The new year has gotten off to a hot start. Stocks are rallying, and the S&P 500 recently hit a record high. Moreover, the crypto industry had its own milestone moment as the Securities and Exchange Commission (SEC) approved several spot Bitcoin exchange-traded funds (ETFs).
These new investment products are offered by financial institutions such as Ark Invest, BlackRock, and many others. The overarching idea is that these funds are designed to track the price of Bitcoin without requiring investors to purchase the actual coin.
The approval of the spot Bitcoin ETFs has caused a bit of a renewed interest in Bitcoin and crypto in general. While there are many different ways to invest in the industry, one stock in particular comes to mind.
Let's dig into why SoFi Technologies (SOFI 3.69%) presents a unique opportunity to benefit in many different ways beyond the advent of spot Bitcoin ETFs.
Can you buy spot Bitcoin ETFs on SoFi?
SoFi operates as a digital bank. Similar to legacy players such as Wells Fargo, SoFi members can access a host of lending services including home and student loans, as well as investing tools akin to products offered at brokerage firms. The biggest differentiator for SoFi is that the platform is entirely digital. The company employs a mobile-first approach and does not have brick-and-mortar locations like other larger banks.
About a month ago, SoFi disclosed to investors that it would be shutting down its crypto offering. In essence, the company made a decision that it would no longer allow users to purchase crypto on its trading platform. This is an important development because the announcement came just a couple of weeks before the approval of spot Bitcoin ETFs.
According to the company's website, SoFi's platform does support spot Bitcoin ETFs. Therefore, it appears that while individual cryptos can no longer be accessed through SoFi, investors can buy these new funds through their SoFi trading accounts.
Image source: Getty Images.
How can SoFi benefit from spot Bitcoin ETFs?
Spot Bitcoin ETFs generated more than $4 billion of trading activity their first day on the exchanges. While it is still very early, I see this as an indicator of how popular these products could become over time. As a result, SoFi could experience an uptick in trading activity on its platform as investors look to get in on the action.
But perhaps a more subtle opportunity for SoFi is new customer acquisition. For instance, brokerage powerhouse Vanguard stated that spot Bitcoin ETFs will not be offered to investors. This dynamic could end up being a lucrative source of new business for SoFi.
Management's vision for SoFi is that the platform will be a one-stop shop for all your financial needs -- lending, investing, banking, and more. This business model gives SoFi a seamless way to cross-sell different products and services to its members. By granting access to spot Bitcoin ETFs, I think the company has a good chance to see some meaningful inflow of new customers who may then begin using SoFi's other services and become long-term users in its ecosystem.
Should you invest in SoFi stock?
SoFi stock is down nearly 25% since its initial public offering (IPO) a few years ago. The biggest knock on the company is that it is not yet profitable on a generally accepted accounting principles (GAAP) basis.
However, SoFi's management doubled down on its profit forecast during the third-quarter earnings call and said that the company is on pace for positive net income for the fourth quarter. Although this is encouraging, SoFi is going to need to demonstrate that it can sustain profitability in the long term to win over investors. To me, offering spot Bitcoin ETFs is an interesting way to differentiate from other brokerages that may shy away from these vehicles due to the speculation of the crypto industry in general.
SOFI Price to Book Value data by YCharts
Right now, SoFi stock trades at a modest price-to-book (P/B) of just 1.5 -- slightly below its long-term average. The prospects of spot Bitcoin ETFs look promising, and could very well be a new source of revenue for SoFi. Moreover, as the company continues acquiring new customers and cross-selling additional services, SoFi's fundamentals should continue to improve and pave the way to long-term profit.
I think right now is a good opportunity to scoop up shares in SoFi stock at a bargain. Should the company achieve its profit goals and shed some light on how spot Bitcoin ETFs are affecting the business, employing a dollar-cost averaging strategy may be the most prudent way to build a long-term position.
