This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To make sure you don’t miss any of Tom’s potential 100x picks, subscribe to his mailing list here.
Ashley Cassell Rejoins InvestorPlace.com
When I heard that Ashley was launching a tech newsletter here on InvestorPlace.com, my first reaction was “maybe I should get an autograph…”
That’s because Ms. Cassell is a top financial writer who was covering stocks like Chewy (NYSE:CHWY) when the market was still treating it like a “Pets.com V2.” And now that she’s launched The New Digital World, I want to take the opportunity to introduce her to you folks.
That’s because Ashley talks about tech as it is. No sugarcoating, just what’s going to do well — and what’s not.
To show you what I mean, I’m going to tell you about two of her picks. And if you want to hear more, simply click here to subscribe to her free newsletter, The New Digital World. (As an added bonus, you’ll also get access to her new report, “3 Top Ideas to Invest in the Metaverse.”)
The MVP Crypto Project to Know
If you’re not paying close attention, it can be hard to keep up.
Fortunately, Ashley is more of the buy-and-hold type, especially because she tends to pay attention to long-term trends. And now, she has an MVP pick that she wants you to know about: Polygon (MATIC-USD).
Better, Faster, Stronger
Ethereum (ETH-USD) has always had issues. Buying a $30 NFT can cost $60 in fees alone, and the network can only process 15 of these absurdly priced transactions per second.
That’s where Polygon comes in.
“Polygon isn’t that well known among folks new to the cryptocurrency space, but it’s achieving huge adoption [among] Web3 developers,” Ashley notes. “The goal is to become the Amazon Web Services (AWS) of Web3.”
The layer-2 scaling solution has already found success in its current iteration. Here’s more from Ashley:
“You can use one of Polygon’s sidechains, which are:
“1) Interoperable – Connect with other Ethereum sidechains ‘without ever sacrificing on security,’ says Polygon.
“2) Cheaper – By Polygon’s calculations, it’s saved these 7,000 projects an average of $140 million in gas fees each day!
“And 3) Faster – Polygon says it can handle 65,000 transactions per second (TPS), with a two-second confirmation time.”
And the network isn’t standing still either:
“Today, with Polygon, Aave’s team is developing a decentralized version of Twitter using its Lens Protocol. Similarly, CyberConnect is building social graph infrastructure for Web3 in the Polygon ecosystem, on Ceramic Network.”
The Future of Web3
These developments are essential. As Ethereum switches to its “2.0” version, the usefulness of sidechains will vanish almost overnight. There’s little need for off-chain batching if your Mainnet can run 100,000 transactions per second at almost zero cost.
Still, Ashley believes the Polygon team has found a formula to survive:
- Privacy Applications. “With Nightfall 3, you can use the Ethereum network ‘in private mode,’ and all the information required to perform a private transfer exists with clients and does not rely on any off-chain third party.”
- Gaming. “Polygon itself just poached YouTube’s Global Head of Gaming, Ryan Wyatt, to a similar role at Polygon Studios.”
- NFTs. “Sports Illustrated is bringing nine of its most classic magazine covers to the Polygon network as NFTs, too. With Polygon, the multi-chain compatibility brings a lot more flexibility to the NFT industry.”
As star-studded funding continues to pour into Polygon, Ashley continues to see MATIC as the MVP crypto to watch.
Crypto Miners Are Becoming Value Stocks…
…without much of the benefits.
Meanwhile, Ms. Cassell isn’t shy about calling things exactly how she sees them.
Here’s what she’s written about crypto miners:
“Most of them have a good Quantitative Grade… but the fundamentals are often mediocre…
“Silvergate Capital’s (NYSE:SI) growth scores are good, but its Cash Flow leaves something to be desired… and downward Earnings Revisions, plus a history of bad Earnings Surprises, leads to a lower grade.
“Marathon Digital (NASDAQ:MARA), too, struggles on Cash Flow, as well as Earnings Surprises and Earnings Revisions.”
Essentially, cryptocurrency miners face the same realities as metal-mining ones: massive upfront cash outlays and a boom-bust business cycle.
In good times, the operational leverage amounts to stunning returns; Marathon Digital rose 500% in the first-11 months of 2021. But in bad times, lower crypto prices can cause crushing cash flow problems, as evidenced by MARA stock’s eventual 50% fizzle.
The Silver Lining
Ashley does, however, leave us with some choices:
- Hut8 Mining (NASDAQ:HUT). “HUT mined 308 BTC in January (worth $1.3 million today), which was 11.6% more than in December,” says Ashley.
- Hive Mining (NASDAQ:HIVE). “HIVE’s Report Card is even better. When you see good Cash Flow along with growth, then sure, you’ve got a solid value play!”
And here’s where her attention to detail matters.
By focusing on cash generation, she’s treating these stocks as the value plays they are. No cash flow? No investment.
That simple rule leaves bad apples little place to hide. Even if crypto is truly here to stay, it’s still important to pick the winners and dump the losers.
Playing the Long Game
Bitcoin mining companies offer an intriguing look into the wild world of cryptocurrency. Much like the thousands of ecommerce companies of the 1990s dot com boom, today’s crypto miners are competing in a cut-throat market that’s still anyone’s game to win.
There are, however, some helpful guidelines that Ashley and I use to eliminate weaker bets:
- Cash flow issues. Much like the financial shenanigans of AOL in the early 2000s, certain accounting assumptions at companies like Marathon and Riot Blockchain can make a firm seem profitable even as it’s bleeding cash.
- Hype. Are companies better at producing quality services, or at marketing? Firms like Pets.com found out the hard way that you need both to succeed.
- Value. Even the top ecommerce companies became “too expensive” at the market peak. Amazon (NASDAQ:AMZN) lost 85% of its market value, despite emerging as a long-term winner.
When you’re using a buy-and-hold strategy, it pays to get things right. And if you want to keep up with the latest news, be sure to subscribe to Ashley’s free newsletter, The New Digital World — simply click here to claim your free subscription today.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.