Stocks with exposure to cryptocurrencies have gotten a turbo-boost this year.
As the price of Bitcoin and other coins has soared, public companies seen as proxies for the new asset class have sometimes risen even more than the cryptocurrencies themselves. One reason for that dynamic is that traditional investors have limited options for buying Bitcoin in their portfolios, and some appear to be trying to gain exposure through the handful of stocks that have embraced the technology.
With several companies saying they are incorporating Bitcoin or blockchain technology into their business models, or buying Bitcoin outright, it can be hard for investors to gauge which stocks are truly bound to benefit or suffer based on Bitcoin price moves. Goldman Sachs has put together a screening tool that tries to make that easier. Analyst Ben Snider used three main criteria to identify stocks that are closely tied to Bitcoin or the blockchain technology that powers it. His search was limited to stocks with market caps greater than $1 billion.
First, Goldman looked for stocks that had mentioned Bitcoin or blockchain in public filings, presentations, or transcripts of their earnings calls. News articles about them where the technology was mentioned also counted.
Next, they looked for companies whose stock prices had been most correlated with changes in Bitcoin’s price over the prior 12 months.
And lastly, they looked at membership in six blockchain-related indexes and exchange-traded funds, such as the
Siren Nasdaq NexGen Economy
ETF (ticker: BLCN).
On average, the 19 stocks on the list have risen 46% this year, versus 12% for the
Bitcoin is up 86%.
Being on this list also tends to come with new risks. Most of the stocks are pricier than average. The median blockchain-related stock in the screen is trading at twice the price to earnings and enterprise value to sales multiples as the median U.S. stock.
The stocks in the list are:
Marathon Digital Holdings
Bank of New York Mellon
Broadridge Financial Solutions
The first seven of those received the highest possible score of nine; Nvidia scored a seven; and the rest scored a six.
The main reason Coinbase isn’t a nine (which it almost certainly would be) is that Goldman gives points only for stock correlation to Bitcoin if a stock has been trading for at least 12 months, and Coinbase just went public.
The list itself is not particularly novel, though it does at least create criteria for investors to consider if they want to embrace or avoid the industry. Those who believe in Bitcoin should probably just buy it outright. Dabbling in these crypto-pioneers is a poor facsimile for the real thing, and it still leaves portfolios with exposure on the downside if the industry goes south.
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