Focus on These 5 Crypto Stocks for Long-Term Gains

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The cryptocurrency market has regained its lost glory this year. Last year was disappointing as the Fed continued aggressive monetary control with a massive hike in the benchmark lending rate to combat 40-year high inflation.

A high interest rate hurts growth assets such as tech stocks, consumer discretionary stocks, and cryptocurrencies. The tightening of monetary control has also raised fears that the economy could slide into recession in the near future. Moreover, a series of unfortunate events, mainly the crash of Terra Luna and a major fraud leading to the bankruptcy of FTX, have also shaken the confidence of market participants in digital currencies like crypto.

The situation was reversed this year, driven by a favorable macro-economic scenario. The Fed scaled back interest rate hikes as inflation steadily declined. It is important to note that despite tighter monetary control over the past year and a half, the fundamentals of the US economy remain strong. This evaporated the fear of a short-term recession.

Finally, the biggest push for the crypto space has come from institutional investors. The decision of BlackRock Inc. (BLK) to launch a Bitcoin ETF and the decision of the consortium led by The Charles Schwab Corp. (SCHW) to create a new crypto exchange called EDX Markets, attracted several investors to cryptocurrencies like Bitcoin, Ethereum and Litecoin to name a few.

Headwinds persist

Despite the tailwinds mentioned above, the economy is not completely out of the woods. The Fed suspended rate hikes at its June FOMC meeting after 10 straight hikes. However, Fed Chairman Jerome Powell has warned that more rate hikes are likely this year as inflation remains elevated, well above central banks’ 2% target.

Minutes from the June FOMC meeting showed that Fed members were unanimous in favor of another rate hike going forward, with the inflation rate remaining high. The June FOMC dot chart showed that most members were expecting two more rate hikes of 25 basis points each by the end of this year.

The story continues

For example, in the early hours of trading on July 6, the price of Bitcoin hit a 13-month high of $31,450, primarily due to growing demand from institutional investors. However, the extremely strong private sector payroll data for June released by Automatic Data Processing, Inc. (ADP) changed the whole scenario.

Market participants unanimously infer that a tight labor market, currently the only concern of the Fed, will force the central bank to raise rates again. The FedWatch CME is currently showing a 92.5% probability of a 25 basis point interest rate hike at the July FOMC meeting. Consequently, Bitcoin lost momentum and fell more than 1% from its peak.

Long-term gains in sight

At this point, investors need to think from a long-term perspective. Despite further rate hike warnings, the Fed is undoubtedly nearing the end of the higher rate regime. We may not see a rate hike in 2024 and see a rate cut at the end of next year if macro data remains supportive.

Therefore, investors should accumulate cryptocurrencies using a buy-down strategy. Every dip in crypto prices will be a good buy point in order to earn generously once the Fed’s tighter monetary control comes to an end.

Our selection of stocks

We limited our research to five stocks with strong crypto exposure and strong growth potential.

PayPal Holdings Inc. PYPL operates digital wallets and allows users to buy, transfer, and sell cryptocurrencies including Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. PYPL users can pay and pay using crypto to online merchants. The PYPL Venmo mobile wallet also allows users to buy and sell cryptocurrencies.

PayPal has an expected profit growth rate of 19.9% ​​for the current year. The Zacks consensus estimate for current-year earnings has improved 0.6% over the past 60 days. The stock currently carries a Zacks rank #3 (Hold).

Block Inc. SQ is an online digital and mobile payment platform for consumers and merchants and is the parent company of Square and Cash App. Cash App users can buy, sell, send and receive Bitcoins. Additionally, the tbd decentralized SQ platform allows developers to build decentralized finance applications to run on programmable blockchains. SQ is also one of the biggest Bitcoin investors.

Block has an expected profit growth rate of 69% for the current year. The Zacks consensus estimate for current-year earnings has improved 3.7% over the past 60 days. The stock currently carries a No. 3 Zacks rank.

Robinhood Markets Inc. (HOOD) operates a financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds, options, gold, and cryptocurrencies. HOOD buys and sells Bitcoin, Ethereum, Dogecoin and other cryptocurrencies using its Robinhood Crypto platform.

Robinhood Markets has an expected profit growth rate of 47% for the current year. The Zacks consensus estimate for current-year earnings has improved 3.1% over the past 30 days. The stock currently carries a Zacks rank of No. 2 (buy). You can see the full list of current Zacks #1 Rank (Strong Buy) stocks here.

Coinbase Global Inc. COIN provides financial infrastructure and technology for the crypto economy in the United States and around the world. COIN offers the leading financial account in the crypto space for consumers, a marketplace with a pool of liquidity to transact in crypto assets for institutions; and technology and services that allow developers to build crypto applications and securely accept crypto assets as payment.

Coinbase Global has an expected earnings growth rate of 79.1% for the current year. The Zacks consensus estimate for current-year earnings has improved 35.4% over the past 60 days. The stock currently carries a No. 3 Zacks rank.

MicroStrategy Inc. MSTR currently holds approximately $4 billion worth of Bitcoins. MSTR provides a unique business model focused on acquiring and holding bitcoins. MSTR is the first publicly traded company to buy Bitcoin and has become an important indirect player for Bitcoin.

MicroStrategy has an expected earnings growth rate of over 100% for the current year. The Zacks consensus estimate for current year revenue has improved more than 100% in the past 90 days. The stock currently carries a No. 3 Zacks rank.

The chart below shows the price development of the five aforementioned stocks over the past three months.

Zacks Investment Research

Image source: Zacks Investment Research

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MicroStrategy Incorporated (MSTR): Free Inventory Analysis Report

PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report

Block, Inc. (SQ): Free Stock Analysis Report

Coinbase Global, Inc. (COIN): Free Stock Analysis Report

Robinhood Markets, Inc. (HOOD): Free Stock Analysis Report

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