The big rally in Bitcoin (CCC:BTC-USD) has taken the crypto euphoria to the next level. The crypto rally does not cease to amaze. As a matter of fact, Bitcoin’s market capitalization is now bigger than that of JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) combined.
Of course, it’s not all about the bull market in the crypto space. There is a strong case for wide adoption of cryptocurrencies and blockchain technology. Recently, Tesla (NASDAQ:TSLA) was in the news for buying $1.5 billion worth of Bitcoin. The company also plans to start accepting Bitcoin as a payment method in the future.
Further, it’s expected that the global blockchain market will grow from $3 billion in fiscal year 2020 to $39.7 billion by FY2025. A study shows that 69% “of banks are experimenting with blockchain technology to make their services more secure, seamless and transparent.” This presents a big opportunity for companies in the field of blockchain technology.
A direct way of exposure to crypto is Bitcoin or other cryptocurrencies. However, several listed companies have interest in the crypto and blockchain domain. Stocks of these companies could be attractive investment options.
Let’s talk about seven stocks riding the crypto craze:
- Riot Blockchain (NASDAQ:RIOT)
- Square (NYSE:SQ)
- HIVE Blockchain Technologies (OTCMKTS:HVBTF)
- Overstock.com (NASDAQ:OSTK)
- Facebook (NASDAQ:FB)
- Xunlei Limited (NASDAQ:XNET)
- Future FinTech Group (NASDAQ:FTFT)
Stocks Riding the Crypto Craze: Riot Blockchain (RIOT)
With Bitcoin surging recently, Riot Blockchain stock has also skyrocketed. In the last six months, RIOT stock has delivered returns of more than 1,700%. Some correction from current levels is likely. However, the stock is worth keeping on your investment radar considering the expansion plans for the current year.
As an overview, Riot Blockchain is a cryptocurrency mining company. Riot utilizes miners to generate Bitcoin from the blockchain. For the first nine months of 2020, the company produced 730 newly minted Bitcoins.
An important point to note is that Riot expects to have 22,640 miners deployed by June 2021. A majority of these miners will be the latest generation S19 Pro miners. Therefore, as these deployments are undertaken in the next few months, the amount of newly minted Bitcoins will increase. It’s not surprising that the stock is surging along with rising Bitcoin price.
As of September 2020, Riot reported $30.1 million in cash and equivalents. Further, the company had $9 million in cryptocurrencies. With $24.4 million in remaining capital expansion, the company is fully financed for the growth in miners through June 2021.
Overall, RIOT stock is an interesting name to consider in the crypto space. This is especially true if the momentum remains bullish for Bitcoin, which is very likely.
SQ stock, which has moved higher by 76% in the last six months, is another interesting play in the crypto space. Of course, Square is far from being a pure-play in the cryptocurrency or blockchain industry. However, the company is worth holding in your core portfolio.
In October 2020, Square purchased 4,709 Bitcoins for a total consideration of $50 million. Square believes that “cryptocurrencies are an instrument of economic empowerment and aligns with the company’s purpose.” As a matter of fact, the Bitcoins held by the company are already worth $245 million considering the current price of $52,000.
Further, the company’s Cash App created $1.63 billion in Bitcoin revenue for the third quarter of 2020. Bitcoin gross profit for the same period was $32 million. With a wider adoption of the cryptocurrency, I expect healthy growth to sustain in the Cash App segment.
Excluding revenue from Bitcoin, Cash App revenue was $435 million, which was higher by 174% on a year-over-year basis. I believe that Cash App is likely to be a long-term money-spinner for Square.
From a valuation perspective, SQ stock currently trades at a price-to-earnings (P/E) ratio of 254.7. Valuations look stretched, and I would wait for some correction before fresh exposure to this quality business.
HIVE Blockchain Technologies (HVBTF)
HIVE Blockchain is another pure-play in the crypto space. Given the positive developments around cryptocurrencies, it’s not surprising that HVBTF stock has surged by 1,062% in the last six months. In my view, some profit-booking is in the cards. However, for long-term investors, HVBTF is worth keeping on the radar and accumulating.
As an overview, HIVE is a blockchain infrastructure company. The company currently has data center facilities in Canada, Sweden and Iceland. These facilities produce newly minted cryptocurrencies like Bitcoin and Ethereum (CCC:ETH-USD). HIVE is pursuing capacity expansion in all three locations. This is likely to translate into increase in income from digital currency mining.
