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These companies will benefit from wider cryptocurrency adoption in the coming years
Going by the trend in the last 12-18 months, crypto stocks have exhibited a strong correlation with the price action in cryptocurrencies. Therefore, for investors bullish on the crypto world, it makes sense to consider exposure to crypto stocks.
I believe that there are several reasons to be positive about cryptocurrency and blockchain. First and foremost, there are emerging use cases for blockchain. In turn, decentralized finance has also attracted more individual and institutional investors.
Furthermore, Bitcoin (BTC-USD) is already considered as a currency and an effective hedge against inflation. With cryptocurrencies still in a phase of price discovery, there will be significant volatility. However, with wider adoption and a limited supply, Bitcoin is likely to remain in an uptrend.
Moreover, the recent correction in Bitcoin has resulted in a bit of downside for crypto stocks. Nonetheless, I believe that’s it’s a good accumulation opportunity in some quality crypto stocks that promise to be long-term value creators. They are:
Now, let’s dive in and discuss the reasons that investors should keep an eye on these names.
Even with robust growth in terms of revenue and EBITDA, COIN stock has been trending lower. This does not come as a surprise with the cryptocurrency market remaining jittery. However, the long-term outlook for Coinbase is bright. With wider adoption of cryptocurrencies, the company stands to benefit.
Overall, I see the following important catalysts for COIN stock upside in 2022.
First, Coinbase has expanded in Japan and has also been recruiting in India. International expansion is a key factor that can help in sustaining the growth momentum. Data suggests that the number of crypto users can possibly increase to one billion by the end of the year. As of December 2021, the number of crypto holders was 295 million. Therefore, the addressable market is getting bigger and Coinbase is positioned to benefit.
Furthermore, institutional adoption of crypto has been increasing at a healthy pace. For the third quarter of 2021, Coinbase reported institutional trading volume of $234 billion as compared to $27 billion in Q3 2020. The company has also recently partnered with One River to offer crypto accounts for wealth managers.
It’s also worth noting that Coinbase has been aggressively increasing the number of assets traded on the platform. In turn, this is another catalyst for active user growth. So with healthy revenue and cash flow growth, COIN stock looks attractive. Moreover, the company has a robust cash buffer to pursue aggressive expansion efforts.
HOOD stock has continued to disappoint investors after listing highs of $85. Currently, the stock trades around $13.50. After the big plunge, though, HOOD stock looks attractive and a good contrarian bet. And I believe that crypto trading can be a possible lifeline for the company.
It’s worth noting that Robinhood has spent the most in terms of crypto lobbying expenditure for 2021. This is an indicator of the importance the company assigns to this business segment.
Robinhood has been expanding on the crypto services to benefit from the segment growth. As an example, the company will be launching crypto wallets in the first quarter of 2022. Additionally, the crypto gifts service is likely to be launched, which will enable users to send crypto to family or friends by sharing a link.
Another growth catalyst for the crypto segment is the company’s expansion beyond the United States. That said, in 2022, a crypto platform for international customers is planned.
It’s worth noting that for Q4 2021, the company’s crypto revenue increased by 304% year-over-year to $48 million. This growth trajectory is likely to sustain considering new features and international expansion.
Furthermore, speculative activity in the crypto market has declined on a relative basis. Once Bitcoin starts trending higher again, there will be increased trading volumes.
Overall, HOOD stock might have limited downside after a big correction. However, if the crypto segment delivers, the upside potential can be meaningful in the medium to long term.
PYPL stock has been trending lower in the last few quarters. In the last six months, the stock has corrected by 58%. It’s difficult to predict the bottom. However, PYPL stock trades at a forward price-to-earnings (P/E) ratio of 24.6. Thus, valuations look attractive considering the company’s growth potential.
On the cryptocurrency front, PayPal seems to be bullish. Users can buy, sell and hold crypto using the company’s app. Moreover, hacking and scams concerns have been increasing. In turn, PayPal offers complete replacement of crypto if the account is hacked. Also, users in the U.S. can also use crypto to make purchases.
On that note, PayPal has launched a crypto service in the U.K. However, payments are currently not enabled. Nonetheless, it’s very likely that PayPal will expand its crypto offering to other countries globally. At the same time, the number of supported assets is likely to increase in the coming years.
It was recently reported that PayPal is also working on launching its own stable coin. The coin is likely to be backed by the U.S. dollar, and PayPal is working with regulators for a smooth roll-out.
Clearly, PayPal is bullish on cryptocurrencies and with wider adoption globally, the company stands to benefit. Therefore, PYPL stock is worth accumulating at current levels.
My top pick among crypto stocks with a focus on Bitcoin mining would be MARA stock. With the correction in Bitcoin, the stock has slumped from highs of $83.45 to current levels of $28.70. In turn, this seems like a golden opportunity to accumulate with the company positioned for strong growth in the next 12-18 months.
