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If there is a wooden spoon to award, Lex would be a candidate for some of our calls on cryptocurrencies and crypto-adjacent stocks.
Take, for example, Coinbase. The crypto trading platform was the financial dark horse of 2023, with its near 400 per cent surge in stock price, trouncing tech peers and exceeding even Nvidia’s 249 per cent gain.
At the start of 2024, Lex was sceptical that its strong run could continue. While the US Securities and Exchange Commission did give the green light to 11 bitcoin ETFs in January, the long-term benefits to Coinbase were not so clear cut.
Spot bitcoin ETFs offer investors exposure to the world’s largest cryptocurrency without directly holding it. Coinbase stood to benefit by acting as the custodian for the bitcoins held by these funds. But margins from this activity are thin, especially when compared with trading. Longer term, Lex thought the success of spot bitcoin ETFs could end up diminishing the appeal of trading actual bitcoins. This in turn could hit Coinbase’s bitcoin trading volume and offset any gains from the custody business.
We failed to foresee the Trump effect and the scale of the boost his election victory would give to the crypto universe. Bitcoin prices have surged 40 per cent since November 5 and briefly broke through the $100,000 mark in December amid excitement over an expected era of looser regulation for the industry. Coinbase shares have jumped 36 per cent since the election to take their gains for the year to nearly 70 per cent. Robinhood Markets, which also offers crypto trading, is up 216 per cent this year while software provider turned bitcoin investor MicroStrategy has shot up nearly 400 per cent.
Predictions concerning old payment tech — Mastercard and Visa — fared much better. In the US, card transaction fees are a long-running source of tension between merchants and payment processors. Visa and Mastercard, the two biggest card networks in the world, are under fire from regulators for their dominant positions.
Lex said at the start of the year that investors could rest easy. The pair’s high-margin business model would remain intact. Indeed, shares in both companies are trading at a record high after gaining around a quarter this year. That is despite the US justice department filing an antitrust lawsuit against Visa and a federal judge rejecting a settlement over swipe fees between the companies and retailers.
The threat of the former is likely to dissipate under the Trump administration while the latter — which forces both companies back to the negotiating table with merchants — could take time to sort out. For context, the settlement announced in March was intended to resolve most litigation that began in 2005.
https://www.ft.com/content/3918313f-0128-4cdd-9108-252db0da1799
