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Cryptocurrency matters for investment analysis

Introduction

Cryptocurrency or Crypto has dominated the world and has become a major talking point globally after rising in value by 450% in the last six months.

The most popular cryptocurrency, Bitcoin (BTC), has more than doubled since the beginning of 2021 when it reached $20,000 in December 2020 from $7,000 in April 2020. Currently,  Bitcoin is valued at around $60,000 after hitting a record high of $63,000. It has been forecasted by many financial analysts to be worth $100,000 before the end of 2021.

Ethereum (ETH), the second most valuable Cryptocurrency after Bitcoin, has also risen in value, reaching its record high of $2,205.

One of the main reasons why Cryptocurrency grew spontaneously is the fact that it is independent of any governing bodies such as Central Banks (or any other banks) before a transaction is verified. Therefore, such digital currencies serve as a perfect alternative to national currencies (fiat money) because of their decentralized network system, using peer-peer payment network that operates on blockchain technology.

The blockchain technology uses cryptographic protocol system to create new units and protect all the transactions being processed and completed. These units are called blocks, and they link and ensure each Cryptocurrency is safe and secured. The funds are then stored on various computers under a single network, a process referred to as mining (the process of mining ensures Cryptocurrency is validated). A wallet is required to purchase any kind of Cryptocurrency. These wallets can either be software, also called digital wallet in the form of applications such as binance, Luno, blockchain, etc., or hardware  wallets. These wallets are used for recording and verification of all Cryptocurrency transactions. Each digital wallet has long codes that contains long letters and numbers that are difficult or impossible to decipher or hack.

Below is a list of trusted platforms and their links where investors can purchase cryptocurrency from Binance, Coinbase, Block.fi, Gemini, Crypto.com, Etoro, Kraken, Holdlnaut, Luno.

To buy Cryptocurrency:

  • Open an account from any of the brokers mentioned above and verify your identity.
  • Deposit funds from your bank into the Cryptocurrency account opened.
  • Buy any Cryptocurrency using the fund you deposited.
  • The Cryptocurrency you purchased will be stored in your wallet. Every wallet has a specific wallet address. You can transfer and receive Crypto using this wallet address, a process known as peer to peer system.

Emergence of Cryptocurrency

The first Cryptocurrency Bitcoin was invented by a so-called mysterious programmer, Satoshi Nakamoto in 2009, with the aim to build an electronic payment system that will be free of government or financial institutions’ intervention, thus aimed at creating a decentralized network that is independent of central authority or servers.

Early June 2020, a Bloomberg analyst predicted Bitcoin would revisit its record high of $20,000 in 2020. By September 2020, there were around 18.5 million Bitcoins in circulation throughout the world, and the market investment of Bitcoin was approximately $200 billion. Prices for Bitcoin broke above $20,000 on Dec. 16.

The price of Bitcoin increases towards $60,000 in February when news broke out that popular billionaire Elon Musk, CEO of Tesla Inc. and SpaceX announced he had purchased $1.5bn worth of  Bitcoin (0.25 BTC) and said that customers can buy its electric vehicles with Bitcoin. Elon Musk is also known for his popular friendly tweet on Cryptocurrency, most especially Dogecoin (DOGE), which causes the coin to sporadically rise. He said he wanted Coinbase to add Dogecoin (DOGE) services on its peer-to-peer (P2P) Cryptocurrency exchange. When this happens, Coinbase will drive DOGE exposure to institutional investors globally.

Bitcoin jumped to  $58,300 in March 2021, rising by 4.5%, when Visa Inc. (the Stock price of Visa on April 22: SharePrice (“V”,”2021/04/22″) = $227.45) announced it would allow the use of the Cryptocurrency USD Coin to settle transactions on its payment network, this news was well received by investors, who interpreted it as a breakthrough to Bitcoin skepticism. This means that it will be validated as a generally acceptable means of transactions globally. The company told Reuters it had launched the pilot program with payment and crypto platform Crypto.com and plans to offer the option to more partners later this year. MasterCard Inc. (the stock price of MasterCard on April 22: SharePrice (“MA”,”2021/04/22″) = $383.10) and PayPal Inc. (PYPL) have announced support for Cryptocurrency that can enable consumers to buy, hold, and sell with virtual assets.

Covid19 Effects on Cryptocurrency

Before the tragic emergence of COVID-19, the United State’s low interest on its currency, USD, made it the global reserve currency used to peg other national currencies. However, the government and its corporations have accumulated a grievous debt that was too alarming. When the pandemic hit, it caused a lot of panics globally. There was chaos in the U.S. stock market as reacted to the pandemic with a  sharp decline in all NYSE stock prices. The U.S. Federal Reserve (FED), in an attempt to finance United State government emergency-relief packages (Covid-19 relief packages, in the trillions of dollars), via fiscal and monetary stimulus (quantitative easing). Financial institutions and various economists reacted by purchasing more Cryptocurrency and Gold (as a safe haven), knowing fully well that the value of USD will further depreciate. Most financial analysts and celebrities, including the popular financial educator, Robert Kiyosaki, consistently advise investors to buy Cryptocurrency.

Eventually, markets from stocks to bonds began to recover on the expectation that stimulus would be provided in the amounts needed to keep investors from suffering losses deep enough to impair confidence and derail the economic recovery. As national authorities and monetary policymakers kept promising more and more stimulus, Bitcoin’s price went up.

The Cryptocurrency’s performance through it all eventually attracted the notice of big finance players like Black Rock, JPMorgan Chase, Alliance Bernstein, Morgan Stanley and Tudor Investment, which responded by investing billions of dollars in the digital currency

Trillions of dollars of money printing this year by the Federal Reserve and other central banks have galvanized the use of Bitcoin as a  shield against currency depreciation by investors from both Cryptocurrency markets and traditional finance. Cryptocurrency trading was also well-traded in Turkey, as investors seek a safe haven from the country’s economic recession and rising inflation.

