Marathon Digital, Coinbase, MicroStrategy and the Grayscale Bitcoin Trust skyrocketed over 300% in 2023, and bitcoin's increase was only a bit more than 150%. For the year, they were the highest performing stocks on the American market. Last week, in a conversation, Marathon's CEO Fred Thiel commented on the plummet of the market during 2022, "It unquestionably was a tough phase."
Crypto bulls found the stock market to be the most lucrative place for their investments in 2023. The value of Bitcoin rose by over 150%, while Coinbase, MicroStrategy, and the Grayscale Bitcoin Trust, which are all related to the digital currency, saw considerably greater growth with each one's value skyrocketing by more than 300%. This impressive growth even took stocks associated with Bitcoin mining companies such as Marathon Digital to heights of 688%. Such stocks were some of the top performers of the whole US market, with Bitcoin-related stocks being the eight best performing businesses in the US with a market value of at least $5 billion, according to FactSet. This comes in contrast to the crypto market's performance back in 2022 when prices dropped and stocks suffered too. This was evidenced by the bankruptcy of crypto exchange FTX in November 2022, which resulted in founder Sam Bankman-Fried's arrest after fraud charges were brought up against him. After a jury in New York convicted Bankman-Fried of criminal counts, the CEO of crypto exchange Binance, Changpeng Zhao, pleaded guilty and left the company after a $4.3 billion settlement with the Department of Justice. The damage had already been done in the crypto market, and investors looked to the future. This helped contribute to the federal reserve's relaxation of interest rate hikes, making risky assets more attractive. The upcoming Bitcoin halving in May 2024 was a further impetus for prices, as this process caps the supply of Bitcoin. In addition, the hope of a number of bitcoin ETFs was a major cause of this 'mania' that is currently driving crypto stocks, according to Michael Novogratz in a recent interview with CNBC's "Squawk Box".
Bitcoin’s current price has surged to $42,683, a great success for those who invested at the start of the year, when it was about $16,500. Nevertheless, it is still 38% lower than its peak of almost $69,000 in November 2021. Marathon, a mining firm with a market capitalization of over $5 billion, has had the best performance this year on stocks associated with bitcoin, with its share value appreciating by 125% in December.However, in the same period last year, Marathon was close to insolvency. Its quarterly losses in 2021 added up to around $400 million, with sales of just $28.4 million due to dropping bitcoin values, a power outage in its Montana facility, and its financial ties to the now bankrupt Compute North.Fred Thiel, Marathon's CEO, said in a recent interview that it was a "pretty dire" situation. As Bitcoin mining requires a lot of energy, a decrease in the cryptocurrency’s worth cuts into the income from coin sales, without any ease on energy bills. Nevertheless, Marathon maintained its position through equity sales, and only had a convertible note as their debt.The company’s outlook has been vastly improved recently. Last month, it reported a third-quarter net income of $64.1 million, while revenue increased year-on-year to $97.8 million. Subsequently, Marathon has begun to expand, acquiring two mining sites in Texas and Nebraska for $178.6 million, which gave it a 56% increase in capacity.According to Thiel, this will benefit them financially, as they will be able to control the process and save on profit margins. He also has goals to reduce the mining sector to 50% of their income by 2028, with the rest to be made from energy harvesting, in which methane gas is converted into saleable electricity.
Outside of the crypto mining sector, the most successful U.S.-based crypto stock this year has been Coinbase, whose market rate surged a whopping 386% as of Tuesday's close. Although Coinbase was already popular for buying and trading virtual currencies in its homeland, its gaining more market share via overseas trading due to the struggles of Binance, currently the largest exchange globally, according to a report from Kaiko at the end of November.The recent court ruling of Binance's CEO Zhao was seen as an affirmation of Coinbase's method of putting the focus on regulatory compliance and creating a reliable company according to Coinbase's CEO Brian Armstrong.Nevertheless, Coinbase's revenue and stock cost is still much lower than the excitement that came with the influx of crypto buying from retail investors, including the Dogecoin gimmick, at the start of the year. There have been various cost-cutting procedures since the beginning of 2023 to stabilise the organisation which achieved some success.Coinbase's financial sources are not all dependent on bitcoin either, with 37% of transaction returns from bitcoin, 18% from Ethereum, and the remainder from alternative cryptocurrencies, as well as combined incomes and stablecoin revenue (earned through USDC deposits) more than doubling in the recent quarter to reach $212 million, benefitting from higher interest rates.In addition, transaction revenue comprises less than half of Coinbase's total revenue, diverging from 96% at the time of the company's 2021 IPO. Armstrong mentioned in an interview last week with CNBC that "we made a big effort when we went public to begin diversifying our income. Now we have several financial sources, some of which are bolstered by a high-interest rate scenario, and some which are supported by a low-interest rate environment. This has enabled our revenue to become more foreseeable."
