Crypto trembles and 2 other things to watch in the market next week
Instability in crypto deepens, and more crypto-related companies could hurl toward insolvency. Also, is a second-half recovery in store, and how will Spirit shareholders vote?
The S&P 500 fell 21% through Thursday, June 30, closing out the worst first half for the market since 1970.
But as CNBC noted, when the S&P 500 plummeted 21% in the first half of 1970, it swiftly reversed course to gain 26.5% in the second half.
Next week will be another short week for the stock market. It’s closed Monday in observance of the Fourth of July.
With that, here are three things to watch in the markets next week that could affect your portfolios.
1. Continuing turmoil in crypto
If you thought stocks were taking a beating …
The price of Bitcoin (BTC) is now struggling to hold $20,000, falling through the key support level just two weeks ago and then again Thursday. The last time it was trading at this price was in December 2020, before its momentous runup to over $60,000 per coin.
All eyes are now on the $20,000 mark. It was the peak of Bitcoin’s last bull run in 2017 and remains one of the last psychological support levels for bulls. Breaking this could spell another leg down for the already distressed crypto.
That, combined with the overall crypto pullback and fallout from the massive collapse of the Luna ecosystem, has crypto-related stocks getting hammered and several big players in the crypto lending and broker space facing financial crunches and even insolvency.
Singapore-based crypto-focused hedge fund Three Arrows Capital (3AC) has fallen into liquidation, Sky News reported Wednesday. This comes after 3AC had borrowed large sums of money from numerous crypto firms, including New Jersey’s Voyager Digital and New York-based BlockFi. Voyager Digital and BlockFi then turned to billionaire Sam Bankman-Fried, founder of FTX, to survive 3AC’s default.
Voyager Digital announced on June 17 that it signed a deal with Bankman-Fried’s quantitative research firm Alameda Research to secure a $200-million cash credit line and a second revolving credit line for 15,000 in Bitcoin. Days laters, BlockFi announced it had signed a similar deal with FTX to secure a $250 million revolving line of credit.
The latest reports have BlockFi potentially being acquired by FTX or a late-arriving suitor any day now. Stay tuned.
Meanwhile, Bankman-Fried told Forbes this week that more crypto companies are close to default.
“There are some third-tier exchanges that are already secretly insolvent,” Bankman-Fried said.
But not every faltering crypto company will see similar bailouts.
“There are companies that are basically too far gone and it’s not practical to backstop them for reasons like a substantial hole in the balance sheet, regulatory issues, or that there is not much of a business left to be saved,” Bankman-Fried added, not naming any specific crypto exchanges.
Investors waiting for news on other potential casualties of the so-called “crypto winter” may not have to wait long, then, and that news surely won’t help the crypto bulls who desperately need some calm and stability. And, of course, a recovery.
2. Wait, back up and tell me more about this second-half recovery
The S&P 500 plunged 21% in the first six months of 1970, in similar fashion to the beating it’s taken so far this year, only to quickly recover and thensome.
After falling from about 660 points in January 1970 to about 545 points in June 1970, the S&P 500 rallied and climbed back above 675 points by year’s end. Side note: The S&P 500 is currently trading at over 3,760 points. What better illustration is there of the value of investing over the long term?
While the latter-half rally in 1970 was likely welcomed, the S&P 500 was trading in a larger downtrend that wiped out about half its market value between 1968 and 1982, at which point it set off for new highs. Today’s market isn’t the same, and this downturn may not last as long, but one thing’s certain: investors will invite any sort of relief at this point — even if it only lasts the remainder of the year.
So will July kick off a second-half market rally like it did in 1970? Fingers crossed. And if it does, there are some bargain buys out there.
3. Spirit’s takeover vote is now next week
Mere hours before Spirit Airlines’ (SAVE) shareholders were scheduled to vote on a proposed merger with fellow discount carrier Frontier Airlines (ULCC) – while takeover contender JetBlue Airways (JBLU) continued to make increasingly competitive offers – Spirit delayed the vote.
The vote, which was scheduled for Thursday, June 30, at 9:00 a.m. ET, is now set for next Friday, July 8, at 11:00 a.m. ET.
Why the sudden adjournment? Well, it appears Spirit, which has slapped JetBlue’s hand away numerous times in favor of Frontier, wants to keep talks open with both airlines for a little longer.
It sorta feels like Kevin Malone from “The Office” making Darryl Philbin and Toby Flenderson compete to see who will be the lucky one to sell Kevin some Girl Scout cookies. (Eventually, they both walked away.)
According to a press release issued Wednesday, the adjournment will allow Spirit’s board to continue discussions with Frontier and JetBlue Airways, as well as continue to solicit proxies from its shareholders with respect to the special meeting.
JetBlue Airways CEO Robin Hayes had this to say about Spirit’s decision to postpone the vote:
“We compliment the Spirit Board for listening to their shareholders, who clearly were not supportive of the Frontier transaction, and adjourning the Special Meeting,” Hayes said in a statement Wednesday. “We look forward to commencing a constructive and substantive dialogue with them.”
For those who haven’t been following the spat too closely, JetBlue made an unsolicited $3.6 billion offer in April to buy rival Spirit Airlines and derail a proposed deal between Spirit and Frontier Airlines. In the months following, the bidding war intensified, with both JetBlue and Frontier sweetening their offers. Spirit’s board has insisted the Spirit-Frontier deal was the best way forward.
Whichever way the vote goes, a merger between Spirit with either Frontier or JetBlue would create an airline juggernaut, albeit a bargain one.
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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
At the time of publication, Matt Miczulski owned BTC.
