The cryptocurrency market cooled off in 2022 as rising interest rates, regulatory challenges, and other macro headwinds drove investors toward more conservative investments. But over the past year, the crypto market warmed up again as the U.S. Securities and Exchange Commission (SEC) approved the first spot price Bitcoin exchange-traded funds (ETFs) and investors looked forward to lower interest rates.
The upcoming Bitcoin "halving," which will reduce the rewards for mining the cryptocurrency; network upgrades for the Ethereum Network; and more institutional cryptocurrency purchases also brought back more bulls.
Image source: Getty Images.
The easiest way to profit from the market's growth is to directly buy top cryptocurrencies like Bitcoin and Ethereum on a cryptocurrency exchange. But it's still smart to invest in a few promising crypto companies which will benefit from the same tailwinds. I believe Marathon Digital (MARA -4.89%) and Coinbase Global (COIN -5.03%) check all the right boxes.
1. Marathon Digital
Marathon Digital is North America's largest pure-play Bitcoin miner. It minted 12,852 Bitcoins in 2023, a 210% jump from 2022. At the end of March, it held 17,381 Bitcoins within its $1.6 billion in total Bitcoin and cash holdings.
Marathon's mining operations in North Dakota were affected by adverse weather conditions in the first quarter of 2024. But it plans to resolve those issues by shifting some of its miners from North Dakota to Texas and energizing thousands of new miners. After making those changes, it expects its operating fleet grow to 235,000 miners with a total production capacity of 29.8 exahashes per second (EH/s) this year. By comparison, Marathon's closest competitor, Riot Platforms, ended March with 112,944 miners, a production capacity of 8.6 EH/s, and only 8,490 Bitcoins on its balance sheet.
Marathon's lead over Riot should widen as it opens new plants, acquires smaller miners, and expands its new mining joint venture in Abu Dhabi. It's also periodically selling its own Bitcoin to raise more cash and support those expansion plans.
Analysts expect Marathon's revenue to grow at a compound annual growth rate (CAGR) of 35% from 2023 to 2026. They expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at a slower CAGR of 1% as it ramps up its spending to scale up its business, but its stock still looks reasonably valued at 6 times this year's sales and 13 times its adjusted EBITDA.
2. Coinbase Global
Coinbase is one of the world's largest cryptocurrency exchanges. It held $101 billion in assets under custody at the end of 2023, and it was chosen as the custodian for eight of the 11 new Bitcoin spot price ETFs that went public earlier this year. It also flourished as many of its industry peers collapsed.
Coinbase's total trading volume declined 44% in 2023, but it still improved sequentially in the third and fourth quarters as the crypto market warmed up again. It's also been generating more of its trading revenue from the Tether stablecoin -- which accounted for 11% of its trading volume in 2023 -- and that shift could reduce its long-term dependence on Bitcoin, Ethereum, and its other more volatile crypto assets.
From 2023 to 2026, analysts expect Coinbase's revenue to grow at a CAGR of 21% as its adjusted EBITDA increases at a CAGR of 40%. Based on those estimates, its stock trades at 10 times this year's sales and 24 times its adjusted EBITDA.
Coinbase's stock isn't a screaming bargain yet, but it could still have plenty of room to run as the cryptocurrency market expands. That's why Ark Invest's Cathie Wood -- who believes Bitcoin's price can hit $1.5 million within the next three years -- holds Coinbase as a top holding across several of Ark Invest's most popular ETFs. If you believe cryptocurrencies will gain more attention from retail and institutional investors, you should follow Ark's lead and pick up a few shares of Coinbase.
