Crypto Assets market moves mainstream, Blockchain concept stocks welcome new opportunities

As the global financial regulatory environment becomes increasingly clear, the crypto assets market is gradually moving from a niche area into the mainstream financial system. The recent results of the U.S. presidential election have had a positive impact on the crypto industry, with the new president promising to adopt more friendly regulatory policies, including establishing a national Bitcoin reserve and encouraging the expansion of Bitcoin mining activities, which have boosted market confidence. Against this backdrop, several Blockchain concept stocks have generally risen.

More and more publicly listed companies have realized the enormous potential of Blockchain technology and are actively incorporating it into their strategic layout. Many Blockchain concept stock companies are experiencing strong development momentum, gaining significant attention and investment in the market. These companies are driving digital transformation and value creation by introducing Blockchain technology, gradually becoming important players in the industry.

In recent years, especially with the regulatory benefits brought by the introduction of crypto asset-related ETFs in the United States, it marks that crypto assets are no longer limited to a closed digital currency market, but are deeply integrated with traditional capital markets. Grayscale's Bitcoin Trust has become a bridge for traditional investors to enter the crypto market. Data shows that BlackRock's Bitcoin spot ETF has reached an asset management scale of $17.243 billion, which has almost always been in a net inflow state since the beginning of the year. Meanwhile, Grayscale's Bitcoin spot ETF has an asset management scale of $13.659 billion, demonstrating investor interest and confidence in this emerging asset class.

The current total market capitalization of the crypto assets market is approximately $3.2 trillion, which can be divided into the following three main categories by asset type:

1. Bitcoin (BTC): As the core asset of the entire crypto market, it currently has a market capitalization of approximately $1.9 trillion, accounting for over 50% of the total market capitalization of crypto assets. It is not only recognized as a store of value by both traditional finance and the native coin circle, but also, due to its anti-inflation characteristics and limited supply, has become the preferred choice for institutional investors, being hailed as "digital gold".

2. Native on-chain assets: including public chain tokens, decentralized finance-related tokens, and functional tokens in on-chain applications, etc. This field is diverse and highly volatile, with its market performance driven by technological updates and user demand. The current market capitalization is approximately $1.4 trillion, which is actually far below the market's expectations for high growth.

3. The integration of traditional assets and encryption technology: This field encompasses emerging projects such as the tokenization of real-world assets on-chain and blockchain-based securitized assets. Currently, its market value is only a few hundred billion dollars, but with the popularization of blockchain technology and the deep integration with traditional finance, this field is rapidly developing. By tokenizing traditional assets, liquidity is enhanced, which is also one of the main driving forces for the growth of the future crypto market.

Why are we so optimistic about the growth potential of traditional assets?

In the past six months, the asset characteristics of Bitcoin have undergone a new evolution, and the dominant force in the capital market has completed the transition from old powers to new funding sources. In 2024, the position of crypto assets in the traditional financial sector will be further strengthened. Financial giants, including BlackRock and Grayscale, have launched exchange-traded products for Bitcoin and Ethereum, providing institutional and retail investors with more convenient investment channels for digital assets, further confirming the connection with traditional securities.

At the same time, the trend of tokenization of real-world assets is also accelerating, further enhancing the liquidity and coverage of financial markets. For example, Germany's state-owned development bank KfW issued two digital bonds totaling 150 million euros in 2024 using Blockchain technology. These bonds were settled using distributed ledger technology, and French computer equipment manufacturer Metavisio issued corporate bonds, utilizing tokenization to provide capital support for its new manufacturing facility in India. This also demonstrates that traditional financial institutions are leveraging Blockchain technology to optimize operational efficiency, and many financial institutions have already integrated encryption technology into their business models.

Nowadays, a capital circulation model centered around Bitcoin as the core asset, utilizing ETFs and the stock market as the main channels for capital inflow, and leveraging listed companies as the carrying platform, is continuously absorbing dollar liquidity and fully unfolding.

The combination of traditional finance and Blockchain will give rise to more investment opportunities than native on-chain assets. Behind this trend lies the market's emphasis on stability and practical application scenarios. The traditional financial market has a solid infrastructure and mature market mechanisms, and when combined with Blockchain technology, it will unleash greater potential.

From these perspectives, it can be seen that the future development of the crypto market is not just an increment of digital currencies themselves, but the enormous potential for integration with traditional finance. From regulatory dividends to changes in market structure, Blockchain concept stocks are at a critical juncture in this major trend, becoming the focus of global investors.

We roughly categorize the current Blockchain concept stocks into the following types:

1. Asset-Driven Concept

Regarding the concept of asset allocation in the Blockchain sector, the company strategy is to use Bitcoin as the main reserve asset. This strategy was first implemented by MicroStrategy in 2020 and quickly attracted market attention. This year, other companies such as the Japanese investment company MetaPlanet and the Hong Kong-listed company Boyaa Interactive have also joined in, with the acquisition of Bitcoin continuously increasing. MetaPlanet announced the introduction of the key performance indicator "Bitcoin Yield" established by MicroStrategy, with its third quarter BTC Yield at 41.7% and reaching as high as 116.4% in the fourth quarter (as of October 25).

Specifically, the strategy of companies like MicroStrategy is to provide investors with a new perspective on evaluating the company's value and investment decisions by introducing the "Bitcoin Yield" key performance indicator. This indicator is based on the diluted number of shares outstanding and calculates the number of Bitcoins held per share, without considering price fluctuations, aiming to help investors better understand the company's actions of purchasing Bitcoins through the issuance of additional common shares or convertible instruments, focusing on measuring the balance between the growth of Bitcoin holdings and equity dilution. As of now, MicroStrategy's Bitcoin investment yield has reached 41.8%, indicating that the company has successfully avoided excessive dilution of shareholder interests while continually increasing its holdings.

