Banking & Finance

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

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 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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