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Buying cryptocurrencies is all the rage now, especially since Bitcoin (CCC:BTC-USD) is now over $50,000 apiece. But investors sometimes want to avoid the difficulties and issues that arise with buying cryptos themselves. If that sounds like you, the five crypto-related stocks discussed in this article will give you exposure to the upside (and downside) of cryptocurrencies in a more traditional package.
Buying these stocks will help you forego the hassle of trying to buy cryptos and deciding where to house them. But most of them have a high correlation to the variance in the underlying cryptocurrency to which they are tied.
These five stocks will give investors various levels of exposure to cryptocurrencies. These range from the more traditional blockchain and Bitcoin stock plays to several more speculative stocks. In any case, keep in mind that if cryptocurrencies take a hit, these stocks could go down. They will fall just as fast — and possibly even faster — than the underlying crypto.
The five stocks are:
- MicroStrategy (NASDAQ:MSTR)
- Riot Blockchain (NASDAQ:RIOT)
- Marathon Patent (NASDAQ:MARA)
- Ault Global Holdings (NYSEAmerican:DPW)
- ZW Data Action Technologies (NASDAQ:CNET)
Crypto-Related Stocks: MicroStrategy (MSTR)
MicroStrategy is a software company that has been buying a large amount of Bitcoin. For example, it has a $9.2 billion market capitalization but has purchased 70,784 Bitcoins at an average price of just $16,000 each over the past year.
However, since Bitcoin is now worth over $53,000, its Bitcoin holdings are now worth over $3.8 billion. That represents a little over 40% of its market valuation.
Moreover, on Feb. 17, the company issued $900 million of convertible notes and probably about $1.1 billion after the greenshoe option. The purpose of the notes is for MicroStrategy to buy more Bitcoin. Therefore, assuming say $1 billion is used to buy Bitcoin at, say, $53,000 per coin, the total number of BTC will be 18,867.
That will raise its total holdings to 89,651 Bitcoins. At $53,000 they will be worth $4.75 billion. This means Bitcoin will represent over half of its market value.
So, in effect, whatever happens to Bitcoin’s price will move MSTR’s price. It also helps that the software company is profitable and is expected to make over $6 per share this year. However, this price represents 169 times earnings.
However, after deducting the Bitcoin value from its market cap, the software business is valued at only $4.479 billion. Therefore, assuming the estimate of $65 million in net income for this year occurs, the actual P/E ratio for the software business is only 69 times. That is still high but reasonable for a fast-growing software company. Meanwhile, you get free exposure to Bitcoin by buying MSTR stock.
Riot Blockchain (RIOT)
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Riot is a $4.8 billion market cap Bitcoin mining company. It uses hordes of specialized ASIC (application-specific integrated circuit) servers to “hash” out the formulas needed to solve the mathematical algorithms that release portions of Bitcoin to the company.
Riot is getting deeper into the business with recent purchases, as William White of InvestorPlace.com points out.
However, so far the company has not indicated if it going to hold Bitcoin or any other crypto as an asset. This is therefore a play on Bitcoin mining revenue and its hash rate capacity, not so much a proxy for owning Bitcoin.
Several other Bitcoin mining stocks are also worth looking at, such as Hive Blockchain Technologies (OTCMKTS:HVBTF), with a $1.3 billion market cap, and Argo Blockchain plc (OTCMKTS:ARBKF), $963 million. Both of these are foreign companies and they cannot be easily bought in most U.S. brokerage accounts.
However, there is one U.S. Bitcoin mining company that is also purchasing large amounts of Bitcoin.
Marathon Patent (MARA)
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Marathon Patent aims to be the largest Bitcoin mining company. In addition, it is purchasing large amounts of Bitcoin with its treasure assets.
I wrote about this interesting stock earlier this month and did a sum-of-the-parts analysis (SOTP). Suffice it to say that because the company recently bought $150 million in Bitcoin and has $712 million in cash and Bitcoin on its balance sheet, its price could grow.
However, since then MARA stock has moved up a good deal. The cash and Bitcoin now represent about 18.3% of its $4.09 billion market capitalization. Moreover, if it continues to purchase Bitcoin or store the Bitcoin it produces it could become a much larger percentage.
