7 Crypto Stock Picks For 2022

Crypto has been on a tear for the past few weeks, and both retail and institutional investors are piling more money in. But many investors aren’t satisfied by merely owning the asset itself; they’re also buying options and other “levered” instruments — including publicly-traded stocks. Jimmy Atkinson, the founder of OpportunityDb, joins the show to discuss seven stock picks that provide significant crypto-related upside.

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Episode Highlights

Bitcoin’s Bounce Is Lifting Crypto Stocks. Miners Look Cheap, Analyst Says.: “Bitcoin was trading at around $43,400 on Monday, gaining 5% and fueling a rally in crypto-related stocks. The miners look particularly cheap, one analyst says, arguing the market is overlooking their large and growing stash of Bitcoins.” (Barron’s)

Is Coinbase Stock A Buy Or Sell As It Reaches An All-Time Low?: “We believe that Coinbase’s business model has proven itself, given its robust profitability. However, due to the volatility experienced in its underlying trading instruments, we think its revenue estimates are challenging to model. That adds increased complexity for us to derive how we should value Coinbase stock accurately.” (Seeking Alpha)

Valkyrie Bitcoin Miners ETF Approved for Nasdaq Listing: “The fund’s top five holdings (all with allocations in the 8% to 10% range) are Argo Blockchain (ARBK), Bitfarms (BITF), Cleanspark (CLSK), Hive Blockchain (HIVE) and Stronghold Digital Mining (SDIG). Names in the next five holdings (all 4% allocation) include Marathon Digital (MARA), Bit Digital (BTBT) and Digihost Technology (DGHI).” (CoinDesk)

Jimmy’s 7 Crypto Stock Picks

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Cryptogic is the show for crypto investors who are focused on long term results. Follow Scott Hawksworth and Andy Hagans as they explore the investable world of blockchain technology, NFTs, Bitcoin, Ethereum, and other cryptocurrencies.

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Transcript

Andy: Hi, everybody. Welcome to Cryptogic. I’m your host, Andy Hagans. And joining me today is Jimmy Atkinson. And let me tell you a little bit about Jimmy. Jimmy is the co-founder of ETF Database. He’s also the founder of the Opportunity Zones Database at OpportunityDB.com.

That’s the company that he currently operates as its CEO. And two other tidbits about Jimmy. He is an investor’s investor. Right? So, he owns crypto, he owns stocks, ETFs, funds, probably some Notre Dame memorabilia. And then last but not least, he’s a huge Notre Dame football fan.

So, Jimmy, welcome to the show.

Jimmy: Hey, Andy. Great introduction. Thanks for having me. Happy to be with you today.

Andy: So, today we’re going to be discussing seven of your stock picks, seven stocks to play on crypto. But first, I just wanted to touch briefly on today’s news. We had a new CPI print, hit 7.5% annualized. Not only that, but between December and January, 60 basis points of inflation just month over month with it.

That’s really bad news, Jimmy, because that means that, you know, the CPI is in many respects backwards-looking, right? But the current rate of 60 basis points means that the current rate is really virtually the same as that annualized rate at 7.5%. And as I checked the markets right before we started recording, S&P, NASDAQ were holding steady.

Bitcoin was just down, you know, a 10th of a percent, something like that, Ethereum the same. So, it looks like, you know, we’re not getting out of risk assets and, you know, the market still seems to be pricing in maybe for rate raises from the Fed. And, you know, some people have said that they might raise rates by 50 basis points as soon as next month.

Jimmy, what do you make of all this? What do you make of the CPI? Do you think it’s, is it bullish for crypto? Is it bearish? As cryptos becoming a little bit more correlated with the overall market? What do you think?

Jimmy: Yeah, it’s a good question, Andy. And you’re absolutely right. Crypto is becoming more correlated with the market. I think I saw the other day that crypto used to be not very correlated with the market, you know, low correlation, at times negative correlation. I think that correlation has crept up to 0.3 to 0.4 out of 1 essentially. So, you know, what we’re going to be talking about today are some crypto stocks that very tightly correlate with crypto and Bitcoin in particular.

But overall, getting back to your original question, inflation, probably bad news, especially for the middle class as their costs go up. Is that right?

Andy: Yeah. No. Absolutely.

Jimmy: And it’s certainly not transitory like they were trying to sell us on a few weeks ago.

Andy: Right. I mean, I continue to say, you know, it may be transitory in the framework of, you know, multiple years, right? I believe it’s going to sustain for another two to maybe two and a half years, but I don’t know that I’m necessarily pricing in hyperinflation for the long haul. I mean, certainly, I think we’ll continue to see currency debasement, but I think investors do need to be careful.

