As of late January 11, bitcoin was off 7% over the past week, and when the largest digital currency falters, other assets often follow suit.
Those include other cryptocurrencies as well as equities that are viewed as crypto-correlated. The upside of that downside is that there might be some value to be had among crypto equities, a group known much more for growth than value. One way of embracing the new value available among crypto equities while avoiding stock picking is the VanEck Digital Transformation ETF (DAPP).
DAPP follows the MVIS Global Digital Assets Equity Index, which is a mix of companies with exposure to emerging digital economies. Among DAPP’s 25 holdings are several bitcoin miners, a group that’s been punished by the cryptocurrency’s recent declines.
“Bitcoin miners, which process transactions on the network and receive Bitcoin as payment, have also been hammered, falling more than 40% since last November,” reports Daren Fonda for Barron’s. “But the major miners have raised capital and added capacity to capture more of the network’s ‘hash rate,’ or overall computing power. Miners with more hashing capacity could, in theory, capture more of the Bitcoins doled out as payments for validating transaction blocks on the network.”
Among DAPP’s bitcoin miner holdings are Marathon Digital Holdings (MARA) and Riot Blockchain (RIOT). Those are the ETF’s fifth- and sixth-largest holdings, respectively, combining for 11% of its weight. In an interview with Barron’s, D.A. Davidson analyst Christopher Brendler speaks bullishly on those names.
“These companies have their growth paid for and funded in 2022, and they have a lot of Bitcoin on their balance sheet, so they’re very cheap stocks on an earnings and enterprise value to Ebitda basis,” Brendler said.
Coinbase Global (NASDAQ:COIN) is another crypto-correlated stock that analysts like. The operator of the largest digital assets exchange is DAPP’s biggest component at a weight of nearly 9%. Some analysts are encouraged by Coinbase’s efforts to diversify its revenue stream and reduce dependence on crypto trading volumes and transaction fees.
“Use-cases for crypto markets will continue to grow and new projects and tokens with more and different use cases will surface,” said JPMorgan analyst Kenneth Worthington in a report cited by Barron’s. “With these projects attached to tokens and Coinbase a leading exchange to buy and sell tokens, we see Coinbase as a leading direct beneficiary of crypto market growth.”
For more news, information, and strategy, visit the Crypto Channel.