Climbing to $52,000, will Bitcoin-related stocks become the "new aristocracy" in the Hong Kong stock market?

The rise is crazy! Surpassing $52,000 per coin, doubling in value in just one year, the price of Bitcoin has once again reached the high point of 2021, driving the uptrend in the cryptocurrency market.

Zhitong App has learned that the cryptocurrency market has been hot recently, with Bitcoin being the most eye-catching. The coin has surged from its low point at the end of November 2022 (around $15,400 per coin) all the way up to approaching its previous peak. On February 15th this year, it broke through $52,000, marking a staggering 238% increase. With Bitcoin leading the way, other mainstream coins such as Ethereum and Bitcoin Gold have also doubled in value.

The continuous surge in Bitcoin prices can be attributed to three main reasons: firstly, it has gained recognition from multiple countries and regions, especially the United States, where its value has been acknowledged, attracting institutional investments. In January of this year, the U.S. approved the listing of the first batch of 11 Bitcoin ETFs, and the first Bitcoin ETF in Hong Kong is also in preparation. Secondly, Bitcoin will undergo a halving in April this year, reducing the reward per block from 6.25 coins to 3.125 coins, a biennial halving that drives the price increase. Thirdly, the market has gained acceptance, with funds gradually flowing from traditional capital markets such as stocks, bonds, and commodities to the cryptocurrency market amid risk aversion sentiment.

It is worth noting that the fluctuation in Bitcoin prices has sparked investment interest in concept stocks. While there are not many Bitcoin concept stocks in the Hong Kong stock market, including Meitu (01357), Xun'an Technology (01647), Okcoin Cloud Chain (01499), and New Fire Technology (01611), the first three hold cryptocurrencies, while New Fire Technology, in addition to holding coins, is also a cryptocurrency exchange, making it the most pure concept. So, which one is most worth paying attention to?

Bitcoin's strength, driven by multiple factors

For concept stocks to rise, Bitcoin must first maintain an upward trend. In fact, since its inception, Bitcoin has been constantly questioned, but skeptics are proven wrong by its price every year. Now, Bitcoin, like precious metals such as gold, is considered to have storage value, and some countries have even adopted it as part of their national reserves. Since the introduction of Bitcoin ETFs in the U.S. early last year, various regions have followed suit, especially Hong Kong, allowing retail investors to participate in the cryptocurrency market.

Institutional active participation is the biggest driver of Bitcoin prices. According to data, more than 10 spot Bitcoin ETFs approved in the U.S. include products from 11 asset management institutions such as BlackRock, Ark Investments, 21Shares, Fidelity, Schroders, VanEck, and others. The newly launched spot Bitcoin ETFs continue to attract inflows of funds, bringing substantial incremental capital to the cryptocurrency market.

Overseas policies, investment institutions, and the ability for retail investors to trade are all leaning towards the cryptocurrency market. Coupled with the impact of halving mining, it is difficult for Bitcoin not to rise. In fact, the halving of Bitcoin in 2020 resulted in over tenfold returns, and now, with another halving in 2024, the market is left with room for imagination.However, now that the price has reached the previous high, the risk will be higher, and it will be more difficult to achieve the same level of returns as the last halving.

In the medium to short term, the favorable overseas investment environment is driving the bull market for cryptocurrencies, keeping Bitcoin in an upward trend. As for the Hong Kong stock market, it will also see a correlated market trend. After the holiday, confidence in Hong Kong stocks investment has been restored, and the concept of Bitcoin follows the price of Bitcoin in the same direction, with significant capital inflows. The digital currency sector has seen an increase of over 10% in the past three weeks, with New Fire Technology and Xiongan Technology both rising by over 20%.

EuroCloud Chain Holds a Heavy Position, Meitu May Earn Over 400 Million

New Fire Technology is the most authentic Bitcoin concept stock in the Hong Kong stock market, mainly providing virtual asset trading and technical solution services. Its virtual asset trading includes providing customers with virtual asset lending asset management and over-the-counter trading platforms, acting as an exchange. In the 2023 fiscal year, revenue generated from over-the-counter trading and lending management services amounted to HKD 2.811 billion, accounting for 99.19% of total revenue.