But my larger point is, I think, traditionally some investors have thought of Bitcoin as that digital gold and the ultimate inflation hedge, but more and more it’s acting just as a risk asset along with the stock market. But, of course, now crypto is so diversified. There’s so many ways to play crypto as an investor that, you know, not every token moves the same way, right?

They’re not all tightly correlated anymore. And, Jimmy, that’s a good segue to today’s topic. We’re going to be talking about some crypto-related stock picks that you have. And I think that a lot of crypto investors, they’re not necessarily looking to replace their crypto holdings, right? I think most virtually all crypto investors want to hold crypto directly. But this is sort of an additional levered play.

And my analogy that we talked about before the show today, you know, some of these stocks are kind of like a gold mining stock or a gold mining ETF. Typically you might own that as sort of a leveraged play, but you still might own some physical gold, or a gold ETF, or something like that. So, why don’t you tell us, you know, what’s the overall case for owning any of these stocks and then let’s delve into the specific picks?

Jimmy: Yeah. And a lot of these are more of a picks and shovels play, right? Not owning the gold, or the Bitcoin in this case, directly because there are some issues with that. There’s a little bit of a learning curve to, you know, buying and holding Bitcoin and other types of cryptocurrencies that hasn’t quite hit mainstream yet. But if you’re watching this or listening to this podcast episode, chances are you’re an investor, you already have a brokerage account, you have access to being able to pick stocks, or ETFs, or mutual funds, what have you.

So, I want to cover four different categories today that help get exposure to cryptocurrencies in some capacity. And, by the way, Andy, and anyone else listening out here, this is by no means, like, the perfect list, it’s by no means meant to be exhaustive. It’s mainly meant to stimulate some conversation and kind of get the ball rolling. So, the four different categories that we’re going to be touching upon today are exchanges, cryptocurrency exchanges, FinTech payments companies, mining operators, and fourth and last, we’ll touch on some semiconductor companies.

Andy: Wow. I’m excited. And all of these picks are guaranteed to go up 1,000X in the next 12 months, right, Jimmy?

Jimmy: That’s right. I should probably caveat by offering my standard disclaimer which is this is not investing advice. So, please, talk with your financial professional before making investing decisions. This is merely for general information purposes, of course, right, Andy?

Andy: That’s right, Jimmy. All right. So, let’s start with your first pick.

Jimmy: Yeah. First of all, we’ll touch upon exchanges first. And I only have one exchange pick. And it’s the 800-pound gorilla in the space. It’s the largest cryptocurrency exchange in the United States, Coinbase, ticker symbol, COIN, C-O-I-N. They are the largest cryptocurrency exchange in the U.S. as I mentioned. Binance is much larger, but it’s located offshore.

So, you’re probably a little bit more reliable by staying with Coinbase. Andy, I know you’ve given your thoughts on that in the past. But just to put some numbers to it. Coinbase does roughly $3.7 billion in trading every day. In fact, I just checked Coinbase before… I’m sorry. CoinGecko, before we came on here, Andy, and they had done right about that, $3.7 billion in trading in the last 24 hours.

The company was founded 10 years ago in 2012. According to CoinGecko, there’s currently 157 different cryptocurrencies available, of course, all the major ones and a lot of the alternative coins as well. Bitcoin does roughly 20% of the total volume there. So, their user base is expanding tremendously in the past couple years. They currently state that they have approximately 73 million verified users on their platform including 10,000 institutional users.

So, really, this is a play on the growing crypto market as adoption continues to become more widespread, and especially as crypto has different run-ups over time, you see more and more people becoming interested in crypto, more and more people signing up for different crypto exchange accounts, and Coinbase is the big player there.

Andy: Yeah. And I should mention, I’m a Coinbase user. I love Coinbase Pro. I think it’s a great…

Jimmy: I am as well. I’m also on Coinbase Pro.

Andy: Yeah. I think if you’re just getting started, it’s just a great platform with relatively low fees, again, especially for a beginner investor.

Jimmy: Yep, absolutely. So, should we move on to Category Number 2?

Andy: Yeah. What’s the second pick?

Jimmy: So, the second and third picks both fall into the FinTech payments category. And I’m going to be going over Block and PayPal. So, let’s talk about Block first. Block is the new name for the parent company that owns Square. So, the ticker symbol there is still SQ for Square, it’s co-founded by Jack Dorsey who is the co-founder and former CEO of Twitter.

