Banking, finance, and taxes

Can the 'Bitcoin Stocks' Really Stay (or Come Back) Bitcoin Winners?

Jon C. Ogg

Published: December 9, 2017 11:40 am

Last Updated: January 12, 2020 5:36 am

The excitement around bitcoin has been understandable. With it seeing exponential gains in 2017, the benchmark cryptocurrency has drawn enough attention for itself and for other cryptocurrencies. At the end of 2017, the excitement around bitcoin and cryptocurrencies moved into craze and euphoria. With the imminent launch of futures contracts around bitcoin, now financial media outlets like CNBC are discussing bitcoin almost every hour.

When trends turn into crazes, there are frequently moves in and out of related stocks that often feel like gambling or chasing ideas. The reality is that some are quite related and can benefit, while others may be selling a story with no hope of profits down the road. Many investors, speculators and day traders will turn some companies into related stories, often with regard for the underlying story of some companies.

24/7 Wall St. has tracked bitcoin for some time, and as 2018 approaches it needs to be brought up that the bitcoin mania has led some investors and speculators into many related stocks. Again, some are definite winners. Others may not be winners at all and could flop.

We have featured some of the stocks that have participated in the bitcoin mania in late 2017. Investors (and speculators) should not consider mentioning these companies and outfits as being instant winners. In fact, some of these companies would not be suitable even for the most aggressive investors and traders. We have focused on market caps, trading history (price and volume) and a brief description on each company. We have also noted what has drawn investors and speculators, as well as what may be red flags or at least some points of caution on each company.

Financial Exchanges

The CME Group Inc. (NASDAQ: CME) was the first major exchange to legitimize bitcoin with the launch of cleared futures contracts. This allows investors, speculators and even hedgers to make bets for bitcoin to go up or down. It will facilitate shorting activities. The problem is that the CME trades so many products and has so many different types of futures that it’s going to be hard to imagine a reset of values here. That being said, if the overall financial markets stay strong, then CME’s underlying business will remain strong and likely grow, whether it ever launched bitcoin futures or not.

CME shares were last seen north of $151, up from about $136 as recently as November 1. The shares have a 52-week high of $155.29, and they were valued at $113 at the end of 2016.

Rivals are also coming. Nasdaq Inc. (NASDAQ: NDAQ) trades thousands of stocks already, and it also plans bitcoin futures. There are plans for bitcoin ETFs as well, which could list on Nasdaq or on the New York Stock Exchange. Cboe Global Markets Inc. (NASDAQ: CBOE) also is launching its “XBT” futures.

Chip Makers

Advanced Micro Devices Inc. (NASDAQ: AMD) and NVIDIA Corp. (NASDAQ: NVDA) have been deemed technology winners by bitcoin and cryptocurrency miners. While both have uses, our own checks indicate that NVIDIA is more preferred for actual cryptocurrency mining. The reality is that this “trade” has been well known for over a year, and any investor thinking that they are going to see a next major surge from crypto in AMD and NVIDIA either know something the rest of us do not or they are chasing an old story.

Both NVIDIA and AMD have actually played down just how much of a win bitcoin and crypto is for them. Their chipsets and graphics processing units are much broader when it comes to gaming, virtual reality, augmented reality, machine learning and artificial intelligence, and a slew of future technologies coming down the pipe. AMD has pulled back one-third from its peak, and NVIDIA has pulled back about 12% from its recent peak.

Card/Transaction Processing

Square Inc. (NYSE: SQ) has also been a beneficiary of the bitcoin craze. Its shares spiked higher after its soft bitcoin launch. Back on November 15, Square started allowing a small number of users of Square Cash to buy bitcoin directly from its smartphone app. Square shares rose from $40 to almost $50 in just a few days, but Square is now back under $40. BTIG recently warned that Square investors were ignoring risks. With a recent price of $38.50, Square’s shares were under $14 at the start of 2017.

From Merchant to Trading Venue

Overstock.com Inc. (NASDAQ: OSTK) has been an online retailer for years. It accepts bitcoin for payments, its subsidiary tZERO (with Argon’s advisory services and RenGen’s electronic trading) is targeting deep liquidity and market-making capabilities for a SEC-compliant token trading venue. Overstock was close to $17 a share at the start of 2017, and its stock did nothing until mid-summer. Then it began its ramp exponentially higher, rising to well over $60 at its peak on November 20. Now Overstock shares are back down to about $45, with a $1.1 billion market cap. This stock is almost not followed at all by Wall Street analysts.

Machines and Equipment

Digital Power Corp. (NYSEAMERICAN: DPW) is tiny and volatile, with a $3.30 share price and a $56 million market cap. Its power supply products and custom power system solutions are going to target cryptocurrencies, but the company has raised a small amount of capital to finance an acquisition and to finance a purchase order. The attention was highlighted when the company said this is one of many purchase order financings it will execute to help fulfill a $50 million contract that will span multiple years.

