Investing in cryptocurrencies is not the only way to profit from an upswing in the crypto market. Some companies, for example, now hold Bitcoin (BTC 0.51%) directly on their balance sheets and are indirect plays on the future direction of digital currency. Other companies have targeted a specific niche of the industry as a source of revenue and cash flow.
Here are four companies in various niches that have one thing in common: Their business models make them most likely to benefit from a crypto market rally this year.
1. Coinbase
Perhaps the one company that will benefit the most from a crypto rebound is Coinbase Global (COIN -0.34%). Ever since last year's market downturn, the trading platform has been losing retail investors at a precipitous pace. At the same time, crypto trading has been trending downward, and the company has been searching for ways to boost transaction revenue.
As a result, it's easy to see why many investors -- with the notable exception of Cathie Wood of Ark Invest -- have soured on Coinbase's prospects. When it reported quarterly earnings in February, the company beat Wall Street earnings and revenue expectations, but many core metrics (such as transaction volume) were trending down.
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While Coinbase has had some success in gaining institutional clients and coming up with some new sources of revenue, the company remains highly leveraged to the individual retail investor.
As soon as a crypto rebound starts, more people will want to trade again, and that could help restore the company's active monthly user count and volume numbers.
2. Bitcoin miners
As a general rule, Bitcoin mining companies do best when the price of the token is increasing. So miners were having a tough go of it in 2022, when the digital currency collapsed by 64%.
Even when it stabilized by year end, it did little to help miners because the crypto was trading in such a relatively narrow range.
As a result, the crypto winter of 2022 ended with a growing number of Bitcoin miners reporting disappointing numbers for the year. Things got so bad, in fact, that some shut down a number of their mining rigs and suspended operations. Riot Blockchain even changed its name to Riot Platforms (RIOT 1.94%).
It simply was not profitable to mine crypto with Bitcoin languishing under $20,000 and energy prices rising. That's why I think Bitcoin mining companies such as Marathon Digital Holdings (MARA -0.42%) could be poised for big turnarounds in 2023. It's just a matter of waiting for the price to break through the $25,000 level, which has been a break-even level for many miners.
3. MicroStrategy
On the surface, MicroStrategy (MSTR -2.00%) is just another enterprise software company. But dig a little deeper and you'll realize that its prospects are highly leveraged to the price of Bitcoin, and that the company's executive chairman, Michael Saylor, is one of the biggest Bitcoin bulls in the world.
A significant portion of the company's balance sheet now consists of Bitcoin. Thus, in a rising crypto market environment, the valuation of MicroStrategy is going to soar.
At the end of 2022, the company announced a number of new Bitcoin purchases. It now holds 132,500 bitcoins, worth about $3 billion at today's prices. This is approximately equal to the entire market capitalization of the company.
In 2022, the company also announced new client offerings geared around the Bitcoin Lightning Network, which enables peer-to-peer payments. Once the token's price starts moving up, more people will use the Bitcoin Lightning Network, and that could spur more companies to embrace software solutions from MicroStrategy.
Which companies to buy and hold?
All of these companies -- Coinbase, Marathon Digital Holdings, Riot Platforms, and MicroStrategy -- are directly linked to digital currency, and thus are the best positioned to soar with any new upturn in the crypto market. They have long-term business models based around crypto and blockchain technology, and offer exposure to any rally.
If you're cautious about picking specific winners and losers, you could always choose a diversified exchange-traded fund (ETF) tied to crypto. You might not be able to capture the full upswing of the market, but investing in an ETF is a less risky and more diversified way to invest in the long-term future of cryptocurrency.