He’s now the founder and CEO of Square, which is a payments point-of-sale and payments company. Other holdings in this company include Cash App, which is more of a consumer-level payments company similar to PayPal’s Venmo. We’ll talk about PayPal in a minute. But it also allows users to buy stocks and crypto directly within that app. They also own Spiral, which is a company that’s helping to build and fund open-source Bitcoin projects.

And TBD is a company. That’s the name of the company. It’s not to be determined, I don’t think. The name of the company is TBD, which is developing a decentralized peer-to-peer crypto exchange. So, when you invest in Square, it’s a play on, or you’re getting exposure to a company with enormous reach, first of all, they’re very well established in the payments…

I’m sorry. In the FinTech payment space. And their executives, Jack Dorsey, the leader, of course, but all the executives underneath him are focused, really focused on driving widespread crypto adoption, specifically Bitcoin adoption. So, that’s my take on Square there.

Andy: Yeah. And I know…

Jimmy: Yeah, go ahead.

Andy: …Jack is a Bitcoin maximalist.

Jimmy: He absolutely is. He wants to make Bitcoin the payment across the internet, and he’s leveraging his massive company, Square to, or Block, I should say, in efforts to do that.

Andy: Yeah. So, I’m looking now, pulled them up on Google Finance, PE ratio of 121. So, this is a pretty heady valuation for Square, Jimmy, you know, but on the other hand, you know, putting price aside, of course, price matters when you’re buying a stock, but it’d be hard to bet against that company and that founder, wouldn’t you say?

Jimmy: I would say so. Yeah. And to be clear, I wasn’t looking too much at the technicals or the fundamentals of any of these companies. These are more just long-term plays on this. That’s what I’m mostly focused on here.

Andy: So, stock that… If you’re interested in one of these stocks, it might be the type of thing. You know you want to own it long-term. You might wait for it to dip a little bit.

Jimmy: Not bad advice at all. Yeah.

Andy: Okay. So, what’s our…

Jimmy: Of course.

Andy: What’s our third pick?

Jimmy: Third pick is PayPal another FinTech payments company, a rival of Blocks. They owned Venmo as I mentioned previously. And what I like about PayPal is I’ve noticed that a lot of my friends have crypto that they bought through PayPal. So, PayPal is starting to adopt crypto into their platform. It’s probably one of the most popular ways that a noob, so to speak, can get a little bit of crypto into his or her portfolio.

It’s really easy if you have a PayPal balance. And, I mean, I don’t know. Andy, do you know anybody who doesn’t have a PayPal account at this point in time?

Andy: Yeah, they just…they have a huge user base. And the interesting thing, Jim, is that they’re almost like a quasi bank, but they’re not a bank. Right? And so it was sort of frictionless for them to add crypto onto their platform, but, you know, they have that enormous user base, you know, probably even bigger than, like, Chase Bank or Bank of America as you said.

I know one criticism of… I think they only have, like, five or so.

Jimmy: Yeah, they do only have…when I looked earlier this morning, they had four different coins available, Bitcoin and Ethereum, of course, the two largest players, and then they also offer Bitcoin Cash and Litecoin. But, you know, as you mentioned, they have massive adoption already. They have hundreds of millions of users. I think they have close to 400 million users worldwide.

A lot of users in the United States, of course. And, you know, just one anecdote. I have a very…I have a friend of mine, who is not very tech-savvy, doesn’t really know a lot about crypto. And I was surprised to learn the other day that, I was talking with him the other day, he mentioned that he owns a little bit of Bitcoin through his PayPal account. I’m like, “Wow. If you own Bitcoin through your PayPal account. That’s pretty impressive.”

So, again, right there, it’s just…PayPal isn’t making a huge portion of crypto, but the fact that they’re offering it to their users, the fact that they have so many hundreds of millions of users already just makes that crypto play a little bit stronger, I think.

Andy: Yeah, you know, when I think of PayPal, you know, I don’t necessarily think of, like, a growth company. They seem more a little bit like a legacy company. But, again, I just pulled them up on Google Finance, their PE ratio was 34. So, I mean, I think a little bit of that…

Jimmy: Little more favorable than Blocks, right?

Andy: Yeah. Well, I think a little bit of that is priced in. And, you know, things can change. I think a lot of the value there has to be just their huge user base, because it’s not easy. It’s quite expensive to, you know, build that kind of user base in FinTech in 2022. So, that’s quite an asset they have.

