Crypto stocks and how to invest in them
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Is the crypto crash an opportunity or a red flag?
Published
September 4, 2024
As of this March, there were 18,465 cryptocurrencies. Compare that to the 2,009 listed companies on the London Stock Exchange (LSE), and you’re looking at a much deeper pool.
The big reason behind this is regulation. While the UK stock exchange is a regulated market, the world of crypto is not. There’s essentially no barrier to entry for new cryptocurrencies to become investable assets.
Regulation is the biggest difference between cryptocurrency and cryptocurrency stocks.
There is no central authority controlling the supply of cryptocurrency. And any transaction using the blockchain can be done without third-party involvement.
Anyone can create a cryptocurrency. The only commitment required of a crypto creator is a fair bit of time, and perhaps a bit of money.
Publicly traded companies, on the other hand, live in a different world. They’re regulated entities which have to apply to a stock market for admission to trade.
In the UK for instance, companies have to go through a few stages to list on the LSE Main Market. A biggie is issuing a prospectus, which is a document chock full of information about the company and its finances.
If a company is accepted onto the Main Market, the rules don’t stop and they’ll need to keep complying with a whole host of criteria. They’ll also need to issue continual updates for shareholders, either on a quarterly or semi-annual basis.
No cryptocurrency has any obligation to provide you, the investor, with any information whatsoever. And frankly, given the currencies don’t generate money per se, there wouldn’t be too much to share aside from changes in supply or demand.
That’s something to be hyper vigilant of as an investor. And also, the fact that if a crypto trading platform goes out of business, you won’t be able to recover your funds.
Investing in a crypto stock isn’t a hedged investment in crypto. While the price of a cryptocurrency is impacted by the supply and demand of the coin, the share price of a crypto miner is impacted by plenty more factors.
Cryptocurrency held in an account isn’t protected by a government or legislative body. If your crypto wallet gets hacked, the UK government won’t step in to lend a helping hand. This is one major difference between crypto and stocks.
If you bought shares in a company that went into administration, you may be entitled to any money given to shareholders in the administration process.
And if your stock broker goes insolvent, your assets would either be returned to you as cash or transferred to another broker. The Financial Services Compensation Scheme (FSCS) covers investments up to £85,000 per person, per firm.
Something else to note is that crypto invites speculation when it isn’t being used as a currency. But stocks represent real companies with earnings, revenue, and hopefully profits. All of which can be quantified and tied to the economic cycle. That means they’re worthy of analysis, you’re not just reading tea leaves.
There might be a place for alternative assets like crypto in your portfolio, or your desired risk and return level might mean there’s not. They definitely aren’t one and the same, and crypto commands a lot more risk appetite.
That’s really important to emphasise here.
Like all of our investment decisions, this question is personal. But it’s not an apples to apples comparison when it comes to the two.
You can think of an investment in crypto similarly to one in commodities. We’re not calling crypto a commodity, we’re just saying investors might be interested in holding it since it’s an alternative to stocks, Investors hold alternative assets, like gold, because they are different to stocks. Not because they’re the same.
An investment in crypto will give you exposure to the price of a cryptocurrency, nothing more nothing less. A crypto stock, let’s say a crypto miner or platform, is a business.
So while crypto stocks are of course connected to the price and success of a cryptocurrency, other factors will impact the firm’s performance too.
Because of their regulated nature, exchange-listed crypto stocks can offer investors more protection if things go awry. But there is currently no protection for cryptocurrencies in the UK.
Understanding the different risks is vital to your decision of whether investing in crypto, crypto stocks, other stocks, or nothing at all is right for you.
Remember to always do your own research. Never take someone’s word for a “great investment” they heard about at the pub. Look into the company yourself - there’s no such thing as gathering too much information before you make a decision, especially when it comes to higher-risk growth sectors like crypto.
The key thing to keep in mind when investing in cryptocurrency stocks is that you don’t just need to consider the price of cryptocurrency, you need to think about the business underneath too.
There are several categories of stocks that are linked to cryptocurrencies in one way or another. Some of the most popular ones have hit the headlines, but plenty of other firms are involved in crypto-related technologies.
FedEx, the world’s biggest logistics management company, uses blockchain technology to plan and track shipments. Microsoft has been accepting bitcoin payments since 2014 and has a ton of blockchain-related patents to its name.
These categories are anything but exhaustive. And if you’re looking for exposure to crypto or blockchain technologies, remember there are tons of other ways to do so. The point is that it’s worth looking at your portfolio to see if you actually have some already without even knowing it.
The following list of cryptocurrency stocks is not a recommendation to buy or sell any of the assets named. It’s simply a list of stocks that can offer investors exposure to cryptocurrency, without buying or selling crypto directly.
