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As Bitcoin and cryptocurrencies continue to grow increasingly intertwined with the broader economy, the possibility of a significant rally in major cryptocurrencies becomes all the more intriguing.Such a rally could have far-reaching implications, particularly for stocks in the fintech sector.
In this article, we will delve into three factors that make a strong case for a potential bullish rally in Bitcoin in the medium term.Additionally, we’ll explore a range of stock opportunities that savvy investors might consider to leverage this potential crypto resurgence.
Here are the three factors in favor of Bitcoin:
1.Spot Bitcoin ETF Becomes Inevitable for SEC The first factor that could trigger a major Bitcoin rally concerns the launch of a spot BTC ETF in the USA.Since BlackRock (NYSE: BLK ), the world’s largest asset manager, filed a proposal for a spot Bitcoin ETF with the SEC a few months ago, many experts believe that the launch of such a product in the US is imminent.
Although the American regulator is maintaining a firm stance, having notably postponed its decision on several proposals a few days ago, there is reason to believe that it will eventually be forced to approve such a product.
Indeed, the US courts recently ruled in favor of Grayscale in its case against the SEC in connection with the regulator’s refusal to convert the manager’s GBTC into a Bitcoin spot ETF.The court rejected the SEC’s arguments, inviting it to re-examine the case and come up with new arguments if it intends to persist in its refusal.
In a recent note, Bernstein analysts described the ruling as a “game changer,” anticipating that the SEC would eventually approve several spot Bitcoin ETFs by March 2024.
The launch of such a product would pave the way for a more massive influx of institutional investors into Bitcoin, which could propel the price higher.
2.
Bullish Impact of Bitcoin’s Next Halving Another key factor that experts believe will significantly boost the price of Bitcoin is the next halving, due to take place in April 2024.Halvings are technical events programmed into the Bitcoin code that occur approximately every four years.
More concretely, they involve a halving of the reward for Bitcoin miners.As miners are remunerated in newly-issued Bitcoin, reducing their rewards is tantamount to slowing the rate of supply growth, which should have a mechanical upward impact on prices.
Moreover, historical statistics confirm that halvings do indeed participate in major cryptocurrency rallies, whether in anticipation in the months preceding or in reaction in the months following.
3.The Fed Eventually Cutting Rates Finally, while the Fed is visibly preparing to pause rate hikes for its next meeting this month, all bets are off as to when the Fed will start lowering rates.
In a note published this week, Goldman Sachs estimated that this could happen as early as the second quarter of next year.
However, just as rate hikes largely penalized crypto-currencies last year, the start of an easing cycle in US monetary policy is likely to have the opposite effect and encourage a major bull market in Bitcoin.
The Best, Safest Way to Gain Exposure to Bitcoin Via Stock Market The confluence of these pivotal factors provides strong grounds for optimism regarding Bitcoin’s price trajectory in the medium term.However, investing directly in cryptocurrency remains intricate and occasionally fraught with risk.
This is precisely why many investors are on the lookout for publicly traded stocks that are, in one way or another, connected to the world of cryptocurrencies.Such stocks are poised to reap substantial benefits should Bitcoin embark on a bullish journey.
While Bitcoin mining firms might appear as a logical choice for exposure to the crypto market through stocks, we have opted to exclude them from our selection.
Their highly specialized nature often renders them ill-suited for inclusion in a diversified and balanced-risk portfolio.
Instead, our focus narrows in on 3 fintech stocks, with a particular spotlight on Block (NYSE: SQ ), PayPal Holdings (NASDAQ: PYPL ), and Coinbase Global (NASDAQ: COIN ).
These three companies facilitate the purchase of not only Bitcoin but also a range of other cryptocurrencies.
In the following sections of this article, we will offer a brief overview of each of these companies, using the InvestingPro fundamental analysis tool.Our objective is to shed light on which among them stands out as the most promising investment in the months ahead.
To do this, we’ve started by assembling these three stocks into an Advanced Watchlist configured to display several key metrics.InvestingPro Watchlist Source: InvestingPro
Coinbase immediately stands out with a less favorable outlook.According to the InvestingPro models, the stock appears overvalued, with a fair value estimation nearly 30% below its present price.
Furthermore, analyst sentiment for Coinbase is notably subdued, with little to no perceived upside potential.
Additionally, the InvestingPro overall financial health rating for Coinbase falls below the average for comparable stocks.
This leads us to consider PayPal and Block.Here, the InvestingPro models distinctly favor PayPal, forecasting an upside potential exceeding 40% compared to the current share price, in contrast to Block’s just-under 26% potential.
Significantly, PayPal boasts a “good” overall financial health rating from InvestingPro, surpassing Block’s “fair” rating.
This not only underscores a lower risk profile for PayPal but also suggests greater potential for the future.
PayPal Hit Multi-Year Lows Post Poor Earnings: What’s Next? After a bullish start to the year, with the stock rising sharply in the first month of the year, PayPal posted a sharp decline, reaching a multi-year low of $57 last month, partly due to slightly disappointing quarterly results that were harshly punished by the market.
Indeed, InvestingPro data shows that PayPal’s share price fell by over 15% in the wake of its Q2 results published on August 2, despite figures that were broadly in line with expectations.The stock had experienced a similar fate at the time of its previous earnings on May 8.PayPal Earnings
Source: InvestingPro
In other words, it could be that PayPal has been unfairly oversold, which tends to confirm the buying opportunity suggested by analysts, as well as by InvestingPro ‘s models, whose precise targets can be found below.
PayPal Price Targets
Source: InvestingPro
What’s more, the fact that the company recently launched its own stablecoin, PayPalUSD, reinforces the stock’s profile as a stock with exposure to cryptocurrencies in general and increases the chances of the stock benefiting greatly from the next Bitcoin rally.
Conclusion In conclusion, given its discounted stock price year-to-date and its relatively lower risk profile compared to many cryptocurrency-related stocks, PayPal emerges as a sensible investment choice for those seeking to capitalize on the potential for a substantial bull market in Bitcoin and cryptocurrencies in general.
The data from InvestingPro further strengthens the case for closely considering this opportunity.
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