- The boom in cryptocurrencies is creating enormous opportunities for tech and finance companies.
- Wedbush Securities shares 5 stocks of companies that are “attracting this new market opportunity.”
- It also highlights an altcoin that could double its valuation over the next 12 to 18 months.
Back in 2013, Wedbush Securities was the first Wall Street brokerage to issue a research report about bitcoin and its underlying blockchain technology.
The company said the digital token could rise to as much as $98,500 from around $1,200 back then and described it as “a potentially game-changing disruption” to the payments companies under its coverage. In 2014, it also became the first US financial institution to accept payments in bitcoin.
Almost eight years later, as bitcoin hovers just above $60,000, Wedbush’s call seems prescient and significant. Now, as the digital currency continues to gain institutional support, the company is also keeping its eyes on the emerging banking and tech business opportunities in the crypto ecosystem.
“In our opinion, Bitcoin is not disappearing but instead likely to become more mainstream over the coming years,” Wedbush analysts led by Daniel Ives wrote in an April 8 research note. “To this point, we believe the story and theme here is much larger than just investing in Bitcoin and predicting its potential path/timeline to $100k, but rather around the potential ramifications that crypto, blockchain, and Bitcoin could have across the technology and corporate world for the next decade.”
Business opportunities in bitcoin and blockchain
So far, the two apparent opportunities on Wedbush’s radar are transactions in bitcoin and decentralized cloud storage.
With over 4,000 cryptocurrencies in the world, the firm thinks it is only a matter of time before companies start accepting some form of digital currency as payment.
Major companies like Tesla are already accepting bitcoin. Wedbush expects the EV maker's move to set off a chain reaction despite forecasting that only 3% of Teslas will be purchased with bitcoins over the next year.
"... given the still nascent and volatile nature around Bitcoin we believe less than 5% of public companies will head down the Bitcoin investment path in some capacity over the next 12 to 18 months, but could move markedly higher as more regulation and acceptance of this currency takes hold further down the road," Ives wrote.
Bitcoin's underlying blockchain technology is also creating a major opportunity in decentralized cloud storage that allows data to be stored across multiple locations and users instead of with a single company.
This process gives individuals instead of institutions the control of their own data. It also increases overall speeds and lowers the price of storage significantly, according to the note.
5 crypto-linked stocks to buy
Some companies are already actively attacking these new opportunities in the crypto ecosystem.
Payment companies such as Square, which are created with the mission to facilitate easier movement of money around the world, have been the early adopters. Banks like BNY Mellon, which straddle the world of traditional finance and digital assets, are starting to play a bigger role.
Aside from the high-profile entrants into the crypto world, Wedbush analysts highlight five stocks of companies that have either taken a significant step toward or embraced crypto.
1. Silvergate Capital
Ticker: SI
Market cap: $3.31 billion
Commentary: "Silvergate Capital was the first public bank to enter the space, via its proprietary API-enabled Silvergate Exchange Network (SEN), which connects investors and digital exchanges around the globe 24/7. Being the first of its kind, the SEN enjoys a first mover advantage which makes it difficult for new competitors to replicate. The platform has also seen the positive impacts from its network effect, as each newly onboarded client provides an incremental benefit to those already on the network."
Source: Wedbush Securities
2. Signature Bank
Ticker: SBNY
Market cap: $12.90 billion
Commentary: "Signature announced in the summer of 2018 that it was building a blockchain-enabled business and went live with its Signet platform on January 1, 2019. The company then quietly grew this business to $2 billion of deposits in 2019, and then growth exploded in 2020 with digital asset-related deposits surpassing $10 billion at December 31, 2020, and momentum has continued into 2021 with the company stating at an investor conference that its digital assets team now has deposits of over $13 billion, and another $1.5 billion of off-balance-sheet deposits from this business."
Source: Wedbush Securities
3. First Foundation
Ticker: FFWM
Market cap: $1.03 billion
Commentary: "First Foundation's management team stated during our meetings with investors in March that they intend to make an entrance into the digital asset space as well... Although purely speculative on our part, we could potentially see First Foundation opening up the cryptocurrency asset class to its wealth management, trust, and foundation clients by partnering with a cryptocurrency exchange, such as Coinbase, to enable these clients to gain exposure to cryptocurrencies. FFWM could also then potentially partner up with a company such as BlockFi, which pays up to 8.6% interest on cryptocurrency deposits. By allocating client cryptocurrencies to BlockFi, FFWM could then collect interest, possibly keeping 1.0% for itself as a facilitation fee and passing the remaining 7.6% of the return back to the client."
Source: Wedbush Securities
4. Paypal
Ticker: PYPL
Market cap: $299.61 billion
Commentary: "Recently, PYPL announced the launch of Checkout with Crypto, enabling U.S. customers to checkout with cryptocurrency in the PYPL wallet. The feature will be available at millions of global online businesses and continuing to expand over the coming months. On top of the recently launched ability to buy, hold and sell cryptocurrency, U.S. customers will be able to check out safely and easily, converting cryptocurrency holdings to fiat currency at checkout, with certainty of value and no additional transaction fees. When a customer has sufficient cryptocurrency balance of a single type to cover an eligible purchase, Checkout with Crypto will automatically appear in the PYPL wallet at checkout. The launch continues PYPL's focus on driving mainstream adoption of cryptocurrencies, while continuing to offer PYPL customers additional choice and flexibility in purchase options."
Source: Wedbush Securities
5. Visa
Ticker: V
Market cap: $469.03 billion
Commentary: "Visa recently announced the ability to settle transactions in USD Coin (USDC), a stablecoin backed by the US dollar, a first for the payment networks. The move to direct acceptance of payments in USDC bridges the gap between digital and traditional fiat currencies. The transaction using USDC will be settled with Visa over Ethereum, an actively used open-source blockchain. Visa is piloting the capability with Crypto.com, a Visa partner and one of the world's largest crypto platforms. Working with Anchorage, the first federally chartered digital asset bank and an exclusive Visa digital currency settlement partner, the pilot will allow Crypto.com to send USDC to Visa to settle a portion of its obligations for the Crypto.com Visa card program. Visa's treasury upgrades and integration with Anchorage adds the ability to support new central bank digital currency (CBDC) as they emerge in the future. The company is planning to offer USDC settlement to additional partners later this year."
Source: Wedbush Securities
Filecoin - "the Airbnb of storage"
As banks and tech firms vie for crypto transaction opportunities, Wedbush analysts view Filecoin as the digital asset best-positioned to capture the decentralized storage trend.
Founded in 2014, Filecoin is a decentralized storage network developed by Protocol Labs. Users of the network can store their files on storage miners, which are computers that are responsible for storing critical files "correctly and securely over time."
Similar to the bitcoin mining incentive structure, users spend Filecoin to hire the network to store their files, and storage providers get paid in Filecoin. A Filecoin is trading at around $175, according to CoinMarketCap.
The "Airbnb of storage" platform was started by building an Interplanetary File System (IPFS), which is a protocol and peer-to-peer network for sharing and storing data in a distributed file system, according to the Wedbush note.
The use case and sustainability of Filecoin have made it one of the potential winners competing in a multi-billion dollar market, in Ives' view.
"While today Filecoin represents a roughly $10 billion market cap," Ives said, "given the $200 billion opportunity we see on this front over the next 5 years and the company's leadership position on blockchain, we believe a doubling of this valuation/market cap over the next 12 to 18 months is very reasonable as the company continues to execute on its broader storage vision."