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Blockchain-based firms’ publicly-listed stocks might not be valued correctly

Manu Naik

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It’s generally well understood that institutional investors are averse to direct exposure towards Bitcoin and cryptocurrencies, which is why derivatives markets like on Chicago Mercantile Exchange (CME) have seen rising adoption over the last couple of years.

However, some investors prefer to trade stocks pertaining to firms that deal in Bitcoin, instead of crypto-derivatives markets. These include stocks from firms like Galaxy Digital Holdings and Grayscale Investments, for which investors are even willing to pay a premium to avoid direct exposure to the asset class.

A recently published report highlighted how publicly-listed stocks of some of these blockchain-based companies are trading at an unwarranted price, given their revenues and earnings potential.

Despite reporting an annual revenue of $156 million last year, Galaxy Digital’s stock (GLXY) was trading at around $1.32, at the time of writing, which is overtly undervalued when compared to stock valuations of competing firms.

With a market capitalization of $69 million, Galaxy Digital also posted an incredibly low 0.59 price to sales ratio, whereas the group average P/S ratio for blockchain-based companies was around 13.9.

Grayscale‘s GBTC shares trade at a 20-30% premium, when compared to the Bitcoin they are backed by, and the firm also charges an additional 2% annual fee on a passive investment strategy.

According to WSJ, the P/S ratio for the Grayscale Bitcoin Trust is at a whopping 36.6, making its shares a grossly overvalued investment when considering the number of shares outstanding and the company’s earnings. And with a 90-day correlation with Bitcoin of around 83% over the last 5 years and 92% over the last two, this stock might continue to appreciate with time.

This could be due to the Federal Reserve flooding the market, scaring traders into hedging against fiat inflation and betting on scarce crypto-assets. However, this bubble is unlikely to last long and undervalued stocks like GLXY could realize their intrinsic value in the months ahead.

Manu is a full-time journalist at AMBCrypto covering the US and Indian markets. A graduate in engineering, he writes mainly about regulations and its impact with a focus on technological advancements in the crypto space.