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3 Small-Cap Bitcoin Stocks That Could Benefit From Square's Purchase

Chris Katje
·3 min read

On Thursday, Square (NYSE: SQ) announced it's investing million in bitcoin, the largest cryptocurrency. CEO Jack Dorsey calls bitcoin the most viable currency for the internet.

Chamath Palihapitiya discussed bitcoin at the Benzinga Boot Camp recently. He invested $1 million in bitcoin in 2012 through a friend’s recommendation and later bought more after doing due diligence.

Palihapitiya has since sold his bitcoin and now invests in the cryptocurrency through companies that own coins: “It’s easier to manage shares instead of individual coins or wallets,” he said.

The move by Square has put bitcoin in the spotlight yet again. Below are three companies that own physical shares of bitcoins and are seeing gains Thursday.

Riot Blockchain: The portfolio of Riot Blockchain (NASDAQ: RIOT) is invested in companies associated with blockchain and also is a producer of bitcoins.

The company aims to “be one of the largest and lowest-cost producers of bitcoin in North America.”

In the first six months of fiscal 2020, Riot produced 508 new bitcoins. The company also saw its mining margin increase to 33.5% compared to 20.5% in the prior year.

Riot is investing heavily in increasing mining capacity. The company has 1,000 next-generation miners scheduled for delivery in November. The company also has 8,000 more to be installed over the first four months of 2021.

Riot has a current deployed hash rate capacity of 456 PH/s utilizing 16.3 MW of energy. By May 2021, the company will see these figures rise to 1,446 PH/s utilizing 46 MW of energy.

Hive Blockchain Technologies: In the last fiscal year, Hive Blockchain Technologies (OTC: HVBTF) achieved profitability for the first time.

The company assumed direct responsibility for cryptocurrency from a partner in a move to cut costs and help margins. Hive also shut down its cloud-mining operations for bitcoin in favor of a new method.

“Today, with the assumption of full control of our operations completed, HIVE stands as one of the largest publicly listed cryptocurrency miners globally,” the company says.

Hive acquired its own bitcoin mining operations in Canada and has been scaling the business through acquisitions and next-generation mining equipment.

The last fiscal year saw Hive mine 2,051 bitcoin. The company began using next-generation mining equipment for bitcoin in May.

Along with bitcoin, Hive is also a large player in the Ethereum cryptocurrency. In the last fiscal year, the company mined 71,660 Ethereum and 148,796 Ethereum Classic.

MicroStrategy: The cloud business of MicroStrategy Inc (NASDAQ: MSTR) is declining, but the company is making news for its investment in bitcoins.

CEO Michael Saylor believes bitcoins are superior to cash and gold. The company decided to spend its $500 million in cash on share buybacks and investing in bitcoin.

Bitcoin “is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash,” Saylor said.

Saylor also foreshadowed a move like Square made Thursday predicting, “it will probably be private companies first, then public companies our size, then mid-sized companies.”

Through investments in August and September, MicroStrategy bought 38,250 bitcoin, spending $425 million on the currency. The average price is $11,111 for the bitcoin purchased.

The company plans on buying bitcoin with its cash from operations.

Benzinga’s Take: Coindesk reports that Fidelity, Schwab and Vanguard have all increased their holdings in Riot and Hive. Schwab owns $52,000 of Riot Blockchain stock. Vanguard has $2.1 million invested in Riot Blockchain. Fidelity has $230,000 invested in Riot Blockchain and $1 million in Hive Blockchain.

These three stocks offer a way for investors to get exposure to bitcoin without having to open a wallet or a cryptocurrency account. All three are small-cap stocks and could have high risk/high reward based on the valuation of bitcoin.

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