Bitcoin-related stocks perform above average

Companies that participate in the crypto market perform above average. But high price-earnings ratios urge caution.

The stock market is a bitcoin fan. This is how one can summarize a recently published research paper by Goldman Sachs. In the analysis that has just been launched, the bankers scrutinize 19 listed companies with a market capitalization of at least one billion US dollars (USD), which derive a substantial part of their income from the crypto sector. If you use the S & P500 as a benchmark, the “crypto titles” perform above average. More precisely, companies participating in the crypto space have given their investors an average return of 43 percent since the beginning of the year. In contrast, there is a 13 percent increase in the S & P500 average.

Among the crypto-related stocks that Goldman Sachs has studied are names like Marathon Digital Holdings, Inc. (ticker: $ MARA), a leading US mining company based in Las Vegas. Marathon Digital Holdings performed above average even for crypto companies: the mining company gained a whopping 241 percent in 2021 and was trading at 37.64 US dollars by the editorial deadline.

Riot Blockchain, Inc. (ticker: $ RIOT) is also one of the big winners. The share of the New York mining giant is currently quoted at USD 43.93 and has thus been up 166 percent since the beginning of the year. Riot Blockchain is one of the largest mining companies on the North American continent. According to the company, Riot has 13,746 state-of-the-art “next-generation bitcoin mining ASICs” under its wing.

Shares instead of Bitcoin

It comes as no surprise that public companies with a Bitcoin focus are outperforming. After all, the draft horse Bitcoin is pulling an entire industry with its rapid price increase in 2021 and, as of today, has already gained 86 percent in value in 2021.

Institutional investors in particular are looking for indirect ways to participate in the rise of digital gold. Since many funds cannot invest directly in physical BTC due to regulatory hurdles, stocks are increasingly being used as entry-level vehicles. In this context, the course performance of MicroStrategy is also amazing. The business intelligence company decided in summer 2020 to exchange large amounts of its cash reserves for Bitcoin and has since been investing regularly in digital gold. The shareholders of the US company thank the board of directors: In 2020 alone, the share rose by 60 percent.

On the other hand, investments in companies that participate in the Bitcoin price are not without risk. The overperformance compared to the underlying BTC shows that the stocks are sometimes heavily leveraged. Furthermore, corporate earnings do not justify such a strong performance. The PE ratios of the blockchain titles are correspondingly high. Square alone has a price / earnings ratio of 202, which is well above the S&P average of 39.

Investments in crypto companies should therefore be treated with caution.