Investing in cryptocurrencies can be a heartbreaking endeavor. It has been a little over a decade since Bitcoin (CRYPTO: BTC) debuted, and thousands more blockchain, digital token, and coin projects were launched following the success of the original crypto. Add in ambitious concepts closely related to crypto like Web 3.0, the metaverse, and decentralized finance, and it all comes down to a formidable new tech movement that can be difficult to decipher and in which to invest.
Don’t worry, though. If investing in crypto hasn’t been kind to you so far, or if you just don’t know where to start, a handful of stocks might be right for you. Three Fool.com contributors think To block (NYSE: SQ), MicroStrategy (NASDAQ: MSTR), and Interactive brokers (NASDAQ: IBKR) are worth a look right now. Here’s why.
Bet big on Bitcoin, without buying Bitcoin directly
Nicolas Rossolillo (Bouldering): Investing is all about future cash flow, so buying shares in a company that do something with an asset can be a much better generator of long-term wealth than just buying the asset itself. The same goes for crypto, which is why Block (formerly Square) is one of my favorite ways to play the blockchain revolution.
At the end of 2017, Cash App, a Block affiliate, began testing Bitcoin trading capabilities, and since then this has been a huge catalyst for adding new users. But it’s more than just a crypto trading app. To facilitate functionality, Block had just over 8,000 Bitcoins on its own balance sheet at the last report – worth over $ 390 million at the time of writing. So if you own Block stocks, you also indirectly have a notable position in Bitcoin.
But there’s a lot more at work here than passive Bitcoin gambling or the consumer interest in trading it. Block’s recent name change reflects the company’s belief that blockchain technology and cryptos will play a vital role in the future of the digital economy. Two other Bitcoin-focused Block affiliates, Spiral and TBD, are working on new everyday uses for digital currency – possibly more digital payment capabilities, lending products, and other digital transactions. CEO Jack Dorsey even said the company might consider starting its own Bitcoin mining operation.
As Block defends this new technological frontier, shareholders get a growing company focused on both digital financial services for small businesses and consumers. Gross profit, which primarily removes the Bitcoin trading segment, rose 43% year-over-year to $ 1.13 billion in the third quarter of 2021. The shares are currently trading at just over 18 billion. times the value of gross profit per business over 12 months. That’s a steep price, but not unreasonable for a growing company with great aspirations for the financial services sector of the global economy. If you want to invest in crypto, I think Block is a great place to start.
Higher returns and lower risk – where do I register?
Anders Bylund (MicroStrategy): Let’s be clear: MicroStrategy is a bit of a risky bet. This is not the kind of investment you make to avoid the volatility of the cryptocurrency market. MicroStrategy is an aggressive game right now, arguably offering both higher risk and the promise of bigger returns than Bitcoin itself.
Here is the deal. MicroStrategy is a business intelligence company that has been providing software and analytics services to businesses since 1989. The company took a hard turn in the fall of 2020, converting all of its long-term investments and most of its cash into tokens. Bitcoin. Since then, MicroStrategy has raised $ 2.4 billion in new debt and equity offerings in order to buy more Bitcoin. In addition, it has generated $ 110 million in free cash flow since the start of the Bitcoin strategy. These cash profits were also invested in more Bitcoin.
The company now has at least 122,478 Bitcoin tokens on its balance sheet, worth $ 6.2 billion at Friday’s cryptocurrency prices.
At the same time, MicroStrategy’s market capitalization stands at just $ 6.1 billion. In other words, this stock effectively allows you to access MicroStrategy’s Bitcoin reserves for less than the actual market value of the digital asset – and the company’s profitable business intelligence operations are launched as well. free. Meanwhile, the company continues to build up its Bitcoin stash at every opportunity, which should produce an amplified version of the underlying cryptocurrency’s long-term returns.
Market makers clearly apply risk-based haircuts to the share price, which makes sense. However, MicroStrategy is well equipped to handle a few years with lower Bitcoin prices. As I said, the company generates positive cash profits from its actual activities.
It is important to note that the first of the new debt securities is due in December 2025, in four years. The 2018 cryptocurrency crash lasted less than three years. History does not repeat itself exactly, but it does echo. MicroStrategy appears poised to tackle anything sweeter than a complete and permanent collapse in the cryptocurrency market.
And you can buy this enlarged Bitcoin bet at a 2% discount to simply buy the cryptocurrency directly. Keep those body shots coming – MicroStrategy looks like a winner with some serious stamina.
This ‘old-fashioned’ discount brokerage has the lowest crypto commissions on the market
Billy Duberstein (Interactive Brokers): Cryptocurrencies have been volatile lately, and while some see them as a potential inflation hedge, they haven’t performed particularly well due to fears of inflation and higher interest rates. In reality, cryptocurrencies currently trade like speculative penny stocks – at least until now.
But do you know which stocks would benefit from a rate hike, assuming there is no recession? Lenders who charge variable rate interest. A particularly interesting type of this type of lender are the discount brokerage houses, which derive a large portion of their income from margin loans. Brokerage leader Interactive Brokers not only has the lowest commissions and margin interest rates in the industry, but it also just enabled cryptocurrency trading on its platform just two months ago.
On October 18, Interactive Brokers began allowing registered investment advisers to trade cryptocurrencies on its platform alongside stocks and other approved assets. However, only a few of the traditional cryptocurrencies (Bitcoin, Ethereum, Litecoin, and Bitcoin Cash) are currently available. Interactive Brokers will not in fact take possession of the assets themselves, but will instead have a partnership with Paxos Trust Company which will be the “real” custodian. Nonetheless, the ability to trade these cryptocurrencies directly in current brokerage accounts is an important first step.
As an established leader known for its best-in-class security and unbeatable costs, Interactive Brokers has just been ranked “Best Online Brokerage” by Barron for the fourth consecutive year. Its crypto operations aim to maintain this reputation; it currently offers crypto trades with commissions as low as 0.18%, with a minimum of $ 1.75 per order. It’s much cheaper than the favorites of current investors Coinbase Pro, or SoFi, which would charge around 0.5% and 1.25%, respectively, on a notional crypto order of $ 1,000. And in the announcement, Interactive Brokers presents its partner Paxos as an established depository with “military grade” security technology.
One of the dangers of scorching crypto brokers like Coinbase is that while the crypto market is likely to grow, they may be under some pressure from the outsized fees they currently charge. After all, stock discount brokerages ended up cutting commissions to zero (or almost). Interactive Brokers also allows clients to trade commission-free, knowing that they can sell your order flow to high-frequency traders, or trade for its brand low commissions well below the old standard. industry with superior performance.
Unlike the cryptos themselves, which are speculative, or these new crypto brokerage firms, the shares of Interactive Brokers are trading at a very reasonable price of 22 times earnings. It’s not expensive, especially since this blue chip brokerage increased its accounts receivable by 57% in the last quarter. Now armed with (partial) crypto trading, Interactive Brokers looks like solid stock heading into a higher rate environment.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.