This might seem as the most inappropriate time to talk about crypto stocks. Investor confidence has plunged with the collapse of FTX (FTT-USD). Bitcoin (BTC-USD) has now consolidated well below the $20,000 level. This fact alone signals just how impactful the bankruptcy of FTX has been for the sector, triggering yet another leg downward for most digital assets.
Amidst these events, regulators are likely to be increasingly concerned about investor protections. It’s likely that we’ll see a stricter regulatory framework in place for decentralized assets. Accordingly, as this bloodbath rages on, it may be best to focus on crypto stocks rather than cryptocurrencies.
Well, one reason is that crypto stocks already have regulatory oversight. Furthermore, deep corrections present buying opportunities for investors who believe that this sector will emerge from this crisis.
In any case, it’s not a good idea to go overboard on cryptocurrencies. Some (small) high-risk exposure can be considered. On any potential sentiment reversal, quality crypto stocks can deliver multibagger returns.
Let’s talk about three crypto stocks to buy amidst the doom and gloom right now.
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The collapse of FTX is good and bad news for Coinbase (NASDAQ:COIN). There will be fear in the immediate future for investors looking at crypto exchanges. That’s likely to result in some amount of downside on the horizon. On the other hand, it seems that few strong exchanges will survive the bear market. These exchanges will bounce back with a higher market share in the coming years.
Coinbase seems positioned to be one such exchange that not only survives this crisis, but finds a way to grow.
It’s important to point out that Coinbase ended Q3 2022 with cash on hand of $5.0 billion. Thus, the company has a strong balance sheet, which should enable it to survive the downturn. Job cuts will also help in stemming the company’s cash burn.
Coinbase has also benefited greatly from institutional adoption of cryptos. The company’s institutional clients continue to swell. In Q3 2022, the crypto exchange partnered with BlackRock. Thus, many expect this partnership to lead to Coinbase becoming among the world’s largest asset management companies, with Coinbase Prime connectivity.
Overall, Coinbase is likely to continue seeing cash burn over the next few quarters. However, the crypto exchange has strong fundamentals. Further, the company continues to invest in platform development, which will help Coinbase in gaining market share, which could result in a surging valuation, once crypto rebounds again.
Marathon Digital (MARA)
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Bitcoin mining stocks have seen some of the deepest corrections during this bear market. The margins these companies produce have shrunk along with the value of digital assets on their balance sheet. Marathon Digital (NASDAQ:MARA) stock is down by 70% year-to-date. However, if there is a reversal in store for Bitcoin, the stock will undoubtedly deliver multi-bagger returns.
Some of the factors that might support long term Bitcoin price appreciation include wider adoption, limited supply, and a halving that’s due in 2024.
Specific to Marathon Digital, the company continues to boost hashing capacity. At the beginning of November, Marathon reported hashing capacity of 7EH/s. The company expects to increase its hash rate to 23EH/s by June 2023. Marathon is therefore positioned for a tripling of capacity in the next few quarters.
Of course, this will start making sense in terms of valuation until the point in time when Bitcoin starts trending higher. That said, Marathon has a strong balance sheet to navigate this phase of uncertainty. The company’s next phase of expansion or diversification is likely to be announced in 2023.
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Block (NYSE:SQ) is one company that has been on a sustained downtrend, bottoming at $51.30 per share. That said, SQ stock is currently more than 40% above its lows. Following this rally, the stock has been upgraded by Macquarie Research, which put a price target of $100 on SQ stock after the company reported strong Q3 2022 numbers.
Even as Block invests in its blockchain expansion, Cash App remains the company’s key profitability driver. For Q3 2022, Cash App’s gross profit was $774 million, 51% higher on a year-over-year basis. Bitcoin revenue for the same period was $1.76 billion, with a gross profit of only $37 million.
It’s worth noting that the company rebranded itself from Square to Block in 2021, due to the company’s focus on building “decentralized financial services” using Bitcoin. With wider application of blockchain technology, there seems to be ample headroom for growth in the new business.
Recently, it was also reported that Jack Dorsey is building “web5” that will be powered by Bitcoin. Web5 will allow “developers to create decentralized web apps via DIDs and decentralized nodes.” How this ultimately turns out remains to be seen. However, Block is one company that’s worth keeping on the buy list right now.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.