What happened
Shares of several crypto stocks are rising this week as the price of the world's largest cryptocurrency, Bitcoin (BTC 1.69%), has bounced more than 7.5% since Sunday.
For the week, shares of the large crypto exchange Coinbase (COIN 2.81%) traded more than 7% higher as of 10:53 a.m. ET today. Shares of the crypto bank Silvergate Capital (SI 0.31%) traded nearly 17% higher, and shares of the business intelligence and Bitcoin buyer MicroStrategy Incorporated (MSTR 3.46%) were up more than 21%.
So what
Currently hovering around $20,850 as of this writing, the price of Bitcoin has bounced back this week, along with the broader stock market. The Nasdaq Composite is up nearly 4.6% over the past five days as the price of oil has declined and as treasury yields have come down as well.
Image source: Getty Images.
Investors seemed to be getting more and more spooked over a recession, which wouldn't necessarily be good but could bring down consumer prices and potentially quell some of the concerns over inflation. As a riskier asset, Bitcoin has not fared well as the yields on safer assets like treasuries have soared, so the decline this week is welcome to Bitcoin investors.
Operating in the crypto space, Coinbase, Silvergate Capital, and MicroStrategy all have some correlation to the price of Bitcoin. Coinbase collects fees on crypto trades, so more buying activity is good for the business. Silvergate brings in more deposits when institutional crypto trading activity is high, so more interest in Bitcoin is also good for its business. And MicroStrategy held roughly 105,085 Bitcoin tokens as of June 21, so obviously when the price of Bitcoin goes up, that's good for the company.
Earlier this morning, Bank of America analyst Brandon Berman reiterated his coverage of Silvergate with a buy rating. Berman attributed his bullish take to Silvergate's "relatively stable" deposit base from its digital currency customers.
OTC: SI
Key Data Points
Canaccord analyst Joseph Vafi also reiterated his buy rating on Silvergate and set a price target of $200, which implies huge upside from Silvergate's current share price of below $62. Vafi is excited about Silvergate's intense sensitivity to rising interest rates.
The bank has built a real-time payments platform to better facilitate trading between institutions and crypto exchanges. Cryptocurrencies trade around the clock, yet the U.S. doesn't operate on a real-time payments system, making this platform appealing. Institutions bring lots of zero-cost deposits to Silvergate, which can then invest these deposits into the bond market. As rates rise, Silvergate will reap more yield from its deposits.
Now what
I can't say with certainty that the price of Bitcoin has bottomed. However, I do feel confident that Bitcoin is here to stay and does have upside from here in the long term. As a result, I do think these stocks all have a future.
My favorite is Silvergate due to its intense asset sensitivity and position as a bank, which gives it exposure to Bitcoin without its having to hold any itself.
MicroStrategy is my least favorite here because the company holding Bitcoin seems to distract from its analytics business. If you are investing in the company for its exposure to Bitcoin, why not just invest in Bitcoin itself?