It’s not a suggestion of the ‘top cryptocurrency stocks to buy in 2021’, or 2022 for that matter, but is instead a wrap-up of some of the most popular cryptocurrency investments on the Freetrade app last year.
It’s worth remembering that many of these stocks are new to the market or rose to a much greater level of awareness over the pandemic. Crypto’s a pretty young investable asset though, so while some of them might be the flavour of the month, the proof will be in how long they keep that popularity going.
If you’re comfortable with the level of risk involved when investing in a smaller company (many of the stocks below are found on the LSE’s AIM index), these might be some up-and-coming crypto stocks to keep an eye on.
Before we get stuck into the ways of investing in crypto stocks, it’s important to highlight that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk and time horizon, should inform the mix of assets in your portfolio.
Our resource hub for investing in the stock market might be able to help make that blend a bit clearer for you and our guide on how to invest in stocks is a great start for first-time investors. And if you are still unsure of how to pick investments, speak to a qualified financial advisor.
Crypto mining is a costly endeavour. That means companies engaging in mass-scale mining are taking on major capital investments to do so. Mining and computing machinery, cooling equipment and electricity are just a few of the big ticket items.
Production costs for crypto miners are around $34,000 for one bitcoin, according to Coin Telegraph.
That means these companies have a lot to lose if the price of cryptocurrency crashes. They might not be able to sell their coins at a profit, and they’ll also be left with swaths of expensive equipment, massive warehouses and exorbitant power bills to pay off.
This is exactly the same as gold miners, who just switch everything off if the price of gold falls below their profit levels.
Cryptocurrency miners are also competing with one another for every ‘block’ from the blockchain. The first miner to solve the complex maths problem needed to earn that block wins. They get the next block of the blockchain, which is then closed off. That part of the chain is secured, and it’s onto the next.
The more crypto miners that enter the space, the more competitive this process will become.
Crypto mining stocks are usually the first to come to mind when thinking about publicly traded crypto companies. After all, they’re the ones producing bitcoin and other mined currencies, so their revenues are closely linked to the ever-changing price of the asset they’re mining.
BIT Mining is a cryptocurrency mining company. In Q1, the firm produced 166 bitcoins from its mining machines.
It’s been a bit of a tough time for BIT, with the miner having to exit China after the country banned cryptocurrency mining in 2021. That, coupled with this year’s price fall for bitcoin led first quarter revenue to plummet 42.7% to $272.3m.
While that’s still above the firm’s Q1 2021 revenue of just $2.6m, a sustained decrease in bitcoin’s price would likely be bad news for BIT.
If the price continues to drop, BIT will have to keep impairing the value of the cryptocurrencies it holds. That’s because the crypto is essentially in its inventory, so if it becomes worth less than BIT had initially hoped, they have to account for those changes. And it already had to pare back those values this quarter, slashing $7.7m from its inventory.
So while BIT is a proxy for directly investing in cryptocurrencies (and bitcoin specifically), that doesn’t mean it’s a hedged way of dipping your toe into crypto.
If anything, even though you don’t hold the cryptocurrency, BIT does and you’re betting on the firm’s ability to weather fluctuating prices in the hopes you’ll benefit too.
Ebang is a blockchain computing company with ASIC chip-designing facilities. Basically, that means it’s a bitcoin mining producer that also earns money off the hardware it sells.
Total 2021 revenues were $51.5m, which was a 170.7% increase on the year before. But Ebang didn’t shy away from the fact that this rise was primarily due to bitcoin’s price moves attracting a lot of new miners and investors to the market.
This year’s been different, with fewer inflows into crypto and a lot more outflows.
If this trend persists, Ebang will likely see its sales volumes fall, as lower prices make it more challenging to earn a wide profit margin from mining operations.
In its first quarter of 2022, Riot Blockchain produced 1,405 bitcoin and increased revenue by 244% to $79.8m.
Thanks to a 67% profit margin on mining revenues, Riot grew profits nearly five-fold up to $35.6m. Wide margins have been key to the firm’s ability to maintain profits during a period when the price of bitcoin dropped significantly.
Riot’s been able to grow revenue through its consistent expansion strategy. The firm is expecting to complete a 240,000 sq. ft. (read: just over three football pitches) mining centre by the end of next quarter. And then it’ll start building its next plant, which will be around the size of six Buckingham Palaces.
Even though the firm has managed some explosive growth over the year, it took on significant extra costs and stock-based compensation for staff. And it’s anything but immune to changes in the coin’s price, so a sustained drop in bitcoin’s value will make it harder to recoup those costs any time soon.
Cryptocurrency stocks don’t all mine the cryptocurrency themselves. Many offer ancillary services, be it blockchain research or consultancy services. That makes them a bit further removed from bitcoin itself, but their success undoubtedly remains tied to the coins.
