Over the last few years, cryptocurrencies have been one of the best-performing asset classes. The most well-known are bitcoin and ethereum. Another innovation is the blockchain. Some believe that crypto will have the same impact on money that the Internet has had on information.
Even though the cryptocurrency is relatively immature, this market is all set to witness continued appreciation. According to Markets and Markets, the cryptocurrency market is projected to grow at a CAGR of 6.18% to $1.40 billion by 2024. Rising demand for decentralized finance and cashless payments will be the major growth drivers.
2017 saw a cryptocurrency boom as the Bitcoin prices soared about 2000% in a year. According to market experts, the burgeoning demand for Bitcoin might lead to history repeating itself. Therefore, investing in this growing industry by betting on the right stocks can be highly rewarding.
Square, Inc. (SQ)
SQ is predominantly known as a digital payment app. However, it is now well-known for its innovations in crypto and blockchain technology. SQ has forayed into the peer-to-peer investment market in the past three years. The company has also formed a dedicated team called Square Crypto which is focused on enhancing the BTC network for hassle-free cryptocurrency transactions. SQ has also launched a non-profit organization — Cryptocurrency Open Patent Alliance or COPA — to encourage crypto innovation and open access to patented crypto inventions.
Square’s Cash App includes a feature that allows customers to buy and sell bitcoin. In the second quarter, SQ’s net revenue climbed 64% year-over-year to $1.92 billion on the back of its Cash App ecosystem. The company’s Cash App delivered a robust 167% increase in gross profit compared to the year-ago quarter. And Bitcoin investing is a part of SQ’s Cash App product. SQ also boosted its network to over 30 million monthly active customers in June. Cash App posted $875 million of bitcoin revenue during the second quarter, up 600% from the prior-year period. The bitcoin gross profit during the second quarter of 2020 surged 711% year over year.
The company strongly believes in cryptocurrency as an instrument of economic empowerment and has put 1% of its total assets, worth nearly $50 million, in bitcoin. Experts believe that as the next crypto boom arrives, the company would witness a massive rally.
PayPal Holdings, Inc. (PYPL)
The most widely used payments processor, PYPL has been on a rally amid the pandemic. Contactless payments have gained pace and PYPL has been the most preferred route. However, the company is showing a keen interest in cryptocurrency and blockchain development off late.
In 2019, the company declared that it was funding Cambridge Blockchain, a start-up that works toward streamlining payments using blockchain. Earlier this year, the company also revealed that it is adopting blockchain protocols as part of its internal framework to inhibit financial crimes and fraud.
On September 21, bitFlyer Europe, the subsidiary of one of the biggest Japanese cryptocurrency exchanges, announced that it has integrated PayPal deposits to its platforms. PYPL’s massive user base across the globe and Europe specifically would expose more users to bitFlyer exchange and cryptocurrencies. This collaboration makes it evident that PYPL is all set to deal with blockchain and cryptocurrencies. Experts believe that the company could enter into the Bitcoin space by the end of this year. Earlier in July, PYPL confirmed that it has sent a letter to the European Commission about its plans to develop crypto and blockchain capabilities. The company is actively hiring engineers for the same.
Currently, many users use PYPL for bitcoin transactions indirectly, however, relatively fewer merchants accept bitcoin payments through PYPL. Due to its high-risk exposure, PYPL is yet to have the right checks for full-fledged bitcoin trading.
NVIDIA Corporation (NVDA)
NVDA is one of the biggest manufacturers of graphics processing units (or GPUs) which are one of the most critical Components of gaming, AI, and autonomous vehicles. Besides, GPUs are also widely used in the hardware for crypto mining. Processing the transactions on the blockchain is known as mining. During this activity, the miner gets a freshly-minted bitcoin. Since early 2017, the cryptocurrency space has been a winning field for NVDA as there was a huge demand for GPUs for mining of bitcoin, Ethereum as well as other cryptocurrencies. NVDA surged nearly 150% during the bitcoin boom in 2017.
As the adoption of bitcoin increases, so will its prices. This will translate into a huge demand for GPUs which is expected to be a growth catalyst for NVDA. According to Tom’s Hardware, NVDA’s GeForce RTX 30-series, one of the best graphics cards for gaming, has become a hit with certain crypto miners for China. Experts suggest that this card could even overtake the currently popular Radeon graphics cards from AMD. The RTX30 cards have a higher hash rate than the RTX 2080. This allows the miners to mine three to four times faster and earn more profits.
According to RBC Capital Markets analyst, Mitch Steves, the net daily profitability for NVDA’s new GTX 3080 product has risen to $3. This is in sharp contrast to AMD’s GPU which enables miners to earn $1.75 per day.
Mining for cryptocurrencies is becoming more complex day by day and hence the need of the hour is to use more than one graphics card that would complement each other. Before buying the graphic cards, miners must consider the performance, architecture, and price thoroughly. Currently, mining hardware isn’t one of the major revenue centers for NVDA. However, if the cryptocurrency prices rise and there is renewed interest in this market, the company could be in an advantageous position.
CME Group Inc. (CME)
CME is the largest regulated market for futures, options, and derivatives. This global market company also trades in bitcoin futures. It gained prominence when it launched bitcoin futures back in December 2017. In August 2020, CME became the third-largest bitcoin futures exchange based on several open contracts, after OKEx and BitMEX. On 14 August, open positions on the CME stood at $800 million, surging close to 120% from $365 million in July.
Industry experts believe that rising bitcoin activity on the CME illustrates an increasing institutional interest in cryptocurrency. CME is a fully regulated platform that enables investors to speculate on the future price of BTC in the most authentic way.
A decentralized finance analyst at Quantum, Shawn Dexter said, “The Bitcoin derivative products offered by CME are simply a vehicle for accredited investors to place sophisticated and risk-offsetting trades that would otherwise be inaccessible to them.”
If the interest in bitcoin surges, CME could see a decent revenue increase. This is because the company would obtain a fee for every crypto transaction done on its exchanges. With the rise in price and volatility for cryptocurrency, more buyers would turn to regulated exchanges like the CME. The company could therefore enjoy a steady stream of revenue in the next few years.
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SQ shares rose $0.10 (+0.05%) in after-hours trading Tuesday. Year-to-date, SQ has gained 196.90%, versus a 8.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…