Cryptocurrency stocks have continued their surge this year, driven by retail and institutional interest. While the crypto market bellwether Bitcoin has soared 5x over the last 12 months and by almost 80% year-to-date, lesser-known crypto Dogecoin is up by over 10x year-to-date. To be sure, these currencies remain a risky investment, given their relative lack of utility and extremely high volatility. Our indicative theme on Cryptocurrency Stocks – which includes semiconductor, payments, and brokerage companies that have exposure to the cryptocurrency value chain – could be a safer way to play the crypto space, without taking a position in individual currencies. The theme has returned about 151% since the end of 2019, compared to about 22% for the S&P 500. The theme is also up 14% year-to-date, versus about 5% for the S&P 500. Payments player Square remains the strongest performer in our theme, rising by over 330% since the end of 2019, driven by its Bitcoin exposure, and also by an increasing preference for digital payments among consumers and businesses. On the other side, financial exchange major CME Group has been the worst performer in our theme, down by about -5% over the same period.
[Updated 1/20/2021] Cryptocurrency Stocks
Bitcoin prices have surged by more than 50% over the last month and remain up by about 4x over the 12 months, due to higher retail and institutional interest. That being said, Bitcoin remains a risky investment, given its relative lack of utility and extremely high volatility. Our indicative theme on Cryptocurrency Stocks – which includes semiconductor, payments, and brokerage companies that have some exposure to the cryptocurrency value chain – could be a safer way to play the crypto space, without betting on individual currencies. The theme has done well, rallying by over 100% over the last year. Below is a bit more about the key companies in the theme and how they have been faring.
Nvidia stock saw big gains over 2020, driven by growing demand for its GPUs from gaming consoles and data centers and its planned acquisition of CPU designer ARM. The company recently indicated that it could restart the production of dedicated crypto mining GPUs, which essentially remove the video outputs that are required for gaming.
Square a payments company, allows users to buy and sell bitcoin via its Cash mobile payment application. The company said that bitcoin-related Revenue surged by about 8x over the first nine months of 2020 to around $2.8 billion.
PayPal a large online payments processor has also reported increasing engagement on its PayPay mobile app after it introduced support for bitcoin last October, with about half its crypto users opening the PayPal app daily.
CME Group the world’s largest financial derivatives exchange, also offers bitcoin futures contracts. The exchange has emerged as the world’s largest futures exchange for Bitcoin, with open interest – contracts traded but not squared off – for the cryptocurrency standing at $2.1 billion.
[Updated 12/7/2020] How Nvidia, Square & PayPal Stocks Are Benefiting From Soaring Bitcoin Prices
Bitcoin prices have surged by over 160% year-to-date, driven by multiple factors including higher institutional interest, fintech companies Paypal and Square’s moves into the crypto space, and also by a view that scarce digital currency could be a hedge against inflation and a weakening U.S. dollar. Our indicative theme on Cryptocurrency Stocks – which includes semiconductor, payments, and brokerage companies that have some exposure to the cryptocurrency space – is up a solid 110% year-to-date, compared to the S&P 500 which is up by just about 14% over the same period. Key stocks in our theme include Square, PayPal Holdings
Although crypto likely represents a small portion of these company’s revenues at the moment, it does have the potential to be big. For example, Payment apps Square and PayPal, who make money by buying bitcoin from brokers and selling them to their customers by adding a “spread” stand to benefit as prices and volumes rise. Square’s Cash App generated about $1.63 billion in Bitcoin-related sales in Q3 2020, an 11x jump year-over-year. Similarly, Nvidia also benefits from demand for its top-of-the-line GPUs such as the Ampere lineup from cryptocurrency miners.
[Updated 10/29/2020] Cryptocurrency Stocks To Watch
Interest in cryptocurrency is surging once again with Bitcoin prices up by almost 30% over the last month, driven by growing institutional interest and Paypal’s recent move to allow its customers to buy and sell certain cryptocurrencies. Our indicative theme on Cryptocurrency Stocks – which includes semiconductor, payments, and brokerage companies that have some exposure to the cryptocurrency space – is up 88% year-to-date, compared to the S&P 500 which is up by just about 5% over the same period. This theme could be of interest to investors who are looking for upside from cryptocurrency adoption and prices, but want to avoid buying into the currencies themselves considering the volatility, risk of fraud, or cyber theft, or potential portfolio mandates. Below is a bit more about the stocks in our theme and how they have fared this year.
Square cash mobile wallet app has emerged as a very popular way for people to buy and sell Bitcoin. The stock has gained a whopping 183% year-to-date, as investors bet that Square’s digital payment solutions will continue to gain traction through and post Covid-19. The stock has dropped by about -9% over the last 5 trading days, however.
Nvidia a semiconductor company that is best known for its graphic processing units which are increasingly used in machine learning and AI, is also finding application in bitcoin mining. The stock has gained over 131% year to date although it declined by about -3% over the last week.
PayPal a large online payments processor, has indicated that it would allow customers to buy, hold, and sell cryptocurrencies such as Bitcoin and Ethereum directly within its PayPal and Venmo app. The stock is up by 88% this year and was down by about -1% over the last 5 trading days.
Advanced Micro Devices is a semiconductor major that makes CPUs and GPUs, which are increasingly used in bitcoin mining. The stock has gained about 79% year-to-date and remained largely flat over the last 5 trading days.
CME Group the world’s largest financial derivatives exchange, also offers bitcoin futures contracts. The stock is down by about -18% year-to-date and declined by about -2% over the last week.
While crypto stocks look attractive, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Adobe vs. Corcept Therapeutics shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.