Markets are mixed on Monday, but SoFi (NASDAQ:SOFI) stock has picked a clear direction: lower. That’s as SoFi stock sinks 6% on Monday morning.
What’s triggering the decline? Investors are selling SoFi stock on worries about the FTX blowup in the crypto space. Since SoFi has a crypto operation, concerns are growing about how it could be affected too.
The fallout of the FTX situation is creating a multi-layered problem within crypto.
First, there’s contagion risk, as others who are connected to FTX are now at risk. Loss of investment or loss of funds can create a “trickle-down” impact on other firms. Second, the blowup creates distrust within the industry. Lastly, it will speed up and increase regulation.
While regulation is a good thing for consumers — and ultimately for the crypto space as a whole — it does create some short-term headaches for operators already in the space.
In the case of SoFi, there’s an even more specific concern. Lawmakers wrote to regulators asking them to take a closer look at SoFi’s crypto activities. They said:
“SoFi’s digital asset activities pose significant risks to both individual investors and safety and soundness … It is imperative that the Fed, FDIC and OCC ensure that SoFi complies with all consumer financial protection and banking regulations.”
Distrust in crypto could be a negative for SoFi, but a sharp eye on its operations from regulators creates a clear risk for the company.
Breaking Down SoFi Stock
Back in May, SoFi stock made a low of $4.88 and bounced hard off that zone. Since then, the stock has made a new low — albeit barely — when it traded at $4.77 later in the year. Essentially though, the $4.75 to $4.85 has been a critical zone of support.
With Monday’s decline, SoFi stock is trading into the top end of that zone. It’s imperative for the bulls to hold this level if they want to see SoFi remain constructive (from a technical analysis perspective).
The latest crypto-related news doesn’t help, nor does a bear market.
If the stock can hold up through the selling pressure, then investors have a very clear risk/reward proposition in front of them. If the stock fails to hold support, it can continue to make new lows. That said, just because the risk is clear doesn’t mean it’s a low-risk scenario.
Investors that are worried about how student loan debt forgiveness will go or that are concerned about the potential crypto problems it faces, should consider avoiding SoFi stock.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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