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Crypto Comeback: How Can You Capitalise on Digital Asset Resurgence?
We're here to help you navigate the crypto frontier with our stock picks, token insights and reflections on the state of play for digital assets.
Hi, and welcome to another edition of Investing Intel from the team at ValueTheMarkets! As always, the newsletter is packed with stock picks and investing insights we think you’ll enjoy, including:
👉 Three stock insights
👉 Investing signals
👉 Fear & Greed Index
👉 Key dates for your diary
👉 Some fun facts!
This week, we’re jumping on board the crypto hype train!
Do YOU know your altcoins from your stablecoins? Your nodes from your blocks? Your diamond hands from paper hands? If not, then don’t worry - Investing Intel is here with the stock picks and insights you will need to get stuck into the sector.
So, for the uninitiated, a quick cheat sheet of some of the most common bits of tricky terminology.
Crypto mining - Creating new units of Bitcoin, or another cryptocurrency, with a network of computers.
Blockchain - Decentralized databases which store data in blocks across a computer network. This data cannot be changed and is used to store transaction records in the world of cryptocurrency.
Altcoin - Any cryptocurrency other than Bitcoin. Ethereum, Solana, Cardano and many many more cryptos exist!
Stablecoin - A cryptocurrency which is not generally subject to the volatility that defines much of the space. Often these have their value pegged to a fiat currency, commodity or other tradeable instrument. Tether is perhaps the most notable stablecoin.
Memecoin - A cryptocurrency which has its roots in internet humour and might display no clear objective or purpose. Pepe, Dogecoin and Shiba Inu are key examples of this.
That’s a quick rundown of some key terms to keep you going!
But we’ve got a lot of ground to cover this week. In this major examination of the digital asset space, we’re going to be examining crypto stocks, cryptocurrencies and the wider sector. Let’s start with the stocks!
The Highflyer - Riot Platforms Inc (NASDAQ: RIOT)
This company has seen its share price more than triple across the year to date, with over 200% growth since 1 January.
Now if that doesn’t get you sitting up straight, we don’t know what will!
Riot Platforms (NASDAQ: RIOT) has enjoyed this spectacular growth for several reasons. First off is the rising price of Bitcoin, which has climbed by over 55% in the same period.
Next, there’s the growth in the amount of Bitcoin that the business’s mining operations have been able to produce, which climbed by 51% in its most recent quarter. Additionally, the business reduced the cost of mining each Bitcoin by 31%.
Further expansion is ongoing too, with 17,040 new miners expected to come online this year due to building repairs. Further developments at its Rockfield and Corsicana facilities could increase this by an even greater number.
This increased mining capability and efficiency meant revenues declined by just 8% in the business’s most recent quarter, despite Bitcoin prices being 44% lower. Diversification of revenue streams has also helped here, with the company’s engineering segment displaying significant growth.
Beyond this, Riot Platforms’ working capital of $253.6m and holdings of more than $200m worth of Bitcoin leave it in a very strong financial position despite recent weakness in cryptocurrency prices.
Share Price Explosion.
Strong cash reserves.
The Phoenix - Core Scientific Inc (OTCMKTS: CORZQ)
If you thought Riot Platforms’ share price growth was impressive, you ain’t seen anything yet. That’s because Core Scientific (OTCMKTS: CORZQ) has, over the same period, seen its share price rocket by around 400%.
Now that’s a hot potato!
There’s a twist here though. That’s because, despite this enormous upswing in 2023, Core Scientific stock is still down by around 90% over the last 12 months. The business filed for Chapter 11 bankruptcy in December and was rescued by loans from BlackRock and B Riley.
The business claims to have undergone extensive reorganisation since the turn of the year, while its revenue streams have become increasingly diverse. The company’s most recent earnings show rapidly growing contributions from hosting services and equipment sales.
Rising digital asset prices could buoy the business too, which would be of considerable interest to prospective investors.
Core Scientific’s recent rises might end up being the last whimper before the business runs out of road, but if the company can turn things around then there could be some serious upside to be enjoyed by anyone willing to take the risk.
Share price momentum.
Major potential upside.
The Tech Whizz - Canaan Inc (NASDAQ: CAN)
Canaan Inc (NASDAQ: CAN) is not a pure-play miner. Instead, the Chinese company largely derives its revenues from selling miner equipment to other crypto miners. The company proudly boasts that it invented the world’s first ASIC-powered Bitcoin mining machine back in 2013.
If that doesn’t make sense to you, then it’s best to just know that Canaan has positioned itself at the cutting edge of mining tech.
However, miner unit sales have been impacted heavily by the dwindling price of Bitcoin over recent periods, with the business's most recent quarterly earnings showing a 76% reduction in sold computing power and an 82% decrease in total revenues.
Even so, the company has some of the best financials in the crypto stock space, with the top P/E ratio and operating margins for the subsector.
The company’s focus might be on selling equipment, but it does also have a side hustle in mining operations. In fact, Canaan’s mining revenues have increased significantly over recent months, rising by 368% to reach $10.5m in the company’s most recently reported quarter.
Additionally, Canaan’s Bitcoin holdings have increased by more than 10x over the same period.
The company says these improvements from its mining operations have been the result of increased investment, which it says will improve Canaan’s resilience to future fluctuations in demand for mining equipment. It does certainly seem to be the case that the business is more diversified than many crypto stocks, which are often totally reliant on mining.
With prices rising since the new year and the prospect of demand returning, Canaan looks well-placed to benefit from potential increases in mining activity and crypto adoption.
Top operating margin.
Great P/E ratio.
Mining operation growth.
As we’ve been examining some crypto stocks, it’s worth considering the broader atmosphere in the crypto space.
Analysis from digital asset investment specialist Fineqia found that assets under management (AUM) of exchange-traded products holding digital assets increased by 66% in the first four months of 2023.
Fineqia CEO Bundeep Singh Rangar commented:
“The rising AUM figures show a healthy appetite among investors so far this year for securities backed by digital assets. They had a chance to review their positions in April, ahead of the Fed's interest rate decision on May 3.”
Additionally, the total cryptocurrency market cap has climbed from around $800bn to more than $1.1trn since the start of January, further indicating renewed interest in the space.
This goodwill might have been slightly shaken this week, however, as crypto exchange Bittrex declared bankruptcy following regulatory issues which shut down its US operations. It's not the most high-profile crypto outfit to stray into dangerous waters, but it could still have an impact over the short term.
Even so, it doesn’t seem like cryptocurrency is disappearing in quite the way many had anticipated after a disastrous 2022. But where are prices and total market cap heading now, and what is driving them there?
As you can see from the above image, investor sentiment has cooled somewhat since the heights of April and remains on a fairly even keel. Does this mean prices will stay steady?
It’s first key to note that making estimates about where the price of Bitcoin, or indeed any cryptocurrency, is heading is pretty challenging. For one thing, the space is flooded with commentators making headline-grabbing claims about various price points, from the extraordinarily optimistic to the extremely catastrophic.
For example, Chamath Palihapitiya, a noted tech investor and one-time Bitcoin bull, grabbed column inches last month when he proclaimed that cryptocurrency was “dead in America” due to increasing regulation.
But while this headline-grabbing catastrophizing leads us into the important field of regulation, it doesn’t tell the whole story given the many people who are keen for further checks and balances. According to a survey from the Crypto Council for Innovation, more than half of Americans want further regulation.
And with such a new and exciting space, which is often so misunderstood by lawmakers, major ructions like the collapse of FTX seem to make some regulation inevitable. Research from Oliver Wyman released earlier this year stated:
“There is an unfortunate and strong tendency by many to treat all digital assets as one indistinguishable blob of “crypto.” As a result, all aspects of digital assets can be tainted by problems in any of the sub-sectors of this diverse ecosystem. This has implications for policy and regulation, business and investment choices, and consumer and business acceptance of new ideas in the digital asset space. Thus, there is some pullback from all things crypto and a very distinct toughening of policymaker views on digital assets.”
As such, we can infer that regulation is pretty inevitable, but probably unlikely to be the disaster for the space that some DeFi purists expect it to be.
We can also look to the stock market for hints about crypto health.
There are significant correlations between the stock market and crypto prices simply because their direction is steered by so many of the same factors, ranging from general economic conditions to investor sentiment.
Of course, there are factors which affect each of them independently too. For example, the collapse of FTX was obviously far more damaging for crypto prices, while banking collapses have hit the stock market harder.
But, to a certain extent, the two mirror each other’s movements.
So, which coins are performing well at the moment? According to CoinMarketCap, the best-performing coins of the last month are:
Render Token (RNDR)
Pepe is the most recent breakout success, with the memecoin having soared in value by more than 3,000% since it burst onto the scene in April. However, the coin already appears to have shot to the top and fallen back down again, with its price having dropped by 70% since early May.
The flame that burns twice as bright burns half as long, and all that.
Such volatility is a common sight in the crypto space, but what if you’re looking for something with a bit more shelf life? Take a look at the crypto picks we recommend investigating.
Bitcoin is the biggest bully in the playground.
