid being hurt by Congress’ looming crypto crackdown.

Coinbase (COIN)

Last quarter, Coinbase’s (NASDAQ: COIN ) direct revenue from stablecoins came in at $197.3 million out of its total sales of $1.59 billion. However, the company also had interest and finance fee income of $66.7 million. And custodial fee revenue of $32.3 million. I think there’s a high probability that a large portion or all of these latter two revenue sources were also related to stablecoins. Given these points, the firm is likely to take a large, direct revenue hit if Congress passes the stablecoin bill.

Additionally, investment bank TD Cowen has written that bank secrecy crypto controls will probably be included in the stablecoin bill. I interpret TD Cowen’s statement to mean that the law would place such restrictions on all cryptos, not just stablecoins.

In light of these points, if the bill becomes law, I predict that trading volumes on Coinbase’s exchange will sink sharply. That’s because money launderers and other criminals will stop using cryptocurrencies in order to avoid the crypto controls that will likely be included in the bill.

Given all of these points, I view Coinbase as one of the top crypto stocks to sell.

MicroStrategy (MSTR)

According to one source, MicroStrategy (NASDAQ: MSTR ) owned 214,000 Bitcoin ( BTC-USD ) as of May 1. Its total cost associated with those Bitcoin is reportedly over $7.5 billion. As I’ve noted above, the stablecoin legislation which I expect Congress to pass will likely force many stablecoins to shut down. This will deprie many Bitcoin buyers of an important income source.

What’s more, the bill also will probably force Bitcoin purchasers to comply with anti-money laundering and bank secrecy laws. Consequently, I expect many bitcoin users to sell the crypto rather than reveal their identities to the government. That selling, in turn, would put tremendous, downward pressure on MSTR stock, due to MicroStrategy’s huge bitcoin holdings.

Also boding badly for MSTR stock is the fact that, in the last three months, company insiders have bought no shares of the name, while they have sold 362,000 shares.

Marathon Digital (MARA)

Marathon (NASDAQ: MARA ) focuses on mining Bitcoin , and it owned 17,631 BTC as of May 3. As a consequence, the firm’s top and bottom-lines, will be undermined by the potential stablecoin-regulation law.

Additionally, as a result of the Bitcoin halving, the number of Bitcoins that Marathon earns through mining has been cut by 50% . Consequently, the company’s top and bottom lines are likely to sink going forward.

Many prognosticators expected the halving to greatly boost Bitcoin prices. Such a phenomenon would have helped to cut Marathon’s losses from the halving by enabling it to unload the Bitcoins that it mines for higher prices.

But since the halving on April 19, Bitcoin prices are little changed. I believe that worries about the looming stablecoin bill are a big reason why the anticipated rally hasn’t materialized.

On the date of publication, Larry Ramer held a short position and put options on COIN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .

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