Stocks that have exposure to cryptocurrencies have seen a significant increase in value this year.
As the value of Bitcoin and other cryptocurrencies has increased, public corporations that are viewed as proxies for the new asset class have surged even faster. One explanation for this dynamic is because traditional investors have few choices for incorporating Bitcoin into their portfolios, and some appear to be attempting to obtain exposure through the small number of stocks that have done so.
With so many firms claiming to be adopting Bitcoin or blockchain technology into their business models or purchasing Bitcoin outright, it’s difficult for investors to know which equities are actually bound to benefit or suffer as a result of Bitcoin price movements. Goldman Sachs has created a screening tool to assist in this process. To find equities that are closely linked to Bitcoin or the blockchain technology that drives it, analyst Ben Snider used three major criteria. His search was restricted to companies with market capitalizations of more than $1 billion.
Goldman started by looking for stocks that had mentioned Bitcoin or blockchain in public filings, presentations, or earnings call transcripts. Articles in the news about them that mentioned the technology were also counted.
They then looked for companies whose stock values were most closely linked to variations in Bitcoin’s price over the previous year.
Finally, membership in six blockchain-related indices and exchange-traded funds, such as the Siren Nasdaq NexGen Economy ETF, was examined (ticker: BLCN).
The 19 equities on the list have increased 46 percent on average this year, compared to 12 percent for the S&P 500. Bitcoin has increased by 86 percent.
Being on this list usually entails additional dangers. The majority of the equities are more expensive than the average. The median blockchain-related stock in the screen has a price-to-earnings and enterprise value-to-sales multiple of double that of the median US stock.
The following stocks are on the list: Marathon Digital Holdings (MARA), Riot Blockchain (RIOT), MicroStrategy (MSTR), Silvergate Capital (SI), Square (SQ), PayPal Holdings (PYPL), Overstock.com (OSTK), Nvidia (NVDA), Investview (INVU), Ideanomics (IDEX), Tesla (TSLA), JPMorgan Chase (JPM), Visa (V), Bank of New York Mellon (BK), Facebook (COIN).
The first seven received a perfect score of nine, Nvidia obtained a seven, and the remainder received a six.
The main reason Coinbase isn’t a nine (which it very surely would be) is because Goldman only awards points for stock correlation to Bitcoin if the stock has been trading for at least a year, and Coinbase has only recently gone public.