Why Shares in Gemini Space Station Lost Oxygen This Week
Key Points
The loss-making company has long-term growth prospects, but it will take time to realize them.
Declining cryptocurrency prices can negatively impact transaction and custodial revenues.
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Shares in Gemini Space Station (NASDAQ: GEMI) declined by 13.6% last week. Despite the name, the company has no connection to space. Instead, it's a cryptocurrency exchange (CEX) and custodian run by CEO Tyler Winklevoss and his identical twin brother, Gemini's President Cameron Winklevoss, that began trading on the Nasdaq in mid-September.
Gemini's growth prospects
The company recently received a U.S. license to offer prediction markets (investing in binary event outcomes) to U.S. customers. This will enable U.S.-based Gemini customers to participate in prediction markets, which Cameron Winklevoss believes "have the potential to be as big or bigger than traditional capital markets."
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While that might be a stretch, prediction markets do have the potential to offer investors a way to manage risk by hedging against the result of an outcome.
Why the stock fell this week
Prediction markets offer growth potential, but right now the company's fortunes are tied to the crypto market via its transaction revenues coming from trading volumes and services revenues (credit card revenues and staking revenue) associated with its credit cards.
Those fortunes are somewhat tied to the movement of cryptocurrencies; price volatility can influence trading volumes (and, in turn, Gemini's transaction revenue). Additionally, lower cryptocurrency prices reduce the value of assets held by Gemini and, in turn, custodial fees.
Image source: Getty Images.
As such, if you are looking for the reason why the stock price declined this week, you can blame it on the decline in cryptocurrency prices, not least Bitcoin, which fell by a low single-digit figure.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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