In early 2017, prices of Bitcoin (BTC-USD) began to rise. First $1,000… then $1,500… By mid-year, the cryptocurrency’s six-month return had surpassed 100%.
That quickly prompted regulators to act.
“We saw a bubble building and we thought the best way to address it was to allow the market to interact with it,” former CFTC Chairman Christopher Giancarlo said in a speech several years later explaining why regulators approved Bitcoin futures. “We believed that, should Bitcoin futures go forward, it would allow institutional money to bring discipline to the value of the cash market.”
Mr. Giancarlo was half right. To his credit, the introduction of Bitcoin derivatives did bring institutional investors into the market. 20,000 Bitcoin futures contracts now trade daily on the CME. And we’ve already seen $6.5 billion inflows into BlackRock’s iShares Bitcoin Trust (NASDAQ:IBIT) since it began trading on Jan. 12 – a particular favorite among institutional investors.
However, these same professional investors brought their own biases. In 2017, for instance, the Bitcoin bubble would coincide with an enormous surge in metals prices. Copper, a highly cyclical commodity posted its best run in almost 30 years. The 2019 and 2021 booms were no different… first with the rise of oil and gold, followed by an “everything bubble” two years later. Each time Bitcoin went up, it was a sign that institutional investors had more money than they knew where to put it.
We’re now seeing history repeating itself. Bitcoin’s surge to $69,000 puts its trailing six-month return above 100% for the first time since 2021. And institutional investors have predictably begun piling into riskier wagers. Last week, options traders spent over $20 billion on Nvidia (NASDAQ:NVDA) alone.
That’s creating opportunities in the riskiest of assets, as our writers at InvestorPlace.com note this week. Institutional investors are feeling flush with cash, and bidding up moonshot stocks and cryptos in the process. There are five plays on Bitcoin’s surge that InvestorPlace.com writers are looking at this week, but before we get started, I want to note that they all carry an extreme amount of risk and should be treated as one-month momentum plays. These are not long-term holdings. Please consider your risk tolerance before investing.
1. Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) has long been a risky bet on hydrogen fuel cells. The company has lost money every year since 1997, and the recent rise in raw material costs have turned gross margins negative. Analysts expect the New York-based firm to lose 22 cents for every $1 of revenues this year.
However, Plug has outsized ambitions to become a one-stop shop for hydrogen. Eddie Pan notes this week at InvestorPlace.com that Plug has managed to ink significant deals, such as a multi-year contract with logistics firm Uline and securing a hydrogen contract with a major U.S. auto manufacturer. Essentially, the firm is seeking to vertically integrate the business.
Tyrik Torres also observes that Plug’s management is preparing their firm for longer-term success. In a recent update for InvestorPlace.com, he writes how a cost-cutting plan could save more than $75 million. He writes how these could turn $100,000 investments into $1 million.
These initiatives include “operational consolidation” and “workforce adjustments.” Cuts to operational costs and strategic review could improve Plug Power’s earnings prospects and shareholder returns.
But the most important player to Plug’s future is its share price momentum. Since 2020, the firm has raised over $5 billion by selling high-priced shares. High valuations allow Plug’s management to raise capital with minimal dilution, which allows the firm to invest in these moonshot projects.
Rising Bitcoin prices now suggest that Plug could raise billions more. Shares of Plug Power have traditionally spiked when Bitcoin prices go up, and the cryptocurrency’s recent rise is a bullish sign for PLUG’s stock. And that’s good news; much like a tail wagging a dog, gains in Plug’s stock price today will tend to increase chances of success down the road.
2. SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is a startup that develops speech recognition software. Companies from Snap to Mercedes-Benz use SoundHound’s voice recognition, and analysts expect the recent boom in AI applications to help drive 50% in sales growth this year.
SoundHound is also deeply unprofitable. The company is expected to lose $65 million on $70 million in sales this year, and analysts expect margins to remain solidly negative for the foreseeable future as overhead costs continue to rise. On Friday, March 1, shares fell 20% after the firm missed on both revenues and profit expectations.
Ian Cooper at InvestorPlace.com notes that this riskiness cuts both ways. Shares rose from $2 to almost $7.91, for instance, after chipmaker Nvidia disclosed a 1.73-million-share stake in the firm. And previous spikes in SoundHound’s share price have usually been met with future gains. A 56% increase in share price during Q1 2023 was followed by another 64% the following quarter. Cooper calls SoundHound a company to buy hand over fist this quarter.
Eddie Pan also reports that SoundHound has seen an uptick in institutional investor buying – an often-reliable sign of future gains to come. Though the AI startup is as risky as you can get, rising interest by institutional buyers will make it easier for SoundHound’s management to raise capital and keep pursuing growth.
3. Nvidia (NVDA)
“Needless to say, the king of the market today keeps on breaking past expectations,” writes Gabriel Osorio-Mazzilli at InvestorPlace.com this week. “Nvidia is a name that keeps on breaking past its previous all-time highs with virtually no issues or obstacles to stand in its way.” He notes that against all odds, the stock has kept running out of room on his chart.
