Bitcoin just cleared another hurdle. It may still stumble

Jun 9, 2021, 7:05 AM
This photograph taken on April 26, 2021 in Paris shows a physical imitation of the Bitcoin crypto c...
This photograph taken on April 26, 2021 in Paris shows a physical imitation of the Bitcoin crypto currency. (Photo by Martin BUREAU / AFP) (Photo by MARTIN BUREAU/AFP via Getty Images)
(Photo by MARTIN BUREAU/AFP via Getty Images)

    (CNN) — In a landmark move, El Salvador has become the first country to adopt bitcoin as a legal form of payment. But there’s still tons of pressure on the cryptocurrency.

What’s happening: A majority of lawmakers have approved a proposal from Salvadorian President Nayib Bukele that will allow bitcoin to be used as legal tender in the country alongside the US dollar. The law states that “all economic agents shall accept bitcoin as a form of payment when it is offered by the purchaser of a good or service.”

It’s a bold move that’s likely to be cheered by bitcoin fans. But it may not help prices to stabilize, with some strategists warning the digital coin could plunge toward $20,000, where it was trading in December 2020.

Remember: After almost touching $65,000 per coin in April, bitcoin, which is notoriously volatile, has crashed, and was last trading above $34,000. Analysts worry that breaching the psychologically important $30,000 level could add fuel to the sell-off.

It’s traded as low as $31,025 this week after US investigators recovered millions in crypto paid as ransom to hackers who shut down the Colonial Pipeline last month.

Jeffrey Halley, a senior market analyst at Oanda, has cautioned clients that bitcoin could hit $22,000 in the coming days if selling continues, while Rich Ross, a technical analyst at Evercore ISI, thinks $20,000 is on the table if the digital currency breaches $29,000.

Wild swings in bitcoin’s price are giving some institutional investors — an increasingly important force in the market — cold feet.

UK wealth manager Ruffer has exited its bitcoin position on fears about the recent speculative frenzy. After taking a roughly $600 million position in November, when bitcoin was trading near $15,000, the firm began selling its stake in 2021, netting $1.1 billion in profit. Ruffer completed its exit in early April, when bitcoin was trading at $55,000.

“It just looked like this would be a time when it would be nicer to be watching from the sidelines than from in the trenches,” Duncan MacInnes, an investment director at Ruffer who helped manage its bitcoin stake, told the FT, which first reported the news.

That doesn’t mean everyone has turned bearish. Analytics firm MicroStrategy announced this week that it’s selling $500 million in junk bonds so it can buy additional bitcoin. And Michael Sonnenshein, the CEO of Grayscale Investments, told me in a recent interview that his clients haven’t been scared off by the drop in crypto prices.

“When investors do find periods where prices crater or pull back, they will opportunistically use those pullbacks … to build positions,” Sonnenshein said.

He expects pension funds, insurance companies and other professional investors to keep exploring bitcoin as an asset class.

“I think institutional adoption continues to grow exponentially,” Sonnenshein said.

A new class of meme stocks is emerging

You’re familiar with GameStop and AMC. But after a frantic week of trading for those stocks, attention is starting to drift further afield.

The latest: Chatter on Reddit’s popular WallStreetBets forum is driving up shares of Wendy’s and Clover Health.

Wendy’s stock popped 26% on Tuesday and is up another 5% in premarket trading on Wednesday. Reddit users have been talking up the company’s irreverent social media feed and its “chicken tendies.” WallStreetBets users have long focused on “tendies,” a reference to gains or profits made on an investment.

Clover Health leaped 86% on Tuesday and is soaring another 22% in premarket trading. The health care company went public in January by merging with a special-purpose acquisition company, or SPAC, set up by popular venture capitalist Chamath Palihapitiya.

The startup is now at the top of Vanda Research’s rankings list tracking retail investments. Wendy’s holds the No. 4 spot.

Note of caution: Lordstown Motors, an electric truck startup that generated lots of hype after merging with a SPAC in 2020, warned Tuesday that it’s close to running out of cash and may be forced out of business in the next year.

Shares of Lordstown Motors are down 63% from a recent peak in February — a reminder that business fundamentals can still catch up with online fan favorites eventually.

Corporate America is falling short on its diversity pledge

The level of diversity on America’s biggest corporate boards has never been higher. But it’s still far from on par with what US society looks like, my CNN Business colleague Jeanne Sahadi reports.

White women and minorities made up 38% of Fortune 500 board seats in 2020, up from 34% in 2018, according to a new study released this week by the Alliance for Board Diversity in collaboration with Deloitte.

Since 2010, the number of companies with greater than 40% diversity (including women) has almost quadrupled.

Yet the average growth rate in minority representation on Fortune 500 boards has remained unchanged — at less than 0.5% a year — since 2004.

“The progress made on overall diversity has largely been due to the increase of White women on boards,” the study noted.

Watch this space: The “recycle rate” of board members — that is, one person serving on multiple boards — has gone down for all groups. But in 2020, more than a third of diverse board seats were still held by people serving on multiple Fortune 500 boards.

Up next

Campbell Soup and Vera Bradley report results before US markets open. GameStop follows after the close.

Coming tomorrow: The latest meeting of the European Central Bank comes as policymakers closely monitor whether the economic recovery is triggering unhealthy inflation.

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Bitcoin just cleared another hurdle. It may still stumble