This week, Coinbase (COIN) dominated headlines as it listed on the Nasdaq (NDAQ) exchange, making its co-founders billionaires and solidifying cryptocurrency’s reputation across Wall Street and in the mainstream.
For investors who are bullish on crypto but wary of holding the actual virtual currencies, Coinbase is a solid bellwether for the broader crypto economy. Mirroring Bitcoin’s run last quarter, Coinbase estimated its Q1 earnings at $1.8 billion -- about nine times higher than Q1 2020.
Its high-profile stature notwithstanding, Coinbase is not the only company offering public market investors an alternative form of exposure to the cryptocurrency landscape.
Silvergate Capital Corporation (SI) is one such example. As a Federal Reserve member bank, Silvergate is a leading provider of commercial banking services for crypto and fintech companies. Like Coinbase, Silvergate has benefited from the broader market interest in digital assets and fintech. Today, the bank has over 700+ digital currency and fintech clients (including Coinbase). Silvergate has been a profitable investment for those who bought shares in its 2019 IPO: the crypto bank is up over 900% since then.
Square (SQ) is another means of accessing the crypto economy without touching any coins. The Jack Dorsey-run fintech’s Cash App saw a huge surge in users acquiring Bitcoin in 2020. According to Sqaure’s earnings report, the company generated $4.57 billion in Bitcoin revenue in 2020, a year-over-year increase of 785%. Square’s stock is up over 300% the last twelve months.
Since Cash App’s Bitcoin buy-sell feature is in direct competition with Coinbase, investors bullish on Coinbase would do well to consider diversifying further. To that end, fintech colossus PayPal (PYPL) is another option. PayPal announced in October 2020 it was giving U.S. users the ability to buy and sell numerous cryptocurrencies. And just last month, Paypal said it was rolling out crypto transactions capabilities between consumers and merchants.
But unlike Paypal, Square offers a second form of exposure to Bitcoin: in the form of its balance sheet. In October 2020, Square put $50 million of its balance sheet into Bitcoin; the company then plowed another $170 million into Bitcoin in February 2021.
Microstrategy Incorporated (MSTR) has made a similar bet. Since August 2020, Microstrategy has put more than $2 billion of its balance sheet into Bitcoin. The firm’s stock is up about 500% since last year. One of 2020’s best performing stocks, electric carmaker Tesla (TSLA), has also started buying Bitcoin.
For investors seeking easy diversification to crypto and blockchain, there are ETFs available.
For instance, the VanEck Vectors Digital Transformation ETF (DAPP), which launched earlier this week, invests in companies that generate “at least 50% of its revenues from digital-asset projects, or [is] expected to do so” as well as companies that have “at least 50% of its assets directly invested in digital currency holdings” reported Barron’s.
The Amplify Transformational Data Sharing ETF (BLOK) holds a similar portfolio of crypto-related companies; among BLOK’s holdings are Bitcoin mining companies Canaan Inc. (CAN) and Riot Blockchain Inc. (RIOT).
Of course, as mainstream financial institutions start launching their own cryptocurrency products and services, the line between incumbents and innovators will continue to blur. For investors convinced cryptocurrency is the future of finance, it’s not too late.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.