However, despite MicroStrategy's significant achievements in Bitcoin investment, the company's debt structure has raised concerns in the market. Reports indicate that MicroStrategy currently has a total outstanding debt of $4.25 billion. During this period, the company raised funds through multiple rounds of convertible bond issuance, some of which also included interest payments. Market analysts are worried that if the price of Bitcoin drops significantly, MicroStrategy may need to sell some Bitcoin to repay its debt. However, there are also opinions that, due to MicroStrategy's reliance on its stable traditional software business and a low-interest-rate environment, its operating cash flow is sufficient to cover debt interest. Therefore, even if the price of Bitcoin crashes, it is unlikely to force the company to sell its Bitcoin assets. Additionally, MicroStrategy's stock market capitalization currently stands at $43 billion, and its debt represents a small proportion of its capital structure, further reducing the liquidation risk.

Despite many investors being optimistic about the company's firm Bitcoin investment strategy, believing it will bring considerable returns to shareholders, there are also some investors expressing concerns about its high leverage and potential market risks. Due to the extreme volatility of the crypto assets market, any adverse market changes could significantly impact the asset value of such companies, and their stock prices have a significant premium relative to their net asset values, raising questions about whether this situation can be sustained. If the stock price experiences a correction, it may affect the company's financing capabilities, thereby impacting its future Bitcoin purchasing plans.

1. Microstrategy(MSTR)

MicroStrategy was founded in 1989, initially focusing on business intelligence and enterprise solutions. However, starting in 2020, the company transformed into the world's first publicly traded company to adopt Bitcoin as a reserve asset, a strategy that completely changed its business model and market position. Founder Michael Saylor played a key role in driving this transition, evolving from an early Bitcoin skeptic to a staunch supporter of Crypto Assets.

Since 2020, MicroStrategy has continued to purchase Bitcoin through its own funds, bond financing, and other means. To date, the company has accumulated approximately 279,420 Bitcoins, with a current market value of nearly $23 billion, accounting for about 1% of the total Bitcoin supply. The most recent purchase occurred between October 31 and November 10, 2023, where 27,200 Bitcoins were acquired at an average price of $74,463. The average holding price for these Bitcoins is $39,266, while the current Bitcoin price has reached approximately $90,000, resulting in a paper profit for MicroStrategy of nearly 2.5 times.

Despite facing an approximate $1 billion paper loss on its Bitcoin investments during the bear market of 2022, MicroStrategy has never sold any Bitcoin and instead chose to continue increasing its holdings. Since 2023, the strong rise in Bitcoin has significantly boosted MicroStrategy's stock price, achieving a year-to-date return on investment of 26.4%, with a cumulative return on investment exceeding 100%. MicroStrategy's current business model can be seen as a "BTC-denominated cyclical leverage model," which raises funds through bond issuance to purchase Bitcoin. Although this model offers high returns, it also carries certain risks, especially during periods of extreme volatility in Bitcoin prices. According to analysis, Bitcoin's price would need to fall below $15,000 for the company to potentially face liquidation risks, and given that the current Bitcoin price is close to $90,000, this risk is minimal. Furthermore, the company's leverage ratio is low, and there is strong demand in the bond market, which further enhances MicroStrategy's financial stability.

For investors, MicroStrategy can be seen as a leveraged investment tool in the Bitcoin market. With the expectation of steady increases in Bitcoin prices, the company's stock holds significant potential. However, caution is needed regarding the medium to long-term risks posed by debt expansion. In the next 1 to 2 years, MicroStrategy's investment value will still be worth noting, especially for investors optimistic about the prospects of the Bitcoin market, as it is a high-risk, high-reward asset.

2. Semler Scientific(SMLR)

Semler Scientific is a company focused on medical technology, and one of its innovative strategies is to use Bitcoin as a primary reserve asset. In November 2024, the company disclosed that it recently purchased 47 coins of Bitcoin, raising its total holdings to 1,058 coins, with a total investment amounting to approximately $71 million. Part of the funds for these acquisitions came from operating cash flow, indicating that Semler is attempting to strengthen its asset structure through Bitcoin holdings, becoming a representative of innovation in asset management.

However, Semler's core business still focuses on its QuantaFlo device, which is primarily used for diagnosing cardiovascular diseases. However, Semler's Bitcoin strategy is not just a financial reserve; in the third quarter of 2024, the company achieved an unrealized gain of $1.1 million due to its Bitcoin holdings. Despite a year-on-year revenue decline of 17% in that quarter, it still provided Semler with a financial hedge against economic fluctuations.

Despite Semler's current market capitalization of only $345 million, which is far lower than MicroStrategy, its strategy of adopting Bitcoin as a reserve asset has led investors to view it as a "mini-MicroStrategy."

3. Boya Interactive

Boyaa Interactive is a publicly listed company whose main business is gaming, and it is one of the leading developers and operators in China's board game industry. In the second half of last year, it began to test the waters in the crypto market, aiming to fully transform into a Web3 listed company. The company has made large-scale purchases of Bitcoin and Ethereum and invested in multiple Web3 ecosystem projects, signing a subscription agreement with a digital asset fund under a certain capital to conduct strategic cooperation in Web3 game development and the Bitcoin ecosystem. The company has stated: "Purchasing and holding crypto assets is an important measure for the Group's development and layout of Web3 business, and it is also an important part of the Group's asset allocation strategy." As of the latest announcement, Boyaa Interactive holds 2,641 Bitcoins and 15,445 Ethereums, with total costs of approximately $143 million and $42.578 million respectively.

It is worth mentioning that due to the recent activity in the Crypto Assets market, both Bitcoin and other Crypto Assets have welcomed