Amid an underperforming crypto and equities market, JPMorgan states that firms such as Coinbase and Robinhood may resort to stock dilution.
The shareholders of crypto firms Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD) are facing possible stock dilution. This comes after both platforms offered employees additional amounts of restricted stock units as part of their compensation. Furthermore, the trend is gaining ground among publicly-traded tech firms amid a plunge in global crypto and equity markets. For instance, the shares of Coinbase and Robinhood are down year to date by around 73% and 51%, respectively.
In an observation, JPMorgan research analyst Kenneth Worthington said in a note to clients:
“Coinbase and Robinhood, like their tech-company peers, issue substantial equity to company employees allowing companies to both attract and incentivize employees while keeping cash compensation lower.”
More on Crypto Stock Dilution Scenario
As a result of the sharp drop in prices, JPMorgan anticipates that Coinbase and Robinhood will lower employee equity grants by issuing restricted stock units (RSU). However, the leading bank still expects that the perceived “share creep from RSU issuance” will substantially drive dilution. JPMorgan gives the annual pace of this dilution across the coming years as 7%. In addition, the bank estimates that the 7% pace persisting for five straight years would be bad for shareholders. This is because it would reduce the value of each company to existing shareholders by a marked 30%. Several institutional investors have now taken advantage of the dilution concerns and are cheaply adding to their positions.
Amid the brunt borne from a stuttering market, several public and private companies continue to deploy cost-effective schemes. The most easily noticeable of these measures is staff downsizing. For instance, Coinbase announced that it would lay off 1,100 employees, while Robinhood also earlier announced a 9% staff cut. Also, Gemini Trust Company, LLC stated last month that it would lay off 10% of its staff owing to prevailing circumstances.
Crypto-centric Stocks Benefit from Billion-Dollar Resurgence in Retail Investment
VandaTrack reports that some crypto-related stocks experienced inflows of approximately $1 billion last week. The report states that the staggering amount came on the back of a resurgence in retail investment. Among the most bought assets were crypto exchange Coinbase Global, as well as digital asset mining platforms Marathon Digital Holdings and Riot Blockchain. Mining stocks in particular are the biggest beneficiaries of the return of retail investors to Bitcoin (BTC) and other digital currencies. Another example is Viridi’s $7.4 million Bitcoin Miners ETF which saw a 33% increase this past month. Currently, the ETF is one of the top-performing US-listed of its kind in July.
Meanwhile, although BTC is still down 51% year-to-date, the prominent coin is on course for its first monthly gain since March. Commenting on this development, Ed Moya, senior market analyst at Oanda Corp, explains:
“Retail traders are definitely surfacing here. Everyone expected one last major plunge for Bitcoin and now prices are recovering and risk appetite on Wall Street is somewhat improving.”
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