Investors can no longer avoid cryptocurrencies after they surged in 2021. Crypto stocks offered 10-fold to 30-fold returns from the yearly lows to highs. Bitcoin (CCC:BTC-USD) became the benchmark for the crypto market by leading its rise and fall. BTC is still the coin to watch despite increasing popularity and impressive returns from altcoins like Dogecoin (CCC:DOGE-USD), Litecoin (CCC:LTC-USD), and Ethereum (CCC:ETH-USD).
Investors can trade their preferred cryptocurrency on various exchange platforms or through a brokerage like tastyworks. Yet traders cannot ignore the downsides of high fees and unfavorable exchange rates with the U.S. dollar. The costs will start to add up for the active user.
Investors who want the benefits of cryptocurrency without the cost of ownership should consider crypto stocks instead.
I’ve plotted their ratings from StockRover in the chart at right. Despite the low overall scores in the table, strong cryptocurrency prices will lift these stocks’ prospects. As crypto growth continues this year, their profits will keep rising.
Seven stocks offer investors some form of exposure to the market:
- Coinbase Global (NASDAQ:COIN)
- Marathon Digital Holdings (NASDAQ:MARA)
- Mogo (NASDAQ:MOGO)
- PayPal Holdings (NASDAQ:PYPL)
- Riot Blockchain (NASDAQ:RIOT)
- Tesla (NASDAQ:TSLA)
- Voyager Digital (OTCMKTS:VYGVF)
Crypto Stocks: Coinbase Global (COIN)
When the company started trading publicly, pent-up demand for Coinbase shares sent the stock to a $429.54 high. Now that selling pressure has undermined that demand, COIN stock trades at a better valuation. In the first quarter, the company posted GAAP earnings per share (EPS) of $3.05 and revenue that topped $1.8 billion.
In its shareholder letter, Coinbase boasted more than 56 million verified users. The firm handled an incredible $335 billion worth of trading volume in the first quarter.
COIN stock benefited from strong trading volume in Ethereum and Bitcoin. The bad news is that on May 19, Coinbase priced a $1.25 billion convertible senior notes offering. The move is puzzling; Coinbase sought a direct listing, which suggested it did not need additional funds.
Coinbase wants to build on its already strong balance sheet. It does not want to dilute shareholders at this time, but needs the funds to invest in innovation and growth opportunities. It now has $2 billion in cash on hand.
Marathon Digital (MARA)
Marathon Digital owes its company value to its Bitcoin purchases and mining activities. On May 24, the firm announced a letter of intent with Compute North to host a 300-megawatt Bitcoin mining data center. The host will have 73,000 Bitcoin miners installed by the end of Q1 2022, giving Marathon a hash rate of around 10.37 EH/s.
A miner’s profit is the value of a Bitcoin minus the electricity costs of the process. With this and the market’s pollution concerns in mind, investors should note that Marathon expects their operations to be about 70% carbon neutral.
In the first quarter, Marathon posted an EPS of 87 cents. Revenue rose by 1,444% year-over-year (YOY) to $9.2 million. It posted an adjusted EBITDA of $137.4 million. Increasing demand for Bitcoin will drive MARA stock higher as revenues continue to rise.
Annualized, the 87-cent quarterly profits are $3.48 in EPS. The markets should assign more than a high-single-digit forward price-to-earnings ratio. The average price target on Marathon stock is $48.50, albeit based on two analysts’ ratings compiled by TipRanks.
Crypto stocks: Mogo (MOGO)
Mogo offers digital solutions for customers looking to gauge their financial health. Mogo’s app lets customers access their Visa (NYSE:V) Platinum Prepaid Card, which allows users to earn Bitcoin as they spend.
On May 3, Mogo said it bought 146 Ether at an average price of $2,780. As it adds to its ETH holding, the value of MOGO stock will move alongside ETH prices. CFO Greg Feller said its Ether investment “reflects our belief in the long-term potential of blockchain technology and its position as a core component of a next generation financial technology platform.”
