There are many stocks today that offer indirect exposure to crypto-assets such as Bitcoin. Argo Blockchain (LSE: ARB), Riot Blockchain, Coinbase (NASDAQ: COIN), Robinhood, PayPal, and MicroStrategy are just some of the companies that offer stock market investors such exposure.
Here, I’m going to compare Argo Blockchain to Coinbase. Which stock is the best way for me to play crypto?
Argo Blockchain vs Coinbase
Let’s start by comparing their business models. Argo Blockchain is a crypto miner that specialises in mining Bitcoin. The more BTC it mines, the more money it can make.
This business model has its advantages. For example, when the price of Bitcoin goes up, Argo’s revenues get a boost and its Bitcoin holdings (it held 1,836 Bitcoins at the end of September) are worth more.
However, it also has its disadvantages. One is that if the price of Bitcoin crashes, revenues and asset values can take a massive hit. Another disadvantage is that there are low barriers to entry. There’s nothing to really stop a competitor doing the same thing.
As for Coinbase, it operates a crypto exchange platform that enables people to buy and sell a wide range of digital assets including Bitcoin, Ethereum, and Litecoin. The company now has more than 68m customers (including retail investors and institutional investors) in over 100 countries.
The main advantage of this business model is that the company can make money no matter what the prices of Bitcoin and other crypto-assets are doing. That’s because it takes a cut of every transaction.
The downside to this business model is that if investor interest in crypto-assets wanes, or trading activity declines, revenues could take a hit.
Looking at these business models, I see more appeal in Coinbase. It’s less reliant on the prices of crypto assets and stands to benefit if investor interest in digital assets increases, which it looks like it will. Both business models are likely to result in volatile revenues and earnings, however.
Financials and growth
Moving on to the financials, Argo generated revenue of £19m in 2020. This was up 120% year-on-year. The operating margin was 8.4%. For 2021, analysts expect revenue of £79.3m. That would represent growth of 317%. Earnings of 15p per share are expected.
Meanwhile, Coinbase generated revenue of $1,277m last year. This was up 139% year on year. The operating margin was 32%. For 2021, analysts expect revenue of $6,954m. That would represent growth of 445%. Earnings per share of $12.70 are expected.
Coinbase is the winner here, in my view.
Which company is cheaper?
Finally, turning to the valuation, Argo, which has a market cap of just £598m, currently trades on a forward looking price-to-earnings (P/E) ratio of 8.4 and a forward-looking price-to-sales (P/S) ratio of 7.5.
By contrast, Coinbase, which has a market cap of $64.5bn, currently trades on a P/E of 24.1 and a P/S of 9.3.
So, Argo edges it here. It appears to be cheaper than Coinbase.
ARB vs COIN: which crypto stock would I choose?
Putting this all together, Coinbase is the superior stock, in my view. That’s the stock I’d invest in if I wanted crypto exposure today.
Coinbase does have its risks, of course. For example, the valuation is relatively high. Overall, however, I see it as a good way to play the crypto boom.