For example, based on an interview that the CEO gave recently, Marathon Patent will mine 55 to 65 Bitcoin per day. In an article I wrote, I estimated that its gross operating margin will be $1.736 million per day and $600 million in free cash flow per year.
Therefore even at a 10% free cash flow yield, the mining business is worth at least $6 billion. With the Bitcoin and cash on its balance sheet, that means MARA stock is worth $6.71 billion, or 64% higher than today’s price. That means MARA stock is still worth $67.20, or 64% above today’s price.
Ault Global Holdings (DPW)
These next two stock ideas are much more speculative so take these ideas with a grain of salt. They have a connection to crypto mining and could move up with the rise in cryptocurrencies, but they are highly speculative in nature.
Ault Global is a sort of mini-conglomerate based in Las Vegas that is building a server farm in Michigan and is getting back into Blockchain mining. This was after a disastrous attempt at it earlier where it co-located its mining operations.
However, now Ault Global has recently raised $50 million, bought its own facility, lowered its energy cost. It will be leasing out space to other miners plus mining on its own.
In a recent press release, the company said it would be making revenue in Q1 and thereafter. In addition, it has a defense equipment business and a nascent EV storage and charging business (hence the mini-conglomerate designation).
It’s too early for me to estimate their earnings, but there is one tether that I was able to latch on to. In its recent prospectus, the company says that its net tangible book value is $1.92 per share.
Therefore at $6.72, as of Feb. 18, DPW stock trades at just 3.5 tangible book value. I suspect that over the next year, as its Bitcoin mining operations take off again the market will give it a much higher valuation.
This is a highly speculative stock. Nevertheless, I can see some logic and value left on the table here. For example, its $45 million in cash represents 26% of its $173 million market cap. That provides a good foundation for the company, especially as it ramps up its Bitcoin mining operation. But there are risks.
For example, the company just recently announced that it had taken a 9.91% stake in another microcap stock, Silversun Technologies (NASDAQ:SSNT). In addition, Ault Global just announced a 9.96% stake in another microcap stock NTN Buzztime (NYSEAmerican:NTN). The total cost for these two stakes was less than $3 million, but it is not clear why they were bought. Both of these acquisitions appear to be part of its activist strategy which is now part of its business model going forward.
Think of DPW stock as an early stage RIOT stock, in terms of getting into crypto mining, with a set of other side businesses as a sort of hedge fund/mini-conglomerate. It’s a gamble, but there is still value and cash supporting the stock price. As always, buyer beware.
ZW Data Action Technologies (CNET)
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This is a highly speculative Chinese stock listed on the Nasdaq that recently raised $18 million and announced its intention to get into crypto mining.
ZW Data Action Technologies calls itself an integrated online advertising, precision marketing, data analytics, and other value-added services company. That is somewhat hard to understand. Right now CNET has a $90 million market cap after its crypto mining announcement and cash raise.
Therefore, use a huge grain of salt when considering investing in this stock. The announcement made on Feb. 10 said CNET signed a “strategic cooperation agreement” with an experienced crypto mining technology company, Bitspace Tech., Inc. It appears they will offer a “model of smart contract for automatic aggregate mining and achieve the automatic distribution of income.”
More concretely, the announcement said they would implement 2800 miners of the Ant Series T19 over the next six months for a total hash rate of 22p petahash (PH) per second.
However, there is no indication of what profits or even what revenue the company expects to make. From what I can glean, it appears they will be setting up a business model to offer cloud-based access to crypto mining to non-mining companies. This is one of the more popular approaches to getting non-crypto mining companies involved in making money with crypto mining without having to invest in the hardware.
This is a highly speculative venture on their part, with no guarantee of success. In addition, there is no indication of what the actual business economics will be. Therefore I suggest that for most investors except for those inclined to gamble this is not a suitable crypto stock alternative.
On the date of publication, Mark R. Hake does holds a long position in Marathon Patent (MARA), Ault Global Holdings (DPW), and ZW Data Action Technologies (CNET).
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.