On May 13, Mogo increased its ownership of Canada’s leading crypto platform, Coinsquare. CEO David Feller believes the wealth platform will embrace crypto and wants Mogo to broaden its digital wallet capabilities before that happens.
On Wall Street, four analysts rate MOGO stock a “buy” with a price target of $12.89, according to TipRanks.
PayPal Holdings (PYPL)
PayPal opened its platform to digital currencies last year. It has not developed a way for customers to move their holdings off its platform, but it supports cryptocurrency buying, selling, holding and checkout. Customers who have a personal or premier account may complete transactions with crypto. The company is still in a proof of concept phase, since business accounts do not yet support crypto transactions.
Even though PYPL stock is not purely a crypto play, that may change in the future. At an annual global technology, media and communications conference held on May 24, executives and analysts mentioned crypto 15 times. CFO John Rainey said its crypto investment was not tied to speculation in the asset’s value. PayPal wants its customers to have the choice of shopping with its network of 30 million merchants using crypto.
Supporting crypto will increase PayPal app usage. Furthermore, as crypto takes off, it will facilitate more transactions between merchants and customers. The company earns fees each time, which can lift quarterly profits.
Crypto Stocks: Riot Blockchain (RIOT)
U.S.-based Bitcoin miner Riot Blockchain closed its Whinstone U.S. acquisition on May 26. It paid $80 million in cash and 11.8 million in common RIOT stock for the company.
CEO Jason Les said Riot needed Whinstone to become a leading Bitcoin mining platform, and the acquisition can give the company solid infrastructure and operations. For example, the additional facilities will improve Riot’s ability to lower energy and operations costs. Whinstone will also give the company an energy management strategy with net energy costs of about 2.5 cents per kWh.
In the first quarter, Riot posted a year-over-year revenue increase of 881.1% to $23.2 million. The mining revenue margin rose to 67.5%, up from 40.4% last year. It earned 9 cents a share, compared to a 15-cent loss last year.
Low hydro costs will lift Riot’s profit margins, although the increase will depend on Bitcoin prices. Still, investors should anticipate crypto prices rising steadily despite the recent drop. Inflationary pressures, the lack of Federal Reserve tapering, and low interest rate levels will pressure the U.S. dollar. This will lead to stronger demand for Bitcoin and boost RIOT stock.
Tesla’s stock value tracked Bitcoin’s prices after the company bought $1.5 billion worth of the crypto in February. In the last quarter, Tesla earned a respectable $101 million from Bitcoin sales.
The electric vehicle (EV) producer’s record-high net profits alone do not justify owning the stock. Still, accepting the cryptocurrency as payment for an EV should help sales.
More recently, Tesla’s CEO, Elon Musk, demanded that Bitcoin miners sharply cut their carbon footprint. He suspended vehicle purchases using Bitcoin in mid-May. If Bitcoin mining consumes less electricity and pollutes less, Musk will likely endorse the cryptocurrency again.
In the near term, TSLA stock is at the mercy of Musk’s tweets. But as Tesla strengthens its support for Bitcoin, both the currency and Tesla profits will rise. According to TipRanks, 23 Wall Street analysts offer a one-year price target of about $640 on TSLA stock.
Crytpo Stocks: Voyager Digital (VYGVF)
Thanks to increasing volatility in the crypto markets, Voyager Digital posted exceptionally strong Q3 revenue of $60.4 million, rising 16-fold from $3.6 million in Q2. Additionally, Voyager posted a $30 million operating profit on an operating margin of 50%. The firm handled $5 billion in principal volume trading, up substantially from $350 million in the second quarter.
CEO Steve Ehrlich believes the operating margin will continue to scale positively in future periods. However, investors should expect higher operating costs to limit profitability. Voyager made significant upgrades to its system infrastructure. It invested in platform security, customer support, and scalability. Its staff headcount rose four-fold to support these initiatives.
Ehrlich said, “we saw exponential adoption of cryptocurrencies as a recognized and investable asset class, which translated into significant growth for Voyager.” With volatility for cryptocurrencies rising and demand soaring, investors should expect Voyager’s growth rate to accelerate.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
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