Investors in the financial markets need to understand that interest rates tend to drive most money shifts and activity in asset classes, especially ones with differing risk profiles. When it comes to stocks, most see a bullish sentiment shift when the Federal Reserve (the Fed) decides to cut interest rates such as it did recently, but there is more upside to be had in what most deem as ‘riskier’ alternatives.
One of these spaces is cryptocurrency, specifically led by its benchmark product—or coin—Bitcoin. When there are no yields to be found in stocks or bonds, investors have historically looked to buy Bitcoin as an alternative way to outpace inflation and other assets. This time, new interest rate cuts don’t have to mean investors have to go out and buy Bitcoin, but they could mean they should buy Bitcoin-related stocks instead.
Some of these names include Coinbase Global Inc. (NASDAQ: COIN), a centralized exchange for buying and selling Bitcoin and other cryptocurrencies, which is set to generate fees ahead of the volatility in these markets. Then there is MicroStrategy Inc. (NASDAQ: MSTR) as a Bitcoin holder to see its book value rise on new cryptocurrency demand, the same trend to be amplified (for a bit more risk) in smaller CleanSpark Inc. (NASDAQ: CLSK).
Coinbase Stock Offers Double-Digit Upside for Investors
As the cryptocurrency market has yet to start reflecting the upside and potential rally stemming from interest rate cuts in Bitcoin, stocks like Coinbase have yet to catch up to the rest of the market's bullish price action. Coinbase stock now trades at only 67% of its 52-week high. As a result, offering a big gap to fill to the upside.
Knowing that this business model, the middleman between buyers and sellers of Bitcoin and other cryptocurrencies, will generate new accounts and fees in the latest cycle, Wall Street analysts started sharing their optimistic views. Those at JMP Securities recently reiterated their "Market Outperform" rating for the stock.
This time, analysts also reiterated their $320 price target in Coinbase stock, calling for as much as 62.6% net upside from where the stock trades today and looking to fill the upside gap. Seeing the opportunities ahead, some institutional investors decided to step in and buy before the move was here.
Those at Renaissance Technologies, known for their quantitative strategies, boosted their holdings in Coinbase stock by 185.9% in the past quarter, netting their new position at $236.3 million today.
New Investors Target MicroStrategy's Balance Sheet
As of the company's latest quarterly earnings press release, management reported that MicroStrategy now holds up to 226,500 Bitcoin on its balance sheet at a cost basis of $36,821 per coin. Knowing that the potential new run in Bitcoin, already near its 52-week high, could bring the company's value higher, new buyers have entered the stock.
The average volume for MicroStrategy stock is 16.3 million shares, though it has recently surged to 28 million to, nearly double. Considering the stock now trades at 78% of its 52-week high, this surge in volume could mean that new buyers see potentially higher prices ahead, so they're rushing to get in before the following quarterly earnings announcement.
Following this trend, some Wall Street analysts decided to boost the stock's valuation higher ahead of whatever timeframe brings the new rally into Bitcoin's price and MicroStrategy's book value. Those at Sanford C. Bernstein led the way by reiterating their "Outperform" rating on the company.
To complement their view, a price target of $290 was also suggested, calling for a 41.5% upside from today's price. Broader markets are also contributing to this trend for MicroStrategy stock; at least, that's what investors can deduce from the company's current valuations compared to the rest of the computer sector.
MicroStrategy stock trades at a price-to-book (P/B) ratio of 16.0x today, a significant premium to the computer sector's average valuation of only 7.3x today. A willingness to overpay for this stock speaks to the expected growth in the company's book value, which is the outcome if Bitcoin goes into a new bull run.
CleanSpark's Growing Bitcoin Holdings Could Drive Stock Higher
While not as big as MicroStrategy, CleanSpark’s $2.5 billion market capitalization could see a significant boost if and when Bitcoin’s price surges. This company operates as a Bitcoin miner in the technology sector, actively accumulating Bitcoin and holding it for a later sale at (hopefully) a high enough price to cover all the costs involved with production.
The company’s most recent quarterly earnings press release shows that CleanSpark’s balance sheet holds up to $413 million worth of Bitcoin and mined up to 1,583 new coins during the past quarter.
These holdings, plus the new ones being mined, place CleanSpark on a path to seeing its book value (and stock price) surgeon a new Bitcoin run.
Wall Street analysts know this, and those at Cantor Fitzgerald decided to reiterate their “Overweight” rating on the company as of October 2024. This time, the view came along with a $23 a share price target, daring CleanSpark stock to rally by as much as 113% from where it has fallen to today, which is only 41% of its 52-week high.
