Generating impressive ROIs whilst indirectly investing in the pioneering cryptocurrency.
With 2024 just around the corner, the Fourth Bitcoin Block Reward Halving fast approaching (<150 days away), and Spot Bitcoin ETF hype growing, many people are re-focusing their attention on BTC and the entire crypto space in the coming months.
Other than BTC/crypto holders, another category of people has benefitted immensely from investing in this asset class: Crypto-related stocks.
Which ones am I referring to? For brevity and to avoid repetition, here is a list of related shares that I covered in two articles earlier this year:
– CleanSpark (NASDAQ:CLSK)
– Coinbase (NASDAQ:COIN)
– MicroStrategy Incorporated (NASDAQ:MSTR)
– ARK Next Generation Internet ETF (NYSEARCA:ARKW)
– ARK Fintech Innovation ETF (NYSEARCA:ARKF)
– Betashares Crypto Innovators ETF (CRYP.AX)
– DigitalX Limited (DCC.AX)
– Iris Energy Limited (NASDAQ:IREN)
– Hive Digital Technologies Ltd. (NASDAQ:HIVE)
– Marathon Digital Holdings, Inc. (NASDAQ:MARA)
Most of these are up by over 250% in 2023, outpacing BTC’s ~130% ROI, which is still impressive.
*Options in italics represent those I have not previously mentioned but have also performed well year-to-date (YTD).
These posts will give you plenty of information about BTC/crypto stocks and other ways to gain exposure to this new asset class via retirement funds, managed funds, spot ETFs, etc.
Two major reasons why they can outperform BTC
1) Bitcoin mining profitability vs BTC price
BTC mining firms take advantage of opportunities to purchase equipment (ASIC miners, cooling systems, etc.) when prices are down to boost their company’s hash rate (computing power required for mining coins).
Bulk orders for hundreds of new machines can lower the upfront cost required to produce new BTC.
From here, a combination of obtaining the cheapest energy possible whilst simultaneously getting from cleaner energy sources – nuclear, solar, wind, hydro, etc. – and selling BTC when prices are up, they can maximise their profits and pass them on to shareholders.
Well-run enterprises can yield a greater ROI from their operation than directly holding BTC. One of the ways they do this is by exploiting the surplus energy produced by renewable energy companies that cannot store the excess energy, which would have otherwise gone to waste.
Per supply and demand, these BTC miners can maximise their profits by boosting their ASIC miners during these times and readily scaling them back/optimising the equipment when it’s not as cost-competitive.
CLSK/USD turbocharged its way to a new high for 2023, bouncing back from $3.69 less than a month ago—Source: TradingView.
The catch here is that you’re banking on a third party (i.e., a BTC miner) to generate these profits instead of the decentralised option of fully controlling the private keys to your BTC wallet.
In other words, unlike BTC self-custody, you are directly exposed to any adverse events experienced by a company as a shareholder. You are relying on sound fiscal management to ensure they remain profitable.
Nonetheless, for as long as Bitcoin requires mining to produce new coins (which, as per current calculations, will be necessary until roughly 2140), these companies will play an integral role in Bitcoin’s blockchain.
2) Multiple revenue streams for the abovementioned public comapnies
These have the potential to outpace BTC’s price growth but run the risk of underperforming it.
Key examples that come to mind are Coinbase, MicroStrategy and Ark Invest.
Coinbase, love or loathe it, is poising itself to reinforce its presence in this nascent industry.
Having relied on trading fees for a relatively small range of crypto assets up until a few years ago, it has been diversifying its range of revenue streams, and rightfully so for its shareholders.
But the weight of Coinbase’s trading fee revenues has been shrinking. Trading fees made up 87% of quarterly revenues throughout 2020, on average, but only 77% in the first three quarters of last year (2022).
Staking, corporate interest, Coinbase One subscriptions and its role as a planned custodian for the swathe of Spot Bitcoin ETF applicants have helped (and will continue to assist) it in further reducing its dependence on trading fees.
Bullish on $COIN
Coinbase is solidifying its market position as the primary custodian for potential spot ETFs pic.twitter.com/4H3FCNb4Kj
— Hunter Nicholas (@hunterxnicholas) November 30, 2023
Source: X (Twitter)
MicroStrategy – spearheaded by Michael Saylor, one of Bitcoin’s biggest advocates – focuses on providing software solutions for enterprises and other stakeholders across multiple industries, including financial services, healthcare, retail, and government.
With its gargantuan BTC holdings, it has also become a de-facto Bitcoin-related stock.
