You don’t have to buy Bitcoin to get exposure to the upside potential (and downside) in Bitcoin swings. You can buy stocks that are involved in Bitcoin mining and/or have a large percentage of their net worth in Bitcoin. Other stocks are involved in blockchain technology.
For example, this week Tesla (TSLA) announced it bought $1.5 billion in Bitcoin and would accept payment in Bitcoin. The company has about $20 billion in cash so this won’t make a huge difference in terms of its market value, which is $783 billion, as of Feb. 12.
However, analysts suspect a good number of companies will follow Tesla’s lead. They may begin to treat it as a legitimate treasury asset. CNBC reported that Wall Street is inching closer to accepting Bitcoin as an investment asset class.
Moreover, Mastercard (MA) said this week it would support some cryptos on its network this year. In addition, the Bank of New York Mellon (BNY) said it plans to transfer, store and issue the digital assets.
Until that happens, here are four stocks where Bitcoin and cryptocurrency is a major portion of their assets or business.
Overstock.com, the e-commerce company, started venturing into blockchain and cryptocurrency as early as 2014 under its former CEO. Today it is still one of the few online retailers, along with Square, and PayPal that accept cryptos as payment.
Overstock has a subsidiary called tZero which is a crypto exchange. It is registered as or is applying to become a money transmitter (or its equivalent) in many states. tZero is actually a division under its wholly-owned subsidiary named Medici Ventures. Medici Ventures also has minority investments in various blockchain-related companies.
That’s all very interesting. But here is the bottom line. So far Overstock doesn’t seem to have made any money in crypto exchanges or currency. There is no line on either their income statement or balance sheet which delineates any assets or profits from blockchain or cryptos.
It’s a lot of hype and nothing real. Therefore, avoid Overstock.com for crypto exposure.
Riot is a $3.3 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.
Several other Bitcoin mining stocks are also worth looking at, such as Hive Blockchain (HVBTF), with a $1 billion market cap, and Argo Blockchain plc (ARBKF), $963 million. Both of these are foreign companies.
However, there is one Bitcoin mining company that is purchasing large amounts of Bitcoin.
Marathon Patent claims it will 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 in Medium 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.
This now represents about 20% of its $3.5 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 1.92 times today’s price. That means MARA stock is still worth $73.84, or 92% above today’s price.
MicroStrategy is a software company that has been buying a large amount of Bitcoin. For example, it has a $9.916 billion market cap but has purchased 70,784 Bitcoins at an average price of just $16K per Bitcoin over the past year.
However, since Bitcoin is now at $47,824 (BTC=USD) as of Friday, Feb.12, its BTC holdings are now worth $3.385 billion. That represents a little over one-third (34.1%) of its market valuation.
So, in effect, whatever happens to BTC’s price will move MSTR’s price. It also helps that the software company is profitable and is expected to make over $6.00 per share this year. However, this price represents 169 times earnings. It is simply too expensive to buy for most people.
Ault Global (DPW) 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 colocated.
Now the company has 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 $5.58, as of Feb. 12, DPW stock trades at just 2.9 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 28.6% of its $157 million market cap. That provides a good foundation for the company, especially as it ramps up its Bitcoin mining operation.
Think of it as an early-stage RIOT stock. It’s a gamble, but there is still value and cash supporting the stock price. As always, buyer beware