Is the crash coming? Nobody really knows. Investors have been charting Bitcoin and Ethereum for the past few months as a surge in volatility has hit the benchmark cryptos following all-time high prices in April. Some believe that a surge to $100,000 this year is still possible, and some believe that this is the start of a several year long crypto winter. Everytime cryptos look like they are about to break out in either direction, the trend is reversed. Is this because more institutional investors are now involved in the crypto markets? Or are we really at a point where cryptos are all overpriced? When it comes to cryptos, your guess is as good as mine. But here are a couple stocks you may want to avoid once a crypto winner falls upon us.
NVIDIA (NASDAQ:NVDA): It seems sacrilegious to suggest this after NVIDIA has been on such a bullish run this year. It is a favorite stock on FinTwit and Reddit, and has truly taken the spot in the chip sector away from Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD). But a portion of its business that may be larger than you think is dedicated to its crypto mining GPUs. With Bitcoin mining being illegal in an increasing number of countries including China, the entire Bitcoin industry is taking a hit, including NVIDIA. Combine that with the fact that mining Ethereum no longer relies on GPUs because of a shift to Proof of Stake, and you can see why NVIDIA’s crypto GPU business may suffer. The company has enough legs to stand on without the crypto GPUs, but it is taking away a major revenue source moving forward.
Square (NYSE:SQ) and PayPal (NASDAQ:PYPL): The two heavyweights in the digital payments space were so determined to get cryptocurrencies into their ecosystems, that by the time it was fully integrated, the price of cryptos had fallen dramatically. Square’s Cash App and PayPal’s Venmo are two of the most popular mobile payment apps in the U.S., and the integration of cryptocurrencies has further boosted popularity among younger users. But what happens when the popularity of cryptos fades away? So too may the usage rates of these two mobile apps, which could mean potential losses for both companies during the crypto winter.
Robinhood (Pre-IPO): In my mind, Robinhood’s IPO was already going to be a suspect investment. The company relies too much on high volume traders and since most of its users are younger with low investment account balances, there is a good chance many of them will blow up their accounts using Robinhood. The platform also gamifies investing to give users a release of endorphins and dopamine, which gets them addicted to the feeling of trading. Combine this with Robinhood’s heavy reliance on crypto trading and it is a recipe for a disaster waiting to happen. Robinhood stated in its S-1 that a major threat to its crypto revenues is a decline in popularity of Dogecoin. If the company you want to invest in has to rely on Dogecoin, it’s probably not the safest investment to make. It would have been just as easy to name Coinbase (NASDAQ:COIN), but with the impending IPO of Robinhood, more eyes will be on the shiny new toy, but if cryptos continue to struggle, I would recommend staying away for now.
Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.