Technical factors continue to suggest that Nvidia should keep rising in the near term. Louis Navellier’s Quantitative grade – a signal of institutional buying – awards the company a solid A. And Wall Street analysts can’t get enough of Nvidia, observes InvestorPlace.com writer Marc Guberti. The highest price target suggests another 80% upside.
You’ve seen me write multiple times already about Nvidia, especially how its enormous head start justifies its premium valuation. InvestorPlace.com writer Will Ashworth even says earlier this week that Nvidia’s stock is just getting started. The fundamental story is surprisingly sound thanks to a combination of proprietary software and insatiable customer demand. But now that institutions are becoming increasingly comfortable in buying high-momentum assets like Bitcoin and other AI stocks, prices of Nvidia should keep rising in the medium term.
4. Ethereum (ETH-USD)
Ethereum (ETH-USD) has traditionally followed a simple rule: Where Bitcoin goes, so does Ethereum. Since 2016, returns in the two cryptocurrencies have averaged a 0.7 correlation. That means 70% of Ethereum’s gains are explained by changes in Bitcoin.
That’s turned many of our writers at InvestorPlace.com bullish on Ethereum’s near-term prospects
“I believe that ETH could surge far higher than this, given Bitcoin’s recent ascent to $55,000 per coin,” Matthew Farley writes in an InvestorPlace.com update last week. “While Bitcoin itself is an obvious choice, diversifying into other promising digital assets could offer additional growth opportunities and hedge against Bitcoin-specific risks.”
Alex Sirois at InvestorPlace.com also notes that Ethereum could soon become tradable through spot ETFs, opening up even greater investments from institutional investors.
That is an incredibly powerful truth and is the primary reason that Ethereum has and will continue to shape the future of digital finance. As with Bitcoin, major institutions continue to research how their firms can benefit from Ethereum. And like Bitcoin, Ethereum will soon be tradable through Spot ETFs.
Together, that suggests Ethereum prices have far more room to run. Though long-term demand for non-fungible tokens (NFTs) and other digital assets remains in question, the underlying crypto momentum is becoming too strong to ignore.
5. Solana (SOL-USD)
Finally, Solana (SOL-USD) rounds out the top assets to buy as Bitcoin prices rise.
Solana is considered a “third-generation” cryptocurrency for its relatively advanced Proof of History (PoH) validation system, as InvestorPlace.com’s Mark Hake once explained.
Using a hashed version of the latest state of transactions greatly reduces the time of confirming a new block. As such, this is not a consensus validation system as opposed to other cryptos. This is the secret to how it speeds up the time spent confirming the order of transactions.
The correlation between Solana and Bitcoin is also quite significant at 0.57. It’s why the recent rally in Bitcoin prices now has InvestorPlace.com writer Chris MacDonald eyeing Solana for its momentum and central point of commerce.
I have no idea whether momentum will reach peak hype, as it did in 2021. But for those betting on a resurgence of NFTs and other digital assets, Solana’s blockchain infrastructure is worth a look as a crypto to buy. The Solana team has worked out various security kinks, which led to outages in recent years.
Solana also has a history of outperforming Bitcoin thanks to its lower starting price. Over the past year, the “Ethereum Killer” crypto has returned 440%, compared to Bitcoin’s 170%. And given Bitcoin’s recent outperformance, there’s a strong chance that Solana too will see renewed interest.
Where Will Bitcoin Go From Here?
In 2023, I wrote a personal article about predicting Bitcoin prices. It turns out that Bitcoin itself is reliant on other sentiment factors as well. Assets ranging from gold, junk bonds and Treasury bills all have some predictive elements with the cryptocurrency.
International sentiment also plays a large role. Roughly 90% of all Bitcoin transactions happen outside the U.S., and so we can’t view Bitcoin as an American-only asset. The Bloomberg Commodity Index, for instance, turns out to be a strong predictor of one-month Bitcoin prices!
That tells us to expect even more gains, at least in the short run. Stock indices from India to Japan have been notching record highs, and these newly wealthy investors are just as likely as Americans to be searching for alternative places to park their profits.
However, Bitcoin itself is an extremely risky asset. The coin generates no dividends or earnings, and its value rests entirely on what others will pay for it. It’s a fine wine that can never be sipped… a masterpiece painting that can’t be seen… and describes the other five picks this week as well.
That’s not to say there’s not incredible opportunity in the crypto space. According to InvestorPlace analyst Luke Lango, on April 22, 2024, a rare event in the crypto markets will trigger the greatest wealth creation opportunity of our lifetime – and Luke knows how to get in on the ground floor.
Click here to watch Luke’s special briefing for all the details.
On the date of publication, Thomas Yeung held no positions in any stock mentioned in this piece. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.