February was a rough month for stocks, and an uncertain one for public companies in the crypto world.
After months of predicting that the Federal Reserve would cut interest rates in 2023, a series of rosy economic releases dashed those hopes for most investors in February.
Unemployment fell to 3.4%, its lowest point in 53 years, while consumers rushed back to stores to boost retail spending 3% in January. All of this contributed to an increase in the Fed’s preferred inflation rate in January, which the Commerce Department reported last week, after it had fallen for six months straight.
The hot economic numbers and fears of a half-a-percentage-point interest rate increase at the Fed’s next meeting in March weighed down stocks in February.
All of the major indexes ended the month lower. The Dow Jones Industrial Average closed down 4.2%, while the Nasdaq and S&P 500 fell 2.6% and 1.1%, respectively, in February.
Robinhood
Robinhood, an online stock brokerage that also sells crypto, saw its shares fall 6.6% over the course of the month, paring back a 29% increase in January. Robinhood started the month with a $10.78 close and ended at $10.07.
The company has suffered in recent months from its association with Sam Bankman-Fried, the disgraced former CEO of crypto exchange FTX, who is now awaiting trial for fraud and conspiracy charges, among others. Bankman-Fried owned a 7% stake in the company, which amounted to about 55 million shares, which the government seized after his arrest.
Prosecutors alleged in late January that the roundabout way that SBF originally bought the shares, through a foreign investment vehicle with no ties to his companies, FTX and Alameda Research, “further indicate the steps the defendant has taken to obscure his criminal misuse of FTX customer property.”
Robinhood approved a plan in early February to buy back the millions of shares and is working with the Justice Department to do so. Although SBF’s holdings will no longer be in limbo, it will cost the company $541 million to get them back, based on Wednesday’s share price.
The company’s association with SBF has not done it any favors as the Securities and Exchange Commission’s crypto regulation enforcement heats up. The company received an investigative subpoena related to its crypto offerings in December, which it disclosed in a public filing on Monday.
Coinbase
The U.S.-based crypto exchange Coinbase had a tumultuous month, closing out at $64.83, down 1.3% since the end of January. During the first two days of February, shares jumped 24% after a federal judge dismissed a class-action lawsuit levied against it, but it was all downhill from there.
In early February, the SEC settled with Coinbase competitor Kraken over its staking program, which allows investors to put up cryptocurrency to earn yield and help the blockchain operate. The action has stirred up anxiety that Coinbase, which offers a similar staking program, could be the SEC’s next target. The company’s chief legal officer, Paul Grewal, has maintained that Coinbase’s staking product is “fundamentally different” from Kraken’s.
Buoying the company’s stock was fourth-quarter earnings, which were mostly positive. Coinbase beat analyst expectations on both earnings and revenue, although user numbers declined. In the face of Crypto Winter, shares have fallen dramatically from their 2022 peak of $196 exactly a year ago.