Jimmy: Yeah, I agree. Well, let’s talk about a couple of growth companies now, if you don’t mind. Well, we’ll move to our next category which are mining operators. Very new sector in companies and in stocks, right? Who knew what a Bitcoin mining operator was 10 years ago? I don’t think anybody did. But now, you know, there’s some very reputable companies worth several billion dollars that are trading publicly that you can own.

So, I’ll cover just two of them today. And just for some detail and some metrics that I was reading in one of the articles we’re going to post on our show notes page for today mentions that professional mining fleets typically have costs of roughly $5,000 to $10,000 per Bitcoin mined. So, you know, those companies can be very profitable right now with Bitcoin hovering around $45,000 when I last checked earlier today.

Now, obviously, there’s a lot of downside risk. If Bitcoin were to collapse, the mining companies would pretty much be insolvent, and it would be catastrophic for the industry if Bitcoin were to collapse to say under $10,000. Right? But assuming that doesn’t happen, you know, I really like some of these Bitcoin mining companies.

Andy: Jimmy, I’m sorry to interrupt. That estimate it does sound low to me. I wonder if that factors in, like, really favorable energy contracts or what exactly that factors in because that spread sounds incredible or maybe it, you know, doesn’t include overhead and it only includes variable costs or something.

That almost sounds too good to be true, but on the other hand, some of these miners have been highly profitable, obviously, in the past 12 months, right?

Jimmy: They have been highly profitable. The other thing to consider is mining is becoming more and more difficult over time, especially Bitcoin mining. There have been some efficiency gains in terms of mining costs and being able to get better-priced energy from having different contracts.

But over time, it becomes physically more difficult to mine Bitcoin and the rewards go down incrementally over time as we approach the maximum amount of Bitcoin to be mined. So, keep that in mind. I think that may be one of the reasons why the spread is so large right now. And, again, we’ll link to that article.

It has a little more detail in it for you, Andy. So, the two picks in this category are marathon digital and Riot Blockchain. They’re both very similar. Marathon digital is ticker symbol MARA, M-A-R-A. They are the largest or one of the largest, depending on who you ask, Bitcoin mining operators in North America.

Both of these companies really just, they offer you exposure to Bitcoin without having to deal with holding the asset directly, and even more so than the case of Coinbase or the FinTech payments solutions that we were discussing before PayPal and Block. These two companies have massive amounts of Bitcoin on their balance sheets.

It’s what drives, a lot of the value of these companies is the actual amount of Bitcoin they hold. So, this is more of a pure play on Bitcoin, both these companies. Getting back to MARA, Marathon digital. As of the end of January 2022, so just a few weeks ago, they had over 50… I’m sorry.

Over 8500 Bitcoin on their balance sheet with a fair market value as of today of well over $350 million. They have a mining fleet of just over 32,000 active miners, and they’re taking more delivery of miners every month. Just last month they took delivery of 21,000 additional miners from Bitmain. They haven’t deployed them yet.

Shifting over to Riot Blockchain, ticker symbol RIOT.

Andy: Sorry, Jimmy.

Jimmy: Yeah, go ahead.

Andy: Don’t mean to interrupt. So, on marathon digital, looks like they have about a $3 billion market cap, so, a little over what, 10% of their market cap is just reflective of the Bitcoin that they have on the books. I have their stock chart up. And it looks like right around when Bitcoin peaked, the stock hit 75 to 80 bucks, and now it’s back down to 30.

So, this almost reminds me of, like, aren’t they called the junior gold miners that I believe they have, like, even more volatility than the gold spot price? So, this stock is definitely a very levered bet on Bitcoin. You are actually investing directly in some Bitcoin.

Jimmy: You are. Yeah, exactly. That’s…

Andy: As well as a heck of a lot of computers and energy contracts, right?

Jimmy: Yes. Yeah, absolutely. It’s a little bit more complex than just directly owning Bitcoin. It’s a leveraged play. I think that’s exactly right. It moves roughly in sync with the Bitcoin spot price, as does Riot Blockchain, which is my second pick in this category and fifth pick overall, ticker symbol RIOT, R-I-O-T. And, Andy, you can pull up the debt on them while I’m talking if you want to.

They’re very similar to marathon. They also have about 32,000 actively deployed miners. Last year, you know, a little less than a year ago, they acquired Whitestone, which was the owner and operator of North America’s single largest Bitcoin mining and hosting facility located right here in the great state of Texas where I’m located. So, again, you know, you’re getting exposure to Bitcoin without having to deal with holding that asset directly.