After exiting the Chinese market in 2021, the company's development has not been optimistic, and it faces significant debt issues. As of September 2023, the company's interest-bearing debt amounted to HKD 467 million, accounting for 62.3% of total assets and 219.2% of net assets. This has led the company to continuously sell off its assets in the 2023 fiscal year, including Win Techno Inc, Animoca Brands Corporation Limited, Pindingshi, Pindeshi International, Pinjie, and Yapei, bundled for sale. Additionally, proposed sales include New Huo Solutions Limited, HBTPower Limited, and HBTPower Inc. According to the financial report, the company's non-current assets have been cleared in mainland China, Japan, and the United States, with only HKD 77 million remaining in Hong Kong.

New Fire Technology has two fund products with a total asset ratio of over 5%, namely New World Pioneer Mining Fund and NH Investment SPC, with face values of HKD 57.8 million and HKD 106.9 million respectively as of 2023, totaling 22.03% of total assets. Its fair value of cryptocurrency holdings is approximately HKD 73 million. With Bitcoin's increase of 92% from September last year to now, it is expected that the company's fair value of cryptocurrency holdings will bring in nearly HKD 70 million in revenue.

It is worth mentioning that among the concept stocks holding assets, EuroCloud Chain has the heaviest exposure to digital currencies. The company is mainly engaged in foundation, building construction engineering and supporting services, construction waste treatment services, and digital asset-related businesses. According to the interim report for the 2024 fiscal year, its digital assets amount to HKD 800 million, accounting for 75% of total assets.

As disclosed, the company holds 1,725 Bitcoins, 6,571 Ethereum, with a total value accounting for 43% of total assets, and 21.7% of assets are held in stablecoins. If the number of holdings remains unchanged, based on the current prices of the two cryptocurrencies, the company's holdings of Bitcoin and Ethereum are valued at HKD 699 million and HKD 150 million respectively. From September last year to now, it has earned nearly HKD 400 million in total, which is 201% of net assets as of September 2023.It is expected that Ecolink will have a good profit record in the second half of the 2024 fiscal year and the first half of the 2025 fiscal year.

In addition, Meitu Company is mainly engaged in image design, beauty industry solutions, and advertising business, contributing 47.7%, 23.75%, and 27.7% of the revenue respectively. Cryptocurrency is treated as idle investment and not included in the revenue entry, but accounted for as financial assets. As of June 2023, the company held 940.497 bitcoins and 31,000 ethers, with a total holding cost accounting for about 10% of total assets.

At the current coin prices, the company's holdings of bitcoins and ethers are valued at 351 million yuan and 653 million yuan respectively. Based on the cost disclosed in the semi-annual report, the company has earned 161 million yuan from holding bitcoins and 288 million yuan from holding ethers, totaling 450 million yuan. The company's fundamentals are still good, with historical revenue growth but not profit growth. It has been incurring losses in net profit for many years, with low net profit margins in the past two years. The profits from holding coins this year have already exceeded its operational level.

Xiongan Technology is engaged in building services and construction engineering services, with a digital currency business. As of September 2023, its digital currency inventory was approximately 3.698 million Singapore dollars, equivalent to about 20 million yuan, accounting for 5.66% of total assets. The fluctuation in bitcoin prices has a relatively small impact on the company's performance. Its performance is not impressive, with fluctuating revenue and continuous losses for many years, making it less attractive compared to other concept stocks.

Overall, the biggest beneficiary of the rise in bitcoin prices is obviously Ecolink, which treats bitcoin investment as its main business, with a high asset allocation and holdings of both bitcoins and ethers, making substantial profits. However, it is worth noting that the company's original business performance is poor, with declining revenue for many years and a high dependence on bitcoin. If there is an unfavorable trend, it will have a huge impact on its performance.

Meitu is a relatively stable company with a decent coin value. It has also gained a good return in this surge. Compared to Ecolink, even if bitcoin prices retreat, