For months, the hottest investment on Wall Street has been an asset you won’t even find on Wall Street: Bitcoin (CRYPTO: BTC). On Friday February 19, Bitcoin surpassed $ 56,000 per token, pushing its market cap north of $ 1 trillion for the first time.
For more context, the best performing US index since the bear market bottomed on March 23 is the Nasdaq composite, which has doubled in value. Meanwhile, Bitcoin is up 777% over the same period.
Bitcoin has a basket of old and new catalysts pushing its valuation into nosebleed territory. This includes the traditional argument that it will help fight the natural devaluation of fiat currencies as the global money supply grows. Additionally, more businesses than ever are accepting Bitcoin as a payment method in the United States and around the world.
More recently, the world’s largest cryptocurrency has straddled the coattails of You’re here CEO Elon Musk, who didn’t hesitate to support Bitcoin on Twitter. Tesla also recently acquired $ 1.5 billion worth of Bitcoin, which will be added to the company’s balance sheet.
However, not all Wall Street residents are on the crypto train. There are currently three companies that could lose 31% to 66% of their value if Wall Street’s one-year price target estimates prove to be correct. This list would likely be much longer if more Wall Street analysts published price targets for cryptocurrency stocks.
MicroStrategy: implied drop of 66%
Biggest drop of all expected from a business intelligence company MicroStrategy (NASDAQ: MSTR). If Wall Street’s consensus price target is correct, MicroStrategy will lose two-thirds of its value over the next 12 months. As a benchmark, shares are 556% higher over the past 12 months.
The euphoria around MicroStrategy is linked to its CEO, Michael Saylor, treating his company like a Bitcoin tracking index. According to the company’s fourth quarter operating results, it acquired around 32,200 Bitcoin in the fourth quarter for $ 700 million and spent an additional $ 10 million to purchase 314 tokens in January. With the appreciation in the price of Bitcoin, MicroStrategy’s heavy Bitcoin track record has pushed its share price up dramatically.
In addition, MicroStrategy completed a $ 1.05 billion convertible note issue just days ago, with estimated proceeds of $ 1.03 billion, after spending. He should use that billion dollars to buy additional Bitcoin. It should be noted that the company issued $ 650 million in debt a few months ago and used the funds from this capital increase to acquire Bitcoin.
Personally, I see this as a highly irresponsible decision by Saylor and management. It’s one thing to invest some of the company’s unnecessary cash in Bitcoin. It is another thing to issue nearly $ 1.7 billion in convertible debt for the sole purpose of buying a highly volatile and unproven asset.
As for the company, its full-year sales have been steadily declining since 2015. MicroStrategy has apparently given up on innovation and is playing a dangerous game chasing Bitcoin with money it doesn’t have. I think Wall Street’s skepticism is justified.
Marathon Patent Group: implied decrease of 31%
Another bitcoin stock that Wall Street doesn’t like too much is the mining company Marathon Patent Group (NASDAQ: MARA). If Wall Street’s consensus target is correct, Marathon’s share price could drop nearly a third over the next year.
Cryptocurrency mining involves the use of high-powered computers to solve complex mathematical equations that validate a group of transactions (called a block) as true. The reward for this on the Bitcoin blockchain is 6.25 tokens, currently valued at $ 350,000. So, one of the main selling points of Marathon Patent Group ownership is that a higher price for Bitcoin will result in juicier block rewards. When fully operational in the first quarter of fiscal 2022, it will have 103,060 miners.
The other catalyst is that Marathon Patent Group bought 4,812.66 Bitcoin in late January for an aggregate price of $ 150 million. This works out to about $ 31,168 per token. With Bitcoin north of $ 56,000, Marathon’s $ 150 million investment is now worth around $ 270 million.
The problem is, Bitcoin is very volatile and has historically been plunged into multi-year bear markets after highs as we are seeing now. This could put the company’s Bitcoin holdings under pressure and would be a major drawback to Marathon’s mining operations.
Plus, keeping in mind that Marathon’s mining business is still relatively nascent, the company only generated $ 1.7 million in sales in the first nine months of 2020, with operating losses doubling. practically at $ 4.9 million. That’s peanut income for a company valued at $ 4.1 billion.
Riot Blockchain: 61% Implied Downside
One final Bitcoin stock Wall Street thinks you should avoid, at least based on its one-year consensus price target, is the cryptocurrency mining company. Riot blockchain (NASDAQ: RIOT). Riot closed last week at $ 71.33 a share, but its price target is just $ 28. For you mathematicians, this is an expected dive of 61%.
Similar to Marathon, the Riot Blockchain strategy involves acquiring new mining equipment and gobbling up Bitcoin block rewards. For example, in mid-February, the company announced the receipt and deployment of 2,002 S19 Pro Antminers. This increased its mining fleet to 11,542 Antminers.
But unlike Marathon, he didn’t make any investments in Bitcoin. In other words, Riot is completely dependent on the ebb and flow of the world’s most popular cryptocurrency. Rather than allowing innovation to drive results, management needs to cross their fingers and hope that Bitcoin rises higher, which is a risky proposition for the highly volatile digital currency.
Like most mining companies, Riot’s operating results leave a lot to be desired. In the first nine months of 2020, the company generated just $ 6.7 million in revenue and generated a net loss of $ 16.6 million. This is the same as the amount of money he lost in the nine months of the previous year.
Based on a single Wall Street estimate, Riot is expected to generate $ 158.6 million in sales in 2021. That would represent an increase of over 1,400% from 2020. Even then, it would be valued at 30 times the sales. That’s incredibly high for a business that relies on Bitcoin, not innovation.