While the year to date has seen a marked recovery in Bitcoin price, which is up by nearly 60% since the turn of the year, the currency is still way off the heights it reached back in November 2021. Back then, a single unit would cost you almost $65,000, compared to around $27,000 today.
Bulls think Bitcoin has the potential to breach the $30,000 mark this year, given the momentum it has shown so far. So why is Bitcoin bouncing back?
Its growth appears to have been aided by banking sector instability, with the currency’s reputation as a haven away from traditional institutions counting strongly in its favour as the likes of First Republic stumble around.
There’s more potential on the horizon too.
The next Bitcoin halving, an event which sees Bitcoin mining rewards slashed by 50%, is set to occur next year and could precipitate further price growth if the currency’s history is anything to go by.
BNB, formerly known as Binance Coin, has exhibited a good deal more stability than a lot of its contemporaries over the past year. As the currency’s former name indicates, BNB was issued by Binance, which is the planet’s largest crypto exchange by volume.
On the one hand, BNB’s association with Binance appears to be a major positive, as the company has become one of cryptocurrency’s household names due to its attempts to stabilise the space in the wake of FTX’s collapse.
Additionally, there is a use case, with owners able to pay for transaction fees with BNB. The last year has seen it hold its own as its price remained relatively unchanged as larger currencies took major hits.
But there are two sides to this coin.
The major risk here appears to be that BNB is inexorably tied to Binance and if the exchange faces financial struggles or regulatory issues, BNB could sink alongside it. Indeed, just last week the business announced it was leaving Canada due to regulatory issues.
Additionally, Binance losing significant market share could also prove to be problematic for BNB’s value. As such, the coin is a risky proposition, but one which could pay off for those willing to take a punt.
Among the major players, Solana really stands out at the moment. SOL has seen its price double since the start of 2023, outpacing the majority of its major competitors.
This project has also jumped aboard the Artificial Intelligence (AI) hype train. It’s planning to allow users to use a ChatGPT plugin to monitor activity on the Solana blockchain, while the business is also investing widely in its ecosystem to encourage the development of other AI tools.
With Solana already standing out from the crypto crowd due to low transaction costs and high speeds, its forward-thinking AI implementation and strong momentum make it a key currency to consider.
Fear & Greed
The Fear and Greed Index is a measure of stock market sentiment calculated by CNN Business using seven measures, including market momentum, market volatility, and safe haven demand. It’s meant to shed light on the emotions currently driving the market, giving you insight into how traders are making decisions. Remember, traders are humans, not robots.
As you can see from the graphic below, the index is little-changed over the last week. Bank stocks have largely continued on their prolonged route as confidence in the sector continues to be shaky. Additionally, the University of Michigan’s consumer sentiment index hit six-month lows on Friday, falling short of economists’ expectations.
Debt ceiling panic is still hanging over markets, and if Washington lawmakers can land on a bipartisan soon then we could see major losses. Indeed, players like Wells Fargo are warning of major market corrections or even a crash in the coming months.
Dates in the Diary
Monday 15th – Eurozone Industrial Production Data (Mar) / NY Empire State Manufacturing Index (May)
Tuesday 16th – US Retail Sales Data (Apr) / US Manufacturing and Industrial Production Data (Apr) / Eurozone GDP Estimates (Q1)
Wednesday 17th – US Construction Data (Apr) / Eurozone Inflation (Apr)
Thursday 18th – US Home Sales Data (Apr)
Friday 19th – Canadian Retail Sales Data (Mar)
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Fun Fact – A Load of Bull
Do you know where Wall Street’s Charging Bull statue comes from?
The giant bronze bovine beast was not a piece of commissioned art, instead having been installed without permission by Italian artist Arturo Di Modica in 1989. The New York Stock Exchange removed the bull shortly after its installation but folded to popular demand for its return.
As for the statue’s meaning, Di Modica has explained that the bull is a representation of the American public’s resilience in the face of 1987’s Black Monday stock market crash.
He told the Italian newspaper La Repubblica: “It was a period of crisis. The New York Stock Exchange lost in one night more than 20 per cent, and so many people were plunged into the blackest of depressions.”
As such, Di Modica wanted to offer a gift to the nation where he had become a successful artist and so he forked out $360,000 of his own money on the statue project and did not seek to sell it.
Today, it’s the kind of attraction which is mobbed daily by tourists looking for a photo opportunity or to rub on part of the statue’s anatomy for luck. We won’t say which parts of the statue are most frequently rubbed by those looking for a little fortune, but I’m sure you can use your imagination.
Until Next Time
Many thanks for taking the time to read Investing Intel today. We hope you’ve enjoyed our insights and are looking forward to more in the week ahead.
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