Bitcoin is on another spectacular run. During the past six months, its price has increased by more than 160%.
But let's forget about Bitcoin for just a moment. It's not that you shouldn't own the most well-known cryptocurrency in the world. There are hundreds of reasons why owning Bitcoin is likely a smart investment.
There are, however, other ways you can bet on the rise of Bitcoin. These alternative investments can help you diversify your exposure without sacrificing enormous growth potential.
If you love Bitcoin, it's time to get more familiar with Nu Holdings (NU +2.66%).
CRYPTO: BTC
Key Data Points
A secret bet on Bitcoin
On the surface, Nu appears to be a bank. That's because it is. The company has about 94 million customers who use Nu for things like bank accounts, credit cards, debit cards, and personal loans.
From a top-down perspective, Nu has roughly 40 million active credit card customers, 7 million personal loan customers, 15 million investment customers, and as many as 2 million insurance customers.
If you stop here, there's nothing special about Nu. The magic starts to appear as you continue to dig.
For starters, Nu is a digital-first bank operating in an exciting area of the world: Latin America. More than 600 million people live in Latin America, a region largely dominated by a handful of powerful banks that still charge high fees for simple services. Nu was founded in 2013 specifically to disrupt the status quo, offering low-cost, highly accessible financial products directly from a smartphone.
During the past decade, it has become clear that Nu is on to something. Its customer count has increased nearly every quarter since its founding, with revenue following suit.
Impressively, Nu has been able to convert this growth into positive earnings, even as it continues to invest heavily in expanding. It recently entered the Mexican market, for example, where it hopes to replicate the success it experienced in Brazil, where a whopping 53% of adults are Nu customers.
Source: Nu investor presentation.
We haven't even gotten to the most exciting part: Nu is investing heavily to bring crypto to the masses.
After launching in the summer of 2022, NuCripto amassed 1 million customers in its first month of operation. The service has continued to add support for new cryptocurrencies in recent months, and now allows users to buy, sell, and transact using cryptocurrencies like Bitcoin.
The company was quiet about NuCripto in its latest quarterly results, but it is likely that the service continued to experience rapid user growth, especially with Bitcoin's price and media attention skyrocketing once again.
To be sure, Nu's stock price will be driven by more than just crypto, but an investment in the company gives you direct exposure to crypto going mainstream. With millions of existing customers to market the service to -- many of whom live in places where the banking industry and even currency in general have a shaky history -- Nu may soon be one of the leading crypto companies in the world, even though the rest of its business masks this opportunity.
Time to buy Nu stock?
If you love Bitcoin or cryptocurrencies in general, Nu should be at the top of your watchlist. But is the stock a buy right now?
There are two conventional ways to value the stock. You can assess the stock on a price-to-book basis -- a traditional method used to assess how the market is valuing a bank's asset base. Or you can look at the stock on a price-to-sales basis -- a metric more commonly used to value growth stocks.
According to both metrics, Nu stock certainly isn't cheap. At 8.3 times book value, it is one of the more expensive bank stocks out there. And at 9.6 times sales, Nu is valued higher than many better-known growth stocks.
Nu stock is a bargain compared to its past, but the shares are hardly a bargain on an absolute basis.
A high valuation doesn't mean Nu stock isn't a buy. The best way to value this company is perhaps on a market cap basis. Right now, the company is valued at about $53 billion -- nearly as much as the market cap of top crypto exchange Coinbase.
Although Coinbase has nearly 100 million registered users, only about 10 million use the company's platform in any given month. Nu, meanwhile, has nearly 80 million active users. Only a small fraction of those users are NuCripto customers, and the overall spend per customer probably is much less than what Coinbase has achieved. But the point is that Nu's business still has leaps and bounds of potential growth ahead of it in its crypto business segment alone.
How large could Nu become? The largest Latin American bank currently has about $440 billion in assets. Nu, for comparison, has only $43 billion in assets.
Is it reasonable to expect Nu's assets to increase 10 times in size over the next decade? Sure. How much the market cap benefits depends on whether the company can continue its efficient trajectory of growth, which gives it a premium valuation multiple. Still, it's not hard to see Nu ending up as large as more traditional banks like Bank of America or Wells Fargo, both of which have market caps between $200 billion and $300 billion.
Although it's hard to predict exactly where Nu stock will head in the years to come, one thing is for certain: If you want to bet on the rise of crypto, there are few stocks better positioned than Nu.
