In spite of recent volatility, stock investors have fared quite well since the pandemic bottom in March 2020. The benchmark S&P 500 has risen nearly 90% from the March 23, 2020, intraday low. To put this into some perspective, the S&P 500 typically gains an average of around 10%, including dividends, per year.
But these gains are peanuts compared to what the cryptocurrency space has produced over the same time frame. In roughly 26 months, the aggregate value of all digital currencies has risen by 828%, or approximately $1.17 trillion.
However, it's not just crypto tokens that are benefiting from this upward trajectory. According to select Wall Street analysts, three cryptocurrency stocks offer game-changing upside of up to 439% over the next 12 months.
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Nvidia: Implied upside of 118%
The first well-known crypto stock that offers significant upside, at least according to one analyst, is graphics and networking company Nvidia (NVDA 2.35%). Ivan Feinseth of Tigress Financial foresees shares of Nvidia climbing 118% over the next year to $410 per share, despite the fact that the company is on the cusp of becoming one of the 10 largest publicly traded companies in the U.S. At $410, Nvidia would be a trillion-dollar company.
Why is Feinseth so optimistic? During its Analyst Day event, Nvidia announced it was increasing its total addressable market to a whopping $1 trillion. Feinseth is also encouraged by Nvidia's evolution as an artificial intelligence processing provider.
It's worth noting that the company's professional visualization segment generated first-quarter revenue growth of 67% from the prior-year period. That's impressive, considering U.S. first-quarter gross domestic product shrank 1.4%.
Nvidia's ties to the cryptocurrency arena derive from its graphics processing units (GPUs), which are used by cryptocurrency miners to "mine" digital currencies. In simple terms, crypto miners use high-powered computers to solve complex mathematical equations that validate transactions on a blockchain network. Miners are given a block reward as payment for being the first to solve a group of transactions (known as a "block"). This reward is typically paid out in the native tokens of the crypto blockchain being validated.
What's interesting is that Nvidia's cryptocurrency mining processors (CMP) make up a relative pittance of its total sales. During the fiscal fourth quarter (ended Jan. 30, 2022), Nvidia generated only about $24 million from its CMP segment out of $7.64 billion in quarterly sales. This $24 million was down 77% from the sequential quarter, and demonstrates how fickle demand can be for GPUs when crypto prices are heading lower.
If you own or have considered buying shares of Nvidia, you're probably not doing so with the idea that its cryptocurrency ties are moving the needle. Rather, you're expecting its data center solutions, gaming graphics cards, and visualization division to sustain double-digit growth throughout the decade.
Although Nvidia has lost close to half its value since November, the cyclical nature of its business could lead to further weakness. This doesn't mean $410 is out of the question at some point in the future, but it almost certainly takes $410 off the table in the next 12 months.
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Coinbase Global: Implied upside of 405%
Another cryptocurrency stock that offers blistering upside, based on the musings of one Wall Street analyst, is leading crypto-exchange and ecosystem Coinbase Global (COIN -1.81%). Mark Palmer of BTIG foresees Coinbase hitting $380 per share. This would represent a more than quintupling of its value.
Last month, Palmer proclaimed in an interview with Bloomberg that "the extent of that decline [in Coinbase] is vastly overblown" and blamed a lack of understanding from retail investors regarding the company's capitalization levels for the decline. Palmer also noted the possibility of a shakeout occurring in the crypto exchange space that would ultimately benefit the well-capitalized Coinbase.
On one hand, Coinbase is clearly the most preferred crypto trading platform. It ended the first quarter with $256 billion in assets on its platform and had 9.2 million monthly transacting users (MTUs). While the latter was down from 11.4 million in the sequential quarter, it's higher by roughly 50% from the comparable quarter one year ago.
On the other hand, Coinbase is rife with red flags. For instance, history has shown that when digital currencies stop rising, trading activity quickly tapers off. The $309 billion in total trading volume during the first quarter was the lowest three-month period since 2020.
Costs are also a concern. Stock-based compensation totaled a whopping $352 million during the first three months of 2022, which is more than double the $152 million Coinbase brought in from high-margin subscription and service revenue.
Yet the most damning thing of all might be the virtually nonexistent barrier-to-entry in the crypto exchange arena. Just as we witnessed traditional stock brokers engage in commission wars that ultimately pummeled margins and led to commission-free trading, Coinbase is liable to face these same margin pressures on trading fees over time.
In sum, Coinbase Global's chance of hitting $380 over the next 12 months lies somewhere between slim and none.
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Riot Blockchain: Implied upside of 439%
However, the crème-de-la-crème of upside opportunity, at least among crypto stocks on this list, is small-cap cryptocurrency-mining company Riot Blockchain (RIOT -2.53%). According to analyst Chase White of Compass Point, Riot can go on to hit $39 per share. For those of you keeping score at home, this would represent upside of 439% over the next year.
Interestingly, when Chase initiated coverage on the crypto-mining stocks in March, he favored Marathon Digital Holdings over Riot. But Compass's note points to "significant upside" in all cryptocurrency miners, with 2022 serving as a transition year where these companies begin to differentiate themselves.
Riot Blockchain is specifically focused on mining Bitcoin (BTC -2.86%), the most valuable cryptocurrency by market cap. During the March-ended quarter, the company produced 1,405 Bitcoin. As of May 30, 2022, it was worth about $43.5 million.
Furthermore, Riot had 46,375 of its mining units deployed as of the end of April, with more than 55,000 expected to be up and running by the end of May. Based on outstanding orders, Riot could have north of 120,000 miners in operation by sometime next year.
While the company is beginning to recognize scaled efficiencies, there are also some serious concerns. To begin with, innovation plays only a minimal role in its success.
Although the company's immersion-cooling infrastructure can allow for more optimal mining unit performance, Riot is ultimately tethered to Bitcoin's price performance. Bitcoin has a history of undergoing large and protracted bear markets. It's not clear if cryptocurrency miners could survive a steep price pullback.
Bitcoin's block reward is also scheduled to halve in 2024 from 6.25 tokens to 3.125. Thus, as competition picks up in the crypto mining space -- an arena with virtually no barrier to entry -- the reward given to miners is slated to shrink by 50% in two years.
Riot Blockchain is effectively a leveraged play on Bitcoin. Leverage in the cryptocurrency space is a dangerous proposition.