Online Blockchain is an AIM-listed company focussed on blockchain research and development. It’s also an incubator for other cryptocurrency startups.
That means the firm comes with even more risk than other listed blockchain stocks might, given it’s reliant upon startups (which aren’t publicly traded) to successfully bring blockchain-related technologies to market.
The firm’s 2021 revenue was £65,000, with an operating loss of nearly six times that at £425,000.
Online Blockchain’s revenue streams are varied and stretch from developing a local cryptocurrency for Brazil to creating a crypto advertising platform. The firm doesn’t break down what it makes from its separate endeavours, which makes it challenging (to say the least) to gauge just how successful each project’s revenues are.
Without much clarity on plans to bring that revenue figure up, investors have got increasingly skittish, and the firm’s share price has been plummeting nearly all year.
Argo Blockchain is a UK-based business listed on the LSE and NASDAQ. In its first quarter, Argo’s revenue grew 291% to £74.2m, with a mining margin of 84%. That puts it firmly above Riot’s margin, but the fact is, how it managed those margins was largely out of its control.
The firm mined 1,831 BTC in its 2021 financial year. Its margin depends on the cost to mine bitcoin (mostly the price of machinery and electricity) and selling the crypto when the price is high.
Theoretically, the more a bitcoin miner can produce out of one facility, the more it can spread those costs around. So when a miner can achieve scale, their mining margin should benefit.
But at the end of the day, crypto miners are price takers as opposed to setters. They can try and impact the price by holding back bitcoin or selling when it’s increasing, but that margin will always be at the whim of whatever the market dictates the price to be.
A crypto penny stock is likely to be a higher-risk investment than other crypto stocks because its low price point usually renders it less liquid. Typically, that means fewer investors are willing to buy and sell these shares, so they can be harder to sell at a price you’d like.
Don’t be tempted by the penny price tag alone. Prioritising the price of a stock above everything else could lead to mistakes in your decision-making because price means nothing in isolation. And ultimately, making decisions without sufficient data will likely mean you take on much higher risk than needed.
Bit Digital is a NASDAQ-listed penny stock. Last year it produced 2,065.3 bitcoin and earned $96.1m in digital asset mining revenues, a 355% increase on 2021. The firm also managed to pull itself out of a loss and into profitability, going from a $1.8m deficit to a $4.9m profit.
While that’s impressive growth, remember that penny stocks tend to be much more volatile than larger companies’ share prices. While Bit Digital is now hovering around penny stock territory, just because the stock is cheap doesn’t mean it’s a deal. So it’s crucial to understand the added risk of investing in penny stocks if you are considering adding them to your portfolio.
And while Bit Digital, similarly to the other crypto miners we’ve seen so far, had a good 2021, this year’s been much more erratic.
Bit’s had a few other hurdles to jump too. It was heavily involved in Chinese mining operations, which the country has since banned. But, Bit Digital is still subject to legacy legal and operational risks from having previously been a China-based company.
This is an added risk to consider when investing in any miners that have now been pushed out of the nation. In its latest earnings report, Bit noted it “may not be able to sustain profitability” as a result of shifting operations from China to the US.
Ah, yet another bitcoin miner in the mix. Core Scientific’s self-mining bitcoin production grew by 1,454% to 3,202 bitcoins in 2021. That puts the firm as the top bitcoin producer of all the miners listed here. In total, it earned 1,281% more from digital asset mining in 2021, reaching $133m in revenues.
In addition to mining, the firm sells crypto mining equipment, but these sales dropped by 18% to $26.3m for the year.
Interestingly, it’s also involved in mining hosting, which means other miners pay Core Scientific a rental fee to use its infrastructure and electricity. Hosting revenues increased 162% to $33.2m, reflecting hoards of new entrants flying into crypto mining last year.
So while Core Scientific has more business streams than most of the other firms listed here, they’re all clearly linked to the price and success of cryptocurrencies. And so far this year, Core Scientific’s share price has plummeted in what looks to be a response to the sustained falling price of many cryptocurrencies. It’s now a penny stock, after IPOing at $10 in 2021.
QBT is a UK blockchain penny stock.
The firm invests in blockchain and cryptocurrency startups. It also has in-house R&D aimed at innovating new mining technologies.
QBT was one of the AIM market’s biggest risers last year as its share price rose 485.7%. The major movements were in response to two announcements.
In February 2021, QBT completed two capital raises to increase the computing power in its crypto data centre.
Then in October, it filed a patent for Bitcoin mining technology that optimises the process by eliminating any redundant computation. That makes the mining process faster, and the firm plans to use the technology for its own mining use.
Unfortunately, investors may have gone a bit too gung-ho on the headlines.
