Why Coinbase, Ethereum, and NEXO Jumped Wednesday

What happened 

The crypto market was moving higher for most of the day on Wednesday despite the fact that the stock market was moving lower. There wasn’t any major news driving token prices upward, but there were small steps toward mainstream crypto adoption. Credit Suisse disclosed in a filing that it held $31 million in “digital assets” for clients last quarter and Binance froze a wallet related to a Russian gun manufacturer, which shows even the biggest exchanges are complying with international sanctions.

As of 1 p.m. ET, shares of Coinbase (COIN -0.34%) were up 1.4% for the day after having climbed by as much as 5% in early trading. Ethereum (ETH 0.71%) was up 4.2% in the last 24 hours and NEXO (NEXO 3.17%) was up by 7.3%. 

So what 

The biggest news of the day was that crypto lending platform Nexo announced it was authorizing a $50 million buyback plan for its native crypto token. The company authorized a $100 million buyback plan in November; this authorization adds on to that. 

Nexo has been in discussions with investment bankers about the possibility of it acquiring distressed crypto companies like Celsius Network, Voyager Digital, and BlockFi, or their assets. Management of Nexo said the buyback authorization was intended to show that the company has a “solid liquidity position.”

It’s also possible Nexo could do what it called “token mergers,” which would be an innovation in the crypto space. Nonetheless, Nexo is telling the market that it is in a strong financial position and that news is being received well right now. 

Lending has become a difficult business model in cryptocurrency, with companies balancing on-chain and off-chain risks that are evolving quickly. During the collapse of Three Arrows Capital, on-chain lending held up well because collateral could be seized if loans weren’t repaid as contracts stated. Off-chain lending became more problematic because the risks weren’t well understood by counterparties who thought their assets were safe. Nexo has navigated this space so far, and now it’s trying to consolidate power before the next crypto boom. 

Now what 

Wednesday’s moves upward were mostly driven by volatility in the crypto market and shouldn’t sway your long-term investment thesis. Values are moving higher or lower daily on little more than the market’s whims. 

What I do take from the day’s news is that a company like Nexo being bullish is a signal that the worst of the 2022 crypto lending crisis is behind us. It seems that the industry went through a rapid process of exposing risk and crushing the companies that didn’t handle their own risks well. 

Ethereum’s “Merge” — scheduled to occur in a little over two weeks — continues to be a hot topic as well. Energy usage on Ethereum will fall by about 99% after the Merge, but it’s not clear if transactions on the blockchain will be any faster or cheaper, which is really what will be needed to drive growth. Coinbase has a vested interest in Ethereum’s success because it has a big staking business and has built an NFT platform on that blockchain. 

While Wednesday’s volatility has been helpful to values, the market could turn downward tomorrow. That’s why I’m holding tight to my assets and waiting for the long-term thesis of crypto growth and innovation to play out. 

Travis Hoium has positions in Coinbase Global, Inc. and Ethereum. The Motley Fool has positions in and recommends Coinbase Global, Inc. and Ethereum. The Motley Fool has a disclosure policy.