To put things into perspective, the company reported hashing capacity of 2.7 exahash per second (EH/s) as of September 2021. The company expects to increase capacity to 13.3EH/s by mid-2022. Furthermore, with more miners being deployed, the capacity is likely to increase to 23.3EH/s by early 2023.
Therefore, there is likely to be a ten-fold increase in hashing capacity in the next 12-months. This would translate into robust revenue and cash flow growth. At 13.3EH/s by mid-2022, Marathon believes that the company can mine 66 Bitcoins per day. This would imply a revenue potential of $90 million per month at a Bitcoin price of $45,000.
Therefore, once the hashing capacity increases to 23.3EH/s by 2023, Marathon Digital will be positioned for an annual revenue potential of $1.5 to $2 billion. This would also imply a significant increase in financial flexibility.
As of December 2021, Marathon had a total liquidity buffer (cash and digital assets) of $1.1 billion. The company has also filed for mixed securities shelf registration of $750 million. Therefore, there are ample financial resources to pursue aggressive expansion through 2023.
RIOT stock has also been in a correction mode with a downside of 45% in the last six months. Similar to Marathon, the company has a rapid miner deployment plan through 2022. This is likely to translate into healthy revenue growth.
For January 2022, Riot reported hashing capacity of 3.4EH/s. For the month, the company mined 458 Bitcoins. By the end of the year, Riot expects to increase mining capacity to 12.8EH/s. This would imply almost four-fold growth in mining capacity.
Considering this growth, Riot is likely to mine 1,600 to 1,800 Bitcoin on a monthly basis from January 2022. At a Bitcoin price of $45,000, it would imply a monthly revenue potential of $72 million to $81 million. Clearly, the best part of growth is still to come for the company.
It’s also worth noting that for Q3 2021, Riot reported revenue of $64.8 million and an adjusted EBITDA of $37.6 million.
This implies an adjusted EBITDA margin of 58%. As mining capacity increase, the company is positioned to deliver healthy EBITDA and cash flows. This would position Riot Blockchain for further expansion beyond 2022.
Overall, RIOT stock looks attractive with growth likely to accelerate. I would not be surprised if the stock doubles in the next 12 months.
SQ stock is another name that has been in a deep correction mode. In the last six months, the stock has declined by almost 60%. I believe that gradual accumulation can be considered. Recently, Bank of America Securities analyst Jason Kupferberg upgraded SQ stock to “buy” from “neutral,” and believes that the selloff is overdone.
For Q3 2021, the company’s Cash App generated $1.82 billion in Bitcoin revenue and $42 million in bitcoin gross profit. Among other plans, Block will also be launching a decentralized Bitcoin exchange.
Moreover, in January 2022, Block founder and CEO Jack Dorsey confirmed that the company is building an open Bitcoin mining system. In turn, the idea is to make Bitcoin mining easier and reduce the consumption of energy.
It’s worth noting that Cash App has been a game-changer for Block and can deliver robust cash flows in the coming years. With that, it’s very likely that the company will deploy more investments towards the cryptocurrency segment. As use cases emerge, Block is likely to have ample growth opportunities.
Overall, SQ stock is attractive and as the cryptocurrency ecosystem expands, the company is positioned to benefit. The deep correction, therefore, presents a good buying opportunity.
After listing in October 2021 around $9 levels, BKKT stock had a euphoric surge to highs of $50.80 per share. The rally fizzled out equally as quick, and the stock currently trades at just below $8 per share.
However, it’s also worth mentioning that in January 2022, the stock had slumped to lows of $3.31. Thus, there has already been a meaningful rally from the bottom. And I further believe that BKKT stock is positioned for upside in the coming quarters.
As an overview, Bakkt is a digital assets platform that allows consumers to buy, sell and hold digital assets. Currently, Bitcoin and Ethereum (ETH-USD) are supported on the platform.
Additionally, one reason to like Bakkt is the point that the company’s platform serves as a bridge between the centralized and decentralized world. With growing adoption, Bakkt is focused on making crypto utility more mainstream.
As an example, Bakkt has partnered with Mastercard (NYSE:MA) where Mastercard customers can “enable consumers to buy, sell and hold cryptocurrency, deliver unique, crypto-centric loyalty opportunities, and streamline issuance of branded crypto debit and credit cards.”
Recently, Bakkt also partnered with Hanover Community Bank, which has $1.5 billion in total assets. In turn, the partnership will allow Hanover Bank customers to access Bitcoin and Ethereum through the Bank’s mobile banking app. As more partnerships are forged, Bakkt is likely to deliver value.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.
Article printed from InvestorPlace Media, https://investorplace.com/2022/02/7-crypto-stocks-that-can-create-value/.
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