So, you know, if anybody’s interested, I would recommend looking into both of those companies. This is really just meant to be a high-level overview today. Andy, what else can you tell me about Riot? Were you able to look at it a little bit?

Andy: Oh, yeah. I brought them up. They have a $2.3 billion market cap, you know, similar…

Jimmy: Very similar in size to marathon.

Andy: Yeah. So, these miners aren’t micro-caps, or they’re not $500 million, $800 million, you know, market cap stocks. And if we see the Bitcoin spot price get back into the 50s, 60s, 70s, 80s, 90s, 100, you know, the market caps on these are just going to explode.

So I definitely think these are interesting picks, Jimmy, again, not for the faint of heart, but most crypto investors aren’t faint of heart anyway, right?

Jimmy: No, I don’t think so. I don’t think so. You need to be able to withstand possibly losing all of your money, or at least 90% of your money and then maybe it whipsaws back up. Yeah, definitely not for the faint of heart. A little different than just owning an S&P 500 ETF, I would say.

Andy: A little different.

Jimmy: Or a 60/40 stock/bond portfolio. Well, let’s move on to our last category, shall we, Andy?

Andy: Let’s do it.

Jimmy: The last category is semiconductor companies or chip makers. And these two picks are basically a bet on continued increase in demand in Bitcoin mining operations and the hardware that’s required to manufacture the mining machines themselves. So, I like both AMD, ticker symbol AMD, and Nvidia which is ticker symbol NVDA.

So, they’re both very similar types of companies. They’re both picks and shovels companies, essentially. They both make high-performance processors used in computers and servers, essentially, a bet on continued demand in cryptocurrency mining and the hardware required to perform the mining as I said before.

Nvidia, in particular, they’re well known for the graphics cards or the GPUs, the graphics processing units that they make for really advanced high-powered gaming rigs. And what they noticed was a lot of people were taking those chips meant for gaming rigs and putting them into Bitcoin miners, so now they have a division in their company where they’re actually manufacturing GPUs specifically for miners, but their chips are in a lot of consumer devices and gaming rigs that you may have in your house.

So, both of those companies, I would say, a bet on miners for continued growth, but much less volatile, much less levered, I would say, against Bitcoin than holding the mining companies directly. So, it’s a play on the miners.

Andy: And, Jimmy, these two picks seem more similar to PayPal to me, like a mega-cap that has diversified business operations that now includes crypto as a component, but not primarily, you know, a bet on crypto to own any of these stocks. I mean, Nvidia has a $650 billion market cap. I mean, obviously, the demand for chips and, you know, the supply chain shortages that we’ve had coupled with very limp policy responses, which I think makes investors believe that, you know, those supply chain issues are going to continue.

Obviously, investors believe that demand for chips is only going to grow, and, you know, these manufacturers have probably a little more pricing power than they did five years ago. But, on the other hand, I think that’s fully priced in. Nvidia sitting with a PE ratio of 80 so…

Jimmy: Rather heady.

Andy: A little rich for my blood. Yeah. A little rich for my blood.

Jimmy: Fair enough. Well, again, you know, I would say these are more long-term plays. I think, you know, increased demand for mining operators is going to form some part of the growth that these two companies may continue to enjoy over time. And, you know, maybe now is not the right time to buy them, but wait for that dip in the stock market and see where these prices head for AMD and for Nvidia.

Andy: Absolutely. And, you know, Jimmy, I want to thank you for getting this list of picks together. And I think it’s really interesting. They kind of run the gamut to where you included a few mega-cap stocks that had diversified businesses that included that crypto upside, that crypto component to them as well as more pure-play crypto businesses, some of which are even more volatile than Bitcoin or the major cryptocurrencies themselves, arguably more of a levered bet on those.

So, a lot of different ways to play crypto in the stock market. So, there you have it, everybody, Jimmy Atkinson’s seven crypto stock picks. Check them out. And, you know, again, I wouldn’t recommend, you know, buying these stocks necessarily over the individual cryptocurrencies.

If you want to invest in Bitcoin, buy Bitcoin, but I think they are definitely an interesting option to sort of play that levered bet on crypto growth and could definitely, you know, earn a place in your overall portfolio. So, thanks, Jimmy, for coming on the show. And I hope to see you in, you know, couple episodes coming up in the near future.

Jimmy: Thank you, Andy. It’s been a pleasure.

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Andy Hagans

Andy Hagans is the co-founder of Cryptogic and a recurring guest on its weekly show. He believes that early blockchain investments provide an asymmetric investment opportunity for enterprising investors.