3 Stocks Poised to Benefit from a Spot Bitcoin ETF Approval
Bitcoin price spiked sharply mid-Monday, readying to break the $30k resistance. However, soon after having reached $29.4k, gains were lost. The spike’s culprit was unsubstantiated Cointelegraph reporting on X that BlackRock’s iShares Bitcoin ETF has received approval from the SEC.
Although the news has been disproven by multiple sources, including Bloomberg’s senior ETF analyst Eric Balchunas, the upward Bitcoin price is telling. Having denied all spot-traded Bitcoin ETFs throughout the years, the Securities and Exchange Commission (SEC) is now poised to open the capital floodgates to the crypto space.
Especially after the SEC gave up on repealing the court’s decision favoring Grayscale’s GBTC transformation into a Bitcoin ETF. In the aftermath of the real-world test, which stocks would benefit the most from a genuine Bitcoin ETF approval?
MicroStrategy (NASDAQ: $MSTR)
If there is any stock with guaranteed Bitcoin exposure, it is Michael Saylor’s MicroStrategy. The Bitcoin evangelist has accumulated BTC since 2020, leveraging debt to buy more. As of the September 24th purchase, MicroStrategy holds 158,245 bitcoins at an average price of $29,582 per BTC.
This makes MSTR one of the most giant Bitcoin whales and influential market makers, whether for the upside or the downside. As a business intelligence company, MicroStrategy reported $120.4 million in revenue in Q2 2023, most from software licenses and subscription services. Both received year-over-year growth, at 4% and 42%, respectively.
Compared to a significant net loss of $1.062 billion in Q2 2022, the company had a $22.2 million net income, or $1.52 per share (diluted). MicroStrategy is highly indebted, with a 265.9% debt-to-equity ratio and $2.54 billion total liabilities against $65.97 million in cash.
Normally, investors would shy away from companies with such figures, but MSTR put most of its eggs into the Bitcoin basket. Indeed, as the fake Bitcoin ETF news developed, MSTR shares were in lockstep with the BTC price resurgence.
Given the near inevitability of a Bitcoin ETF approval and the market’s reaction, MicroStrategy’s big bet will likely materialize. Year-to-date, MSTR investors could have gained more than merely holding BTC, gaining a 125% upper hand over Bitcoin’s 70%. Nasdaq gives MSTR a “strong buy” recommendation with an average price target of $433.25 and a low estimate of $210 against $324.32 at press time.
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PayPal (NASDAQ: $PYPL)
The dominant payment processing company has done much to turn away customers. In early October 2022, PayPal announced fines for wrongful expression of thoughts. After the massive backlash, the company clarified that $2,500 fine guidances for such violations were sent in error.
Former PayPal CEO David Marcus was shocked that such a concept was even entertained, describing PayPal’s policy proposal as “insanity.” Garnering negative media attention and boycott campaigns, PYPL shares are now at the lowest level since July 2017.
At the time, Bitcoin’s price was under $1,700. Yet, year-to-date, both Square (NYSE: $SQ) and PayPal (PYPL) are in the same range loss, at -31% and -24% respectively. This suggests that payment processors are heavily discounted at the moment. As PayPal’s earnings increased 98.2% over the year, it is estimated to trade 46.8% under the fair value.
With the launch of PayPal USD stablecoin and still maintaining a dominant market share, the company is well-positioned to take crypto inflows as Bitcoin sets the crypto market stage with ETFs and the upcoming halving next April. Nasdaq gives PYPL a “strong buy” with an average price target of $86.07 and a low estimate of $60 against $56.76 at press time.
Riot Platforms (NASDAQ: $RIOT)
Like MicroStrategy, one of the world’s largest Bitcoin mining companies experienced sudden appreciation on the fake news, having risen 4.5% today. Year-to-date, RIOT stock even outperformed MSTR, having gained +164% value.
As of August, the company reported a 14.13 realized hash rate, higher than the average of the top 10 Bitcoin miners, but not sufficient to take Marathon’s hash throne. More importantly, at $8,400 implied cost of BTC production, Riot came in second best, signaling top mining efficiency.
Presently, Nasdaq provides RIOT’s average price target of $18.22, with a low estimate of $6.5, compared to $9.28 per share at press time. This gives RIOT a green recommendation of a “strong buy.”
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