The world of cryptocurrency is still a developing thesis, with some raging bulls on every coin out there and others calling the asset class a complete scam and Ponzi scheme. Whether one side is right or wrong is up for debate, but one thing remains true: investor and trader psychology and behavior.
Known as the risk-on and risk-off cycle in the market, investors can look at risky – or volatile – asset classes like cryptocurrency as something to invest or trade in when there are no better alternatives. A risk-on mentality is typically brought on by low interest rate environments when stock and property prices tend to go up historically. Cryptocurrency is now the new name on the block to come and tag along to this systemic rally.
With the Federal Reserve (the Fed) holding the promise of interest rate cuts to come before the end of 2024, investors can somewhat assume that a new risk-on cycle is about to hit the market, and that is fundamentally good for cryptocurrencies like Bitcoin, which has risen to $67,200 (near all-time high). The coin’s price action is going to directly benefit stocks like CleanSpark Inc. (NASDAQ: CLSK), MicroStrategy Inc. (NASDAQ: MSTR), and Riot Platforms Inc. (NASDAQ: RIOT).
CleanSpark Stock's Bitcoin Holdings Could Drive Price Higher
A stock’s book value is derived from the company’s balance sheet, a metric few investors take the time to dig into and analyze. To save time, investors should focus on the central holdings in CleanSpark’s balance sheet, which is Bitcoin, and lots of it.
As of the most recent data, CleanSpark holds up to 6,591 Bitcoin, which would translate into roughly $442.9 million, considering where Bitcoin is trading today. Markets today are willing to pay a price-to-book (P/B) ratio of up to 2.8x for CleanSpark’s balance sheet, which includes this Bitcoin holding valuation.
Compared to the rest of the finance sector, which trades at an average P/B ratio of 2.6x, CleanSpark commands a premium of over 8%. The stock also trades at 68% of its 52-week high, meaning there is much more room for markets to bid up the stock’s valuation based on bullish Bitcoin expectations.
Some on Wall Street agree with this outlook, as analysts at Cantor Fitzgerald boosted their price targets on CleanSpark stock to $28 a share as of July 2024, daring it to rally by 67.7% from where it trades today.
More than that, those at the Vanguard Group also boosted its stake in CleanSpark stock by 58.5% in the past quarter, bringing its net position to $270.5 million or 6.4% ownership.
Bitcoin Holdings Promise Double-Digit Upside for MicroStrategy
While markets are dipping their feet into the waters of premium valuations with CleanSpark, some dove head first into MicroStrategy’s balance sheet. The stock is now trading at over 13.0x P/B, nearly 15 times the industry average today.
There’s a reason why markets are willing to overpay for the stock, and Bitcoin holdings might be the answer to that. As of the first quarter of 2024 earnings results, MicroStrategy reported having up to 214,400 Bitcoins, which, at today’s price, would translate into $14.4 billion in addition to the company’s book value.
Considering that the company acquired 25,250 Bitcoins in the fourth quarter of 2023, investors can assume a similar buying rate for the two quarters that have passed since, which would add a roughly additional $5 billion to the company’s book value at today’s Bitcoin price.
Wall Street analysts have done the math and landed on a consensus price target of up to $2,017 a share, or nearly 20 upside from where the stock trades today. This bullish evidence caused MicroStrategy stock’s short interest to collapse by 12.4% in the past month, opening the way for bullish investors.
Riot Platforms Stock Farms Bitcoin Ahead of Harvest Season
Larry Fink, the CEO of the world’s largest asset manager BlackRock Inc., recently admitted that his view on Bitcoin was wrong. He mentioned that the cryptocurrency was better defined as digital gold, and just like any other commodity, it needs to be mined before companies sell it in bulk during an upcycle.
As of June 2024, Riot Platforms has released its production and Bitcoin holdings rate, and investors should take this information just as any other gold mining stock release. Riot upped its production (farming) rate by 19% monthly, as they know the low cost of mining the coin can yield astronomical returns at today’s market price when it’s sold.
As a result, Riot’s Bitcoin holdings have risen by 29% in the year, bringing the total to 9,334 Bitcoins, or a dollar value of $627.2 million today. The stock trades at the lowest P/B multiple in the group, only 1.3x. Still, investors can assume this is due to Riot having the lowest Bitcoin holding.
Financially, this means Riot can offer the highest growth potential, as revenues alone jumped by 55.3% in Riot’s Bitcoin mining segment. This momentum resulted in an earnings per share (EPS) jump of 645% on the year, reaching $0.82 EPS.
Analysts at Cantor Fitzgerald realized how much upside could lie ahead for Riot Platforms, so they reiterated their price targets on the stock to $23 a share, daring it to rally by 107% from where it trades today.
