Blockchain stocks have recently rallied, buoyed by positive investor sentiment. Cryptocurrency prices are inherently risky and subject to volatile swings, so companies involved in the space might be a better play on the theme. Here is a collection of top stocks to keep an eye on in the blockchain space.
Blockchain companies to invest in:
- Coinbase could be a big beneficiary of crypto-friendly legislation.
- Block’s Cash App is one of the top three P2P apps for sending and receiving crypto.
- Riot Platforms’ share price has surged 438% year-to-date.
The exchange stock
Coinbase [COIN] has been in the spotlight recently for an unwanted reason: the US Securities and Exchange Commission (SEC) has charged the crypto-exchange platform for operating as an unregistered broker.
Despite this, Coinbase CEO Brian Armstrong is confident that the company can clear its name. “Instead of publishing a clear rule book, the SEC has taken a regulation-by-enforcement approach that is harming America,” he tweeted on 6 June.
The SEC’s recent ruling that Ripple Labs didn’t violate federal securities laws by selling its token on public exchanges “could have significant ramifications for digital asset issuers and exchanges” including Coinbase, according to ARK Invest.
The broader crypto industry inched closer to receiving some much-needed clarity at the end of July, when a bill — Fit21, formerly the Financial Innovation and Technology for the 21st Century Act — advanced to the US House of Representatives floor. Armstrong has used Twitter to encourage Coinbase’s US users to push for the bill to be passed, arguing that doing so would be a “vote to protect your crypto, American innovation and national security”.
Coinbase’s trading volumes fell in the first quarter (Q1) of 2023 to $145bn from $309bn in Q1 of 2022. However, assuming the bill is passed into law, this could represent a tailwind for the company’s long-term recovery.
The fintech stock
US payment processing company Block [SQ], formerly known as Square, is best known for Cash App, its peer-to-peer payment (P2P) app that allows people to send and receive crypto.
Cash App, which is the third-most used P2P payment platform behind PayPal [PYPL] and PayPal-owned Venmo, is Block's golden goose. In Q1 2023, its gross profit was up 49% year-over-year to $931m, versus a 32% rise in overall gross profit to $1.71bn.
In 2022, Block bought buy now, pay later (BNPL) provider Afterpay for $29bn with the aim of creating a “more fair and accessible” financial system for sellers and buyers. Sellers can offer BNPL at checkout and buyers can manage their BNPL payments through Cash App.
Earlier this year, Hindenburg Research alleged that Cash App had been built on fraud and inflated numbers and user metrics, which Block vehemently denied. Morningstar analysts argued that such a claim is “largely anecdotal”.
The crypto mining stock
Riot Platforms [RIOT] is a direct play on crypto mining, whose share price has soared 438% year-to-date through 1 August. While positive sentiment around the crypto market has partly fuelled the rally, the stock is also being boosted by a ramp up in capacity.
The miner mined 460 bitcoin in June, down from 676 in May but up from 421 in the year-ago period. The hash rate was 10.7 exahashes per second (EH/s), up from 10.5 EH/s the previous month and more than double June 2022’s hash rate of 4.4 EH/s.
Mining capacity is expected to increase significantly further before the bitcoin-halving event in 2024. Riot has recently signed a $170m deal with mining manufacturer MicroBT to buy more than 33,000 mining rigs that will add 7.6 EH/s to its capacity, which is expected to hit 20.1 EH/s by the middle of next year.
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All of this mining does have a dark side: operations are energy-intensive. But for its part, Riot is able to support the power grid by selling energy to the Electric Reliability Council of Texas, generating extra revenue in the process.
The Global X Blockchain ETF
Another way to invest in blockchain
ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.
The Global X Blockchain ETF [BKCH] holds all three stocks, with Coinbase and Riot the largest and third-largest respectively as of 31 July. Information technology and financials account for most of the portfolio, with allocations of 74.6% and 23% respectively; industrials, consumer discretionary and real estate make up the rest. The fund is up 33.5% in the past year and up 76.3% in the past six months.
The Bitwise Crypto Industry Innovators ETF [BITQ] also holds all three stocks, with Riot and Coinbase its largest and second-largest holdings respectively as of 31 July. Mining accounts for 46.27% of the portfolio, while trading and custody has an allocation of 26.77%, and infrastructure and hardware 12.80%. Treasury holding and asset management make up the rest. The fund is up 24.1% in the past year and up 78.3% in the past six months.