The Grayscale Bitcoin Trust is among the top-performing stocks in the crypto sphere, having seen a 330% increase in 2021. When it debuted on in the over-the-counter market back in 2015, GBTC provided investors with a way to access bitcoin without having to actively manage their own transactions. The downside of GBTC being a closed-end fund is that it is not as liquid as an ETF. At one point, its market value was approximately half of its net asset value. As of December 22, its discount had shrunk to 5.6%, the lowest since January of 2021. Its market cap stands at $24.7 billion, while the amount of bitcoin owned is $26.6 billion. The surge in bitcoin prices as well as investor anticipation that it will soon be transformed into an ETF with the resultant liquidity measures is pushing up GBTC's performance. Barry Silbert, CEO of the parent company Digital Currency Group, is resigning from his position as chairman of Grayscale Investments and leaving the board on January 1. Mark Shifke, the DCG's finance head, will be succeeding him. No reason was provided for Silbert's departure.
In November, the SEC held a meeting with Grayscale regarding the launching of bitcoin ETFs, which was subsequently enabled by a court ruling in the latter's favor in August. The development of such funds is also being pursued by several major asset managers, such as BlackRock, Fidelity Investments, and Invesco. Grayscale CEO Michael Sonnenshein told CNBC that the likely approval of these ETFs is likely to bring in more investors, especially from the $30 trillion advisory market which had been previously prohibited from getting involved due to certain legal restrictions. Sonnenshein also expressed optimism for GBTC potentially listing as a spot bitcoin ETF in 2021.
Due to the lack of a readily available ETF, many investors have been drawn to MicroStrategy as a gateway to purchase bitcoin. Established in 1989 as a business intelligence software firm, the bulk of MicroStrategy's worth today comes from the 174,530 bitcoins it held as of the end of November (now valued at $7.4 billion). This has caused its stock to climb 327% in one year, with its market cap now reaching $8.3 billion. Its software and services company earned approximately $130 million in revenue in the 3rd quarter.MicroStrategy declared its plan to invest in bitcoin in the middle of 2020, revealing in an earnings call that it would dedicate $250 million over the next 12 months into "one or more alternative assets", which may include digital currencies such as bitcoin. At the time, its market cap was around $1.1 billion.In the 3rd quarter of 2020, the firm acquired 38,250 bitcoins for a total of $425 million.Phong Le, who was elevated to CEO from CFO in the past year, asserted on the October 2020 earnings call that MicroStrategy's bitcoin investment allowed it to "access the enthusiasm of the wider crypto market", also adding that "we've seen a noteworthy and unexpected advantage from our bitcoin investment in lifting the profile of the company."Since then, MicroStrategy has become noted as a bitcoin proxy. Co-founder and former CEO Michael Saylor, a key ambassador for the cryptocurrency, even co-authored a book about it last year entitled "What is Money?". "The one thing that we can count on is that bitcoin will keep moving forward in the year 2024, and a plan constructed around bitcoin is commonly a safe one for institutions," Saylor remarked in an interview on Dec.18 on CNBC's "Closing Bell". "Education makes a difference. Institutional adoption makes a difference. The spot ETF news is good news. Loosening of monetary policy is good news."
Saylor is also confident in the prospects of a mark-to-market accounting rule set to take effect in 2025 (talking into consideration that companies can choose to adopt it earlier) that alters the approach that companies use to track crypto assets. Rather than classifying them as intangible assets, that must be written off if the appraised value decreases beneath the original purchase price, crypto will be given its own category and recorded according to its current market price. Saylor believes that this new measure provides incentive for companies with abundant amounts of money held on their balance sheets to invest in bitcoin.Although 2020 has been a successful year for those who are bullish on bitcoin, it has not been as favourable for the bears. Data collected by S3 Partners last week reported that short sellers, or investors who wager on a decline in stocks, have lost a combined $6.3 billion on positions against Coinbase, MicroStrategy, and Marathon. During the initial three quarters of this year, the crypto shorts spent a total of approximately $2.19 billion on stocks to diminish their danger.Still, a high level of distrust remains. More than 23% of Marathon's tradable shares are shorted, while MicroStrategy's short interest-to-float ratio is around 21% and Coinbase's is 14%. In contrast, the average for U.S. stocks is 5%, as per S3.
Despite the optimism of enthusiasts like Saylor, risk remains for bitcoin believers. This is a historically volatile market--in 2022, when bitcoin fell by more than 60%, Coinbase, GBTC and MicroStrategy each decreased by at least 74%, while Marathon lost an astounding 90% of its value. There are also still high-profile adversaries to crypto, such as JPMorgan Chase CEO Jamie Dimon, who recently told the Senate Banking Committee that the only use cases for bitcoin are criminals, drug traffickers, money laundering, and tax avoidance. Despite this sentiment, more institutional money has been flowing into bitcoin as an investment vehicle. BTIG analysts even raised their price target on MicroStrategy to $690 from $560, citing improving sentiment and the looming bitcoin halving. Galaxy Digital's Novogratz believes that "broadly we're still in bull market phase," and anticipates that bitcoin will surpass its record high in the coming year, among other respected investors. However, Novogratz warns that with so much enthusiasm from crypto traders, the market could turn and cause a correction.
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