As of November 29, 2023, MicroStrategy, together with its subsidiaries, held an aggregate of approximately 174,530 bitcoins, which were acquired at an aggregate purchase price of approximately $5.280 billion and an average purchase price of approximately $30,252 per bitcoin, inclusive of fees and expenses.
As a result, shareholders will benefit from increasing BTC prices and profits from their software services division.
ArkInvest is an international asset manager that offers a range of investments across different portfolios, including ETFs, mutual funds and managed accounts about (fin)tech products, AI, space exploration, biomedicine and other innovative products.
Its CEO and Chief Investment Officer, Cathie Wood, is a big believer in the long-term potential of Bitcoin and even crypto companies, particularly Coinbase. In a recent Bloomberg Television interview, she cited the exchange’s bounce back from SEC actions taken against it earlier this year (i.e., a Wells notice and allegedly “operating as an unregistered securities exchange, broker and clearing agency.”
For crypto holders, the two ARKW and ARKF funds cover investments in other fintech and crypto companies, including Block, Inc. (SQ), Shopify Inc. (SHOP), Twilio Inc. (TWLO) and Robinhood Markets Inc. (HOOD), to name a few.
Even though ARK funds have done well YTD, BTC has still been a better-performing asset. Yet, their funds are still great for anyone wanting to spread risk and diversify their (fintech) stock portfolio.
Touch on the idea of Coinbase being able to offer crypto-related stocks on its platform. Whilst this would be ideal and help further boost the profile of these public companies, I believe it is unlikely ever to see the light of day.
Why? We know how antagonistic US regulators are towards crypto exchanges, let alone any new company involved in the BTC/crypto space.
Some legacy financial institutions (wanting to offer crypto to their clients) are annoyed with Coinbase, Binance, Kraken, Gemini and similar exchanges accounting for a significant market share of trading volume and assets under management.
Now, imagine if US regulators gave someone like Coinbase the green light to offer certain stocks via their exchanges.
The only scenario where I see this occurring is if a consortium of institutional investors were ever to gain majority ownership of Coinbase.
FYI, BlackRock and Vanguard collectively own 10% of Coinbase…reportedly…according to this source. On a more concerning note for every day (retail) investors, i.e., you and me, out of 237.27 million COIN shares, BlackRock and Vanguard own 13.873 million and 8.210 million shares, respectively, according to NASDAQ data*.
*As of September 30, 2023. The 10% figure listed above was quoted in a November 22, 2023 article.
While I am at it, this is a Yahoo Finance piece – fairly fresh off the press – covering the ownership breakdown of publicly listed exchanges: retail, institutional, and otherwise.
Coinbase is just one example, but it paints a worrying trend: Too many retailers are sitting on the sidelines, waiting for these financial to take the initiative and buy up vast amounts of crypto stocks. They will then re-sell these to their clients for a neat profit via commission.
As I wrap up, I am glad that people are interested in this asset class and that Bitcoin, let alone ETH and other reputable altcoins/tokens, are becoming recognised as “legitimate” investments.
Yet, I would prefer to see individuals stepping up and directly purchasing these assets without having to line the pockets of these financial behemoths.
Before you beat me to it, I get it. It is a hardcore Bitcoin believer’s worst nightmare: A system originally designed as a “peer-to-peer version of electronic cash…without going through a financial institution” (Bitcoin whitepaper, 2008) is increasingly being dominated by the big end of town.
Adding to this, Coinbase is granted a near-monopoly as an institutional custodian, for better or worse.
I empathise with these BTC enthusiasts, as it is a shame that retail investors had failed to capitalise on cheaper prices before institutional investors got involved.
Not just BTC, but ETH and other crypto assets.
Despite all of this, most of us welcome more liquidity to the space to boost asset prices and, ultimately, make more money from this.
Let’s enjoy the ride. Get ready for some crazy price movements in the next 18 months.
P.S. If you’re reading this around Christmas and the New Year, Merry Xmas/Season’s Greetings. Enjoy your time off, and don’t forget to recharge and enjoy time with friends + family. Cheers.
N.B. None of this is financial or legal advice, and I am neither a financial advisor nor a lawyer. You are solely responsible for crypto investments and how you interpret the information provided in this piece.
The opinions expressed within this piece are my own and might not reflect those behind any entity listed here.
Please do your own research before investing in any cryptos, staking, NFTs, or other products affiliated with this space.
Out of the shares included here, I hold CLSK, COIN, IREN and HIVE, in descending order of holdings. These collectively account for 20% of my overall share portfolio.
I received no incentive from companies or entities listed throughout this article to discuss their product.
Statistics and prices included herein are correct at the time of writing and are based on the included links/sources.