So far in 2021, stocks that are related to the cryptocurrency industry have experienced a huge boost as the prices of digital currencies soar. Goldman Sachs has compiled a list of these stocks for interested investors.
Goldman Sachs has released a study headed up by analyst Ben Snider on stocks connected to crypto and blockchain. Specifically, stocks that could see a sharp spike if bitcoin prices take off again.
Goldman Sachs studies stocks tied to crypto
As the prices of cryptocurrencies across the board continue to rise, many companies have risen along with it. In some cases, these companies, viewed as proxies for the asset class, have jumped even more than the cryptocurrencies themselves. The recent Bitcoin rally for example saw a few related stocks propelled to returns up to four times greater than the broader market.
Snider and strategist David Kostin wrote in a note that:
“On average, these stocks have dramatically outperformed the S&P 500 during the last several months alongside the surge in the price of Bitcoin. An equal-weighted portfolio of the stocks has demonstrated roughly 60% correlations with Bitcoin and the Bloomberg Galaxy Crypto Index during the last several months, compared with 20% correlations for the S&P 500.”
The reason behind this is that committing to cryptocurrencies isn’t easy. Furthermore, the market can be too volatile for many investors. The idea that crypto is a digital market that is mostly unregulated and ever-changing doesn’t give everyone the same feelings. Some, frankly, just don’t feel comfortable moving away from traditional stocks.
The way around this is to simply invest in these companies with exposure to blockchain and crypto. Many investors are familiar with the companies such as Tesla, Square, and Facebook, and the process remains the same. The incorporation of these large-cap stocks in an investment portfolio allows them to dip their toes into crypto.
Who made the cut?
Snider used three main factors to highlight stocks closely tied to bitcoin and crypto. The search was limited to those stocks possessing a market cap that exceeds $1 billion.
The first step was to isolate stocks that had public filings, speeches, or transcripts, mentioning Bitcoin or blockchain. They also considered news articles from certain sources. The next phase eliminated companies whose stock prices didn’t correlate with the price of Bitcoin over the previous calendar year. The final test was to look at the membership of six blockchain-related indexes and exchange-traded funds.
Snider and Goldman Sachs produced their list of crypto-related stocks that could overperform in the future.
On average, the 19 stocks that passed muster rose 46% so far in 2021 compared to 12% for the S&P 500. The stocks listed are still risky due to their higher-than-average price. Median blockchain exposed stocks are trading at twice the price than other median U.S. stocks.
The stocks on Sachs’ list are Marathon Digital Holdings, Riot Blockchain, MicroStrategy, Silvergate Capital, PayPal Holdings, Overstock.com, Nvidia, Investview, Ideahomics, Tesla, JPMorgan Chase, Visa, Bank of New York Mellon, Facebook, Mastercard, Broadridge Financial Solutions, IBM, and Coinbase Global.
The list is ordered from top to bottom in terms of outlook. The first seven on the list were given the designation of a nine, the highest possible score. Nvidia was given a score of seven with the remaining stocks listed as a six.