The Impact of Government on Cryptocurrency

Cryptocurrencies remain controversial. Many investors and billionaires have voiced out their concerns over the digital asset.

Bill Gates, the former CEO and co-founder of Microsoft (MSFT), warned of investing in Cryptocurrency. In a recent interview with the New York Times, Bill Gate said Bitcoin consumes more electricity per transaction than any other method known to mankind and thus has a serious negative impact on climate.

Many Central Banks and global regulators are also skeptical of the digital currency.

The Bank of England (BOE) warned against the Cryptocurrency  on account of their volatility and vulnerability to theft and hacking. The lack of central authority and regulations is the primary reason governments are afraid of the digital currency.

The U.S. Treasury Secretary Janet Yellen and European Central Bank (ECB) President Christine Lagarde — have also sounded the alarm about the use of Bitcoin for money laundering, terrorist financing and other fraudulent activities.

In India, the government is considering a law that would ban and penalize anyone holding or trading them.

On the 5th of February 2021, the Central Bank of Nigeria (CBN) released a letter addressed to banks and other financial institutions which stated that dealing in Cryptocurrencies and facilitating payment for Cryptocurrency exchanges are prohibited. The CBN further instructed all banks and other financial institutions to identify individuals or entities who transact in Cryptocurrency or operate Cryptocurrency exchanges and close the accounts of such persons or entities.

Recently, Bitcoin fell from $63,000 to $55,000 when news broke out that the Turkish central bank issued a ban on the use of Cryptocurrency as a payment method in Turkey. The decision to ban Cryptocurrency was due to the rising number of Cryptocurrency asset users within the country. This news causes a drastic depreciation of all Cryptocurrency.

Counties like Iran, Nepal, Thailand, India, Bolivia, Kyrgyzstan have also been reported to ban Cryptocurrency. It does seem the growth of cryptocurrencies are affected by the actions and statement of the government and federal officials

Impact of Cryptocurrency on Stock Market

With the constant appreciation of the digital currencies, Investing in companies that have directly or indirectly invested in cryptocurrency could be highly profitable.

It is obvious that investors are avoiding the flat money which is susceptible to inflation, monetary and fiscal policy. As a result, Investors are running to Bitcoin and other Cryptocurrency as safe haven. The increase in the demand for Cryptocurrencies has made companies with cryptocurrency exposure to be highly sought after. If Cryptocurrency continues to appreciate, these companies will experience an influx of big purchases of their stocks as in the case of Tesla Inc. (TSLA) stock.

It is therefore obvious that these Crypto companies’ stocks will appreciate if bitcoin continues it’s bullish market.

Impact of Cryptocurrency on Stock Market

Below are some of the companies that have invested directly or indirectly in Cryptocurrency (either through investment, partnership, or side ventures) and how their stocks have performed so far.

Tesla (TSLA)

Tesla purchased $1.5 billion worth of Bitcoin (0.25 BTC) and made an announcement it will be receiving payment in Bitcoin for the purchase of its electric vehicles. Tesla is the only company among the 10 largest that are shifting from fiat money and substituting it with Cryptocurrency. The stock price of Tesla on April 22: SharePrice (“TSLA”,”2021/04/22”) = $744.12.

Read more on Tesla valuation

Riot Blockchain (RIOT)

Riot Blockchain is Colorado-based Bitcoin miners. Its stock, RIOT, has continued to trade higher in recent weeks. The stock growth is in contrast to what investors portray as a poor investment. As long as Bitcoin keeps rising, the stock will continue to appreciate. Recently, the company announced that it has placed an order for another 26,000 miners, a statement that can further propel the growth of its stock. Stock price of Riot Blockchain on April 22: SharePrice (“RIOT”,”2021/04/22”) = $44.31.

Square (SQ)

Square is a fintech company that generates revenues by buying Bitcoin and selling them back to its Cash App users. With this said, the cash app saw its gross profit grew to $1.23 billion (168% increase). The CEO, Jack Dorrey said “we believe the internet needs a native currency, and we believe Bitcoin is it. Stock price of Square on April 22: SharePrice (“SQ”,”2021/04/22”) = $245.25.

PayPal (PYPL)

PayPal provides customers with alternative electronic payment methods and it has benefited the company when the pandemic broke out, causing the need for digital payment to increase. After announcing it would allow the use of the Cryptocurrency USD Coin to settle transactions on its payment network, it has started plans to obtaining Curb’s cloud-based crypto security services. Once this is achieved and payment can be made in Bitcoin, its stock will appreciate. The stock price of PayPal on April 22: SharePrice (“PYPL”,”2021/04/22”) = $264.89.

NVIDIA Corporation (NVDA) and AMD (AMD)

These two companies are leading designers of graphics processing units (GPUs), a processor that is used for computing artificial intelligence and the creation of Cryptocurrency assets such as cryptography.

When Crypto prices soared in 2018, these two companies’ stocks appreciated. Their stocks is expected to grow if the demand for Bitcoin increases.

Stock price of NVIDIA and AMD on April 22: SharePrice (“NVDA” and “AMD” ,”2021/04/22”) = $614.42 and $81.61 respectively.

Other companies experimenting with the cryptocurrency:

  • Microsoft Corporation (MSFT)
  • The Goldman Sachs group (GS)
  • CME group Inc. (CME)
  • Interactive Brokers Group, Inc. (IBKR)
  • Overstock.com Inc. (OSTK)
  • Microstrategy Incorporated (MSTR)

*All stock prices in this article obtained for FREE with iXBRLAnalyst in Excel Online The post Cryptocurrency matters for investment analysis first appeared on FinDynamics.



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