Investors impressed with Bitcoin’s big rally would do well to cast their eyes over equities exposed to cryptocurrency. Not only are some crypto stocks crushing Bitcoin’s performance, but they represent an alternative way to play the digital asset rally.
While
Bitcoin
pared gains to start the week, the largest token has surged by 56% in two months and is trading around the highest levels since April 2022. Stocks exposed to Bitcoin have not been left behind—far from it, in fact. Shares in
MicroStrategy,
a software company with vast holdings of Bitcoin, have gained 71% over the same period, with crypto broker
Coinbase Global’s
stock up 83%.
The
Grayscale Bitcoin Trust,
which passively holds the token, has risen 68% in two months, beating Bitcoin as the discount between its net asset value and price closed amid hopes that regulators will allow its conversion to an exchange-traded fund (ETF). Shares in some Bitcoin miners have also outperformed, with
Marathon Digital
stock up 91% over the same period.
These names are all essentially bets on Bitcoin—and, for investors uncomfortable or unable to buy the token directly, the best way to get crypto exposure—though they each carry their own opportunities and risks.
Coinbase, for instance, is more broadly exposed to the digital asset landscape, with a fee-based brokerage business reliant on trade in many smaller tokens besides Bitcoin, such as Ether and Dogecoin. But the broker also faces unique regulatory risks, so buying the stock is a bullish bet that Coinbase will keep regulators at bay while also staying competitive by building trading volumes amid fee pressure from rivals.
The Grayscale fund, meanwhile, is at the forefront of optimism that the Securities and Exchange Commission will soon approve the first spot Bitcoin ETFs, which would be expected to usher in a fresh wave of investor interest in cryptos. ETF approval would allow Grayscale’s discount to be arbitraged away, allowing its price outperformance to continue. While such approval looks like an inevitability, the playbook remains tricky with the timing in flux.
Bitcoin miners are a bit of a tough bet, with the business model highly sensitive to energy prices—as was laid bare as miner margins got crushed last year, causing a number of names to file for bankruptcy. While Bitcoin’s so-called halving next year—a change to its programmatic monetary policy that will see token issuance drop—should be supportive for Bitcoin prices, it brings unique challenges to the miners whose profits come from Bitcoin issuance.
MicroStrategy,
for its part, seems like a particularly well-positioned pure-play on Bitcoin with its billions of dollars in token holdings. The company was founded by one of the most high-profile Bitcoin bulls, Michael Saylor, who continues to lead the group as its executive chairman. MicroStrategy has been buying up Bitcoin at a seemingly relentless pace, meaning its holdings are sitting pretty amid the recent crypto rally, and the stock represents a wager on Saylor’s crypto bet and market timing.
“We continue to see MicroStrategy as a superior vehicle for Bitcoin exposure,” BTIG analyst Andrew Harte wrote in a Monday note, maintaining his Buy rating and raising the target price on the stock to $690 from $560.
MicroStrategy stock was down 7.1% to $556.68 in Monday trading, following Bitcoin’s drop.
Still, Harte highlighted a number of factors that make MicroStrategy a good way to play Bitcoin, including the ease of accessing the stock, the lack of fees—while buying crypto does incur fees—and the company’s ability to leverage its software business and capital markets to buy more crypto. MicroStrategy also has downside protection, Harte noted, and derivatives on the stock, like options, provide investors with risk-management opportunities.
It may be worth considering for investors who remain crypto-shy but can’t resist getting exposure to a rally through the stock market.
Write to Jack Denton at [email protected]
Read the full article here