Even considering that Digital Power’s quarterly revenue surged, its total revenue was just $3.22 million in the most recent quarter and it spent over $2.1 million in cost of sales and also had another $2.1 million in selling general and administrative costs that contributed to an operating loss of $1.3 million. Also, if you want a picture of volatility, its 52-week trading range is $0.40 to $5.10 — and the more than 23 million shares that traded on Friday alone were more than its entire market value.

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The Tracking Stock/Trust

There is also the Bitcoin Investment Trust (GBTC) under Grayscale Investments. According to Reuters, it issues creation baskets from time to time in exchange for deposits of bitcoins and distributes bitcoins in connection with redemption baskets. This may trade like an exchange traded fund in some minds, but there is no mechanism there that keeps its share price in line with its underlying net asset value. That means it can trade at a big premium to its real value, and the flip side is that it could trade at a huge discount if everyone started fearing that bitcoin’s real value was a tiny fraction of today’s prices.

This trust has also recently resumed private placements of unregistered shares. After the over-the-counter shares closed down over 9% at $1,649.90 on Friday, Bitcoin Investment Trust is shown to have a market cap of $2.8 billion. The 52-week trading range is $100.00 to $1,905.55.

Moving to Blockchain

Riot Blockchain Inc. (NASDAQ: RIOT) has become quite popular among day traders and speculators, buts its volatility should speak for itself. Its shares rose 8% to $15.85 on Friday alone, with an intraday range of $14.50 to $16.23 on almost 4 million shares traded. Its $132 market cap is also too small for most investors to consider, and the 52-week range of $6.33 to $24.00 should speak for volatility.

Riot Blockchain changed its name from Bioptix under the old BIOP ticker and changed its model to move away from medical diagnostic equipment sales. Companies making night-and-day business model shifts usually deserve much more scrutiny than companies with the same business model for many years. In October, the company changed names to Riot Blockchain to focus on blockchain technologies and investments. It has made investments in Coinsquare, TESS and Verady, and it made a release in early November that it had acquired 1,200 bitcoin mining machines made by Bitmain Technologies. Its short interest skyrocketed after changing names, rising from a few thousand shares to over 600,000 in mid-November.

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Patents

Marathon Patent Group Inc. (NASDAQ: MARA) became a go-to name among day traders and speculators as it has acquired mining company Global Bit Ventures. Its shares fell almost 4% on Friday to $4.41, with a market cap of $44 million. Trading volume was 2.1 million shares on Friday, and the 52-week range of $0.52 to $10.03 is only the start of how volatile this outfit shares have been. The $10.03 high was on November 27, but this was a $1.42 stock on November 21, and its highest closing price has been $6.50, with only two days close to $6.00. If you want an example of a craze: Marathon Patent Group traded more than 40 million shares on November 24 and again on November 27.  What does a return to 2 million shares in trading volume mean?

The company’s own description notes that it acquires patents and patent rights and monetizes them by entering into license discussions. As of December 31, 2016, it reportedly owned 515 patents. In prior years the company was formerly known as American Strategic Minerals. In 2016, it had revenues of $36.6 million (almost up 100% from 2015) but posted an operating loss of almost $5.6 million.

Mining, Speculative Mining

MGT Capital Investments Inc. (MGTI) recently gave an update on its cryptocurrency mining, noting that it had executed a new purchase order for an additional 500 S9 Antminer mining rigs with Bitmain Technologies. Their shipment is now expected early in the first quarter of 2018, and MGT’s bitcoin mining operations will be comprised of over 5,000 Bitmain S9s. The company said that these machines are expected to generate roughly 70 Ph/s of total hash power, and over $4.0 million in monthly revenue, assuming current bitcoin pricing and difficulty rates. MGT has tech pioneer John McAfee as its leader, and he is always good for colorful commentary. At $2.74 a share, it has a 52-week range of $0.46 to $4.26, and the market cap is $134 million.

U.S. Global Investors Inc. (NASDAQ: GROW) has seen its shares surge late in 2017. This is a boutique registered investment advisory firm. Barron’s has noted that the company mines bitcoin in Iceland where electricity is cheap. Its shares went from under $1.50 in September up to over $5 briefly at the end of November. U.S. Global Investors has a 52-week trading range of $1.25 to $6.90, as well as a mere $60 million market cap. TheStreet.com recently pointed out this company as well.

That’s pretty much it on the companies that are staking their futures, or which have exposure to, bitcoin, cryptocurrencies and blockchain. There are of course some others that trade on pink sheets and foreign exchanges, but this list should be speculative enough for even the most aggressive traders, speculators and day traders, and even short sellers. Enter at your own risk, and both buyers and sellers beware.