Chinese firms Meitu and Shenzhen Asia Link Technology Development led losses among cryptocurrency-linked stocks in local markets after the worldwide sell-off in cryptocurrencies erased hundreds of billions of dollars of value.
Meitu, the Xiamen-based maker of beauty applications for smartphones, tumbled by as much as 8.5 per cent to HK$1.83 in Hong Kong on Thursday. It closed 0.5 per cent lower at HK$1.99, bringing the losses this month to 17 per cent. The slide mirrors Tesla’s 21 per cent slump in the US market since April 30.
China has banned the trading of digital tokens and cryptocurrencies. A gauge tracking 50 stocks linked to digital currencies fell 1.6 per cent on the Shanghai and Shenzhen exchanges, with Shenzhen Asia Link pacing the losers with a maximum 10 per cent daily slump.
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The sell-off followed an epic fall in bitcoin, the largest of all cryptocurrencies, whose sudden meltdown has still left traders scrambling to figure out the reasons. Explanations included China’s warning against cryptocurrencies as a form of payment, and Tesla’s decision to stop accepting bitcoin as payment for its electric vehicles on environmental concerns.
“Bitcoin is on a collision course with ESG [environment, social and governance]” values, BCA Research said in a May 15 email to clients. “Elon Musk’s flip-flop on allowing customers to pay for Teslas in bitcoin is yet another piece of evidence that ESG concerns will win out. With that in mind, we are going short bitcoin” using a technique that flips the usual risk-reward on its head, it added.
“Normally, when you short a stock, your gain is capped at 100 per cent of the initial position whereas your potential loss is unlimited. With our shorting technique, your potential loss is capped at 100 per cent, while your potential gain is unlimited. This makes shorting as an investment strategy a lot safer.”
Bitcoin also breached its 200-day moving average, a bearish signal for investors who analyse trading patterns for guidance. The token slumped 11 per cent on Wednesday after losing as much as 31 per cent to US$30,681 in its biggest-ever intraday dive. It recently fetched US$39,945 in Asian trading on Thursday.
Other cryptocurrencies including ether and dogecoin also plunged, with intraday losses of at least 29 per cent, according to data by CoinMarketCap.com.
Meitu said in March it bought US$22.1 million worth of ether and US$17.9 million worth of bitcoin, which co-founder Mike Cai Wensheng boasted as unprecedented for a Hong Kong-listed company. Shenzhen Asia Link, whose subsidiary develops digital yuan with Post Savings Bank of China in Shanghai, crashed 10 per cent to 4.68 yuan.
Tesla, which bought US$1.5 billion of bitcoin in February, fell 2.5 per cent to US$563.46 in US trading. Other cryptocurrency-flavoured stocks also suffered. MicroStrategy tumbling 6.6 per cent while Square lost 1.5 per cent, with the two companies both having investments in bitcoin.
After surging sixfold in 12 months through April, bitcoin has now dived 40 per cent from its April 15 peak of US$63,410. The slump deepened after Tesla’s CEO Elon Musk halted bitcoin as payment form, citing concerns about the increasing use of fossil fuels in coin mining.
The wobble in cryptocurrencies also coincided with a three-day slide in US equities. Markets were whipsawed by minutes by the US Federal Reserve’s April meeting, in which some officials were prepared to talk about tapering at some point in upcoming meetings.
While the immediate impact of the rout on cryptocurrencies on the balance sheets remains unclear, the erosion will lead equity investors to revalue stocks. Companies may be prompted to make provisions for investment losses.
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