The world’s most popular cryptocurrency, bitcoin, quadrupled in 2020. The year 2021 continues to impress investors as this blockchain technology-backed cryptocurrency rose as much as 6% to $35,842, breaking above the previous high of $34,792 witnessed on Jan 3. Notably, the surge has come after the digital coin declined as much as 17% on Jan 4. It is worth mentioning here that the price of bitcoin crossed the $20,000 mark for the first time on Dec 16.
Considering the craze among investors, let’s look at the factors fueling the bitcoin rally.
Bitcoins Getting Popular Among Institutional Investors
Millions of funds coming from institutional investors like big corporations and hedge fund managers are piling into bitcoins. The foray of these large players into the crypto market has created a belief that these currencies might soon become the mainstream payment method, per The Guardian article.
PayPal Holdings Inc ( PYPL Quick Quote PYPL - Free Report) has reportedly purchased about 70% of new bitcoins in circulation after recently introducing a crypto trading service on its platform thatallows customers to trade up to $20,000 a week, according to a Cointelegraph article. According to Pantera Capital, a crypto investment firm, PayPal’s entry has resulted in shortage of bitcoin supplies and hence, the price surge (per the same Cointelegraph article). Square ( SQ Quick Quote SQ - Free Report) has also bought $50 million in bitcoin last October as part of a larger investment in cryptocurrency. In fact, according to Pantera, all of the newly-issued bitcoin are being purchased by PayPal and Cash App (per the Cointelegraph article). MicroStrategy, another public company, recently revealed that it has invested entire $650 million of its debt issuance into 29,646 more bitcoin, per the sources. It now has 70,470 bitcoins worth more than $1.596 billion in its treasury reserve, per a YahooFinance article.
Guggenheim Investments has filed to reserve the right to invest as much as 10% of its $5.3 billion Macro Opportunities Fund in the Grayscale Bitcoin Trust, which invests only in bitcoin, per a Bloomberg article.
American Express ( AXP Quick Quote AXP - Free Report) invested in crypto trading platform FalconX. Notably, FalconX allows institutional clients with access to cryptocurrency markets through a single platform for trading, credit and clearing. Sluggishness in US Dollar
The coronavirus pandemic has caused weakness in the world’s largest reserve currency, U.S. dollar, and other major currencies. This weakness has resulted in a quest for alternative currencies among investors for protection against inflation, per The Guardian article. Considering the current situation, when the U.S. economy is expected to recover on pillars like the Fed’s support, another round of fiscal stimulus and coronavirus vaccine rollout, the dollar is expected to remain weak and cryptocurrencies are likely to take the spotlight.
Are Bitcoins Taking Over as ‘Digital Gold’?
According to The Guardian report, bitcoin is generally seen as an alternative to the traditional safe-haven investment — gold. Some analysts also expect to see tough competition between both assets in 2021. Commenting on it, Paolo Ardoino, the chief technology officer of the crypto exchange Bitfinex, has said that “while a growing institutional presence has been part of the narrative of the current bull run, we may see increased retail interest in bitcoin as a form of digital gold,” per The Guardian article.
Fintech ETFs & Stocks to Shine Bright
Although the cryptocurrency market is highly volatile, it seems that the prices are likely to remain high. In this regard, Scott Minerd of Guggenheim Investments has said that “our fundamental work shows that Bitcoin should be worth about $400,000. It’s based on the scarcity and relative valuation such as things like gold as a percentage of GDP. So you know, Bitcoin actually has a lot of the attributes of gold and at the same time has an unusual value in terms of transactions,” per a Bloomberg article.
The growing participation of traditional investment banks and fintech firms with an aim to add cryptocurrency to their products is creating investment opportunities. Thus, we are highlighting three fintech ETFs & stocks that are likely to gain from the impressive bitcoin resurgence:
ARK Fintech Innovation ETF ( ARKF Quick Quote ARKF - Free Report) — up 102.9% over the past year
It is an actively-managed ETF that seeks long-term growth of capital. The fund provides exposure to fintech innovations like mobile payments, digital wallets, peer-to-peer lending, blockchain technology, and risk transformation. With AUM of $1.96 billion, it charges an expense ratio of 75 basis points (bps). Moreover, Square and PayPal occupy positions in the top 10 holdings within the fund (read:
6 Best Active ETFs of 2020). Global X FinTech ETF ( FINX Quick Quote FINX - Free Report) — up 51.2%
The fund seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. It has AUM of $1.03 billion and charges 68 bps in fees. Square and PayPal once again occupy spots in the top 10 holdings within the fund (read:
PayPal Q3 Earnings Impress Investors: ETFs to Win). ETFMG Prime Mobile Payments ETF ( IPAY Quick Quote IPAY - Free Report) — up 31.5%
The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Prime Mobile Payments Index. The index provides a benchmark for investors interested in tracking the mobile and electronic payments industry, particularly focusing on credit card networks, payment infrastructure and software services, payment processing services, and payment solutions (such as smartcards, prepaid cards, virtual wallets). With AUM of $1.05 billion, it charges an expense ratio of 75 bps. Square, PayPal and Visa occupy spots in the top 10 holdings within the fund (read:
6 ETFs to Consider as Thanksgiving Week Begins).
As mentioned above, here are the popular fintech stocks that we would like to discuss:
PayPal is a major bitcoin-related stock that deserves our attention. This leader in digital payment processes helps merchants accept crypto payments via partnerships with three major bitcoin payment processors — BitPay, GoCoin and Coinbase. Further, the company recently launched a platform that enables its customers to buy, hold and sell cryptocurrency directly from their PayPal account. Notably, this Zacks Rank #3 (Hold) company announced intentions to enable cryptocurrency as a funding source across its 26 million merchants worldwide. Its crypto trading platform is expected to be introduced globally in early 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Square announced plans to foray into the cryptocurrency market at the end of 2017. It ventured into it in 2018 by facilitating the buying and selling of bitcoins via its Cash App. Since then, bitcoin trading has been boosting the company’s user base.
Notably, bitcoin revenues have stood out as the major driving factor for Square’s top-line growth. The company generated revenues of $1.63 billion from bitcoins, up significantly from $148.3 million in the third quarter of 2020. Square continued to benefit from the bitcoin space, driven by the increasing uptake of Cash App.
Going on, the company’s latest investment of $50 million to purchase 4,709 bitcoins deserves a special mention. This Zacks Rank #3 stock is expected to keep gaining from solid demand and growth in bitcoin activities.
Visa Inc. ( V Quick Quote V - Free Report) is expected to gain from growing presence in the cryptocurrency space, largely on the back of constant partnerships and technological upgrades. To bolster its presence in the cryptocurrency market, Visa has been collaborating with cryptocurrency firms for allowing increased usage of digital currencies in day-to-day life by customers in its existing global network along with paving the way for hassle-free conversion of crypto into fiat currency. Case in point, Simplex has been made the principal member of Visa recently. Per the partnership, Simplex, which boasts a partner network comprising leading crypto exchanges and wallets, is allowed to offer Visa debit cards across Europe.
This Zacks Rank #3 stock, with more than 25 digital currency wallets linked to its systems along with a blockchain-based system, holds immense potential to strengthen its position in the digital currency space.
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