The firm hasn’t yet reported its full year 2021 earnings, but for the first half of the year, it reported €6,000 in revenue. Meanwhile, its administrative expenses were €720,000.
Looks like it’ll be a while yet until QBT’s investments in fellow crypto companies reap profits, and until it monetises its patented technologies.
Past performance is not a reliable indicator of future returns.
Source: FE, as at 9 June 2022. Basis: bid-bid in local currency terms with income reinvested.
Crypto gaming stocks tend to leverage crypto for in-app capabilities, such as buying add-on features or skins. Some of these firms also operate on the blockchain too and are developing NFTs.
Roblox, the online gaming platform, hit over 47m daily active users last year. Concerns over its ability to sustain and grow that figure in a post-lockdown 2022 seem valid, but the firm leverages user-created worlds and games.
Reliance on its own community, rather than internally hired developers, means that revenue growth from users is organic and likely cheaper.
As for the firm’s connection to crypto, it’s a somewhat tenuous link. There are musings the firm will create its own cryptocurrency which can be used in its digital worlds. It’s unclear how its cryptocurrency would differ from Robux though, the firm’s existing in-app currency which lets users buy upgrades and add-ons for their avatars.
Then there’s chipmaker Nvidia, which recently made its virtual world simulation platform free to creators. Its Omniverse software is a metaverse for engineers, enabling them to create their own virtual worlds.
Similarly to Roblox, there’s potential for a snowball effect to take place. When customers and users generate their own metaverses, it adds to the legitimacy and popularity of these digital worlds in general.
As for its link to crypto, Nvidia just settled a $5.5m lawsuit with the SEC for failing to inform investors of how integral crypto mining was to its 2018 revenues. The firm had a huge boost from crypto miners buying its graphic cards that year, which were used to mine Ethereum.
Nvidia failed to disclose this to investors, who believed the sales growth was arising from its usual customers, mostly tech and gaming companies.
In short, Nvidia directly benefited from miners’ rising demand for its chips. Though it’s not as though demand for chips was in a lull prior to the crypto boom. Chip demand’s been sky high for years, with just about anything from portable electronics to EVs requiring the tech to function.
So if the crypto sector cooled down, Nvidia would lose some customers, but the demand taps wouldn’t turn off altogether. That makes it a bit less exposed to changes in crypto price than some of the other firms listed here.
While ETFs tend to invest in a diversified group of stocks based on the sector, industry or country they purport to represent, it’s crucial you look beyond whatever it says on the tin.
For example, the Invesco CoinShares Global Blockchain UCITS ETF doesn’t include any of the firms discussed so far. Many of the ETF’s holdings are actually over-the-counter (OTC) stocks, which are much more volatile than Main Market listings.
Source: Top 10 holdings of Invesco CoinShares Global Blockchain ETF (BCHS) as of 13 June 2022.
Most of its holdings are also Japanese companies, which means the geographical spread of the ETF’s portfolio is quite concentrated. And although many of these firms have links to crypto and blockchain, for most of them, it’s far from their main revenue source.
For instance, Monex Group’s biggest segment is its online securities trading platform. And most of Aker’s investments are focused on oil and gas as opposed to bitcoin.
If you’re wondering what your ETF holds, a quick glance at its factsheet can tell you everything you need to know. From then, you can decide whether it suits the investment objectives you have in mind.
Here’s a recap of the stocks we covered. Remember, it’s not a recommendation or suggestion to buy or sell any of the securities mentioned.
These are just some of the most popular shares bought by Freetrade’s users. The list is only a selection of crypto stocks trading on a number of different international exchanges.
Before you consider investing in crypto stocks, you need to decide whether the high volatility and risk involved are suitable for you and your investment needs. You’ll need to be comfortable with a greater likelihood that the value of your investment could go down.
If you’re financially able to, and have the risk tolerance to take on a heightened level of uncertainty, then perhaps some of these crypto stocks could be a fit for your portfolio.
If you decide to invest in these shares, you can invest in cryptocurrency stocks in the same way as you’d invest in other publicly traded companies.
We also have tons of other resources on how to buy stocks and shares.
Remember that when you invest in companies investing in crypto, you’re really investing in the success of digital currencies. While these firms generate revenue (or at least, that’s their aim) it doesn’t make them inherently less risky than investing directly in crypto.
An investment in crypto stocks requires more than a belief bitcoin or another crypto will become an increasingly common payment method.
Movements in fiat currencies are often largely unexplainable. That makes it hard to know how they’ll ebb and flow.
So when it comes to investing in crypto stocks, you’ll need to buy into the idea that people are getting better at predicting price movements. But people aren’t exactly great with forecasts at the best of times, and crypto stocks are no exception.
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