Further, the company believes that worldwide blockchain spending is likely to increase at a compound annual growth rate (CAGR) of 60% from 2018 through 2023. This presents a big growth and scaling-up opportunity for HIVE.
From a financial perspective, the company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $10.6 million for Q2 2021, as compared to an EBITDA loss of $4.6 million in Q2 2020. During the quarter, the company also mined 32,800 Ethereum and 89 Bitcoins. With capacity expansion, the company is well-positioned to deliver strong EBITDA and cash flows in the coming quarters.
OSTK stock is another interesting name in the crypto space. While not a pure-play, Overstock.com has interesting developments related to blockchain and cryptocurrency. OSTK stock has surged by 982% in the last one-year period, but still looks attractive at current levels around $98.
Specific to cryptocurrencies, the company’s tZERO platform has received FINRA approval to provide retail brokerage services for digital securities.
Solomon Tesfaye, the vice president of business development, explains the company’s game-changing model.
“We essentially digitize equity within a particular company, and enable that to trade on our platform. Investors can trade a position, within a private asset, as simply as trading Tesla shares.”
For Q3 2020, the company reported $39 million in security token trade volume. As compared to Q3 2019, volumes were 20 times higher. Clearly, the company’s digital securities space is gaining traction. If this growth sustains, OSTK stock will be a value creator in the coming years.
It’s worth noting that the company’s Crypto App users have also seen steady growth. tZERO had 11,278 users in Q3 2020 as compared to 2,580 users in Q3 2019. With FINRA approval for tZERO markets, the company’s plan is to migrate the Crypto App users to broker-dealer.
Overall, OSTK stock looks attractively valued considering the core business growth and the outlook for the emerging crypto business.
Before I talk about Facebook’s crypto project, I would like to mention that FB stock is attractively valued. The stock has been in a consolidation mode for over six months, and a breakout on the upside is likely. At a forward P/E of 24.2, FB stock is among the few undervalued technology stocks.
The company’s crypto project was announced in FY2019, with the coin being named Libra. However, the likes of Visa (NYSE:V), Mastercard (NYSE:MA) and PayPal (NASDAQ:PYPL) soon withdrew from Libra Association. After this initial setback, the progress has been slow. Regulatory hurdles have also impacted the launch.
Finally, there seems to be light at the end of the tunnel. The cryptocurrency has been renamed Diem and is likely to be launched in the current year. In addition to the crypto, Facebook will also be backing the launch of wallet Novi.
Overall, FB stock is attractive for exposure at current levels. Given the growing interest in cryptocurrencies among the masses, the stock is likely to trend higher once the project is officially launched.
Xunlei Limited (XNET)
Among the smaller names in the crypto industry, Xunlei Unlimited is worth a look. With cryptocurrencies trending higher, XNET stock has already moved higher by 193% for the current year. The stock still trades at a market capitalization of $569 million.
In September 2020, the company launched a Blockchain-as-a-Service (BaaS) platform. The company’s BaaS platform serves as a one-stop blockchain service solution. The key objective of the platform is to “free enterprises and developers from dealing with complex technical issues in blockchain infrastructure and to drive innovation and productivity.”
A FY2020 Deloitte Global Blockchain Survey indicated that “attitudes toward blockchain have obviously, and measurably, shifted in a positive way. It showed progress in the adoption and implementation of real-world blockchain solutions across a variety of businesses and sectors.”
Clearly, the company has an early-mover advantage. If the adoption of blockchain gains traction across industries and organization, Xunlei is well-positioned to benefit. XNET stock is therefore attractive from a medium- to long-term investment perspective.
Future FinTech Group (FTFT)
Future FinTech Group is another attractive small-cap name in the crypto space. The stock has already surged by 350% in the current year, and a correction from current levels of $8.50 is likely. However, FTFT stock is worth keeping on your investment radar.
As an overview, Future FinTech is a blockchain e-commerce company. In the recent past, there have been several positive developments that could trigger long-term growth. DCON DigiPay Limited, which is 60% owned by FTFT, recently upgraded its mBTC system and technology. This will enable e-commerce platforms to accept Bitcoin as a payment of method from consumers.
The company has also signed an agreement for acquisition of 60% stake in Blocknance Financial International. The latter provides “services for transactions between Bitcoin and other cryptocurrencies and fiat currencies.”
The company also plans to make an entry into the financial services market in Indonesia. With all these developments, FTFT stock momentum has been bullish. Future FinTech Group has also raised funds in the recent past. If the business segments impress in terms of growth, the stock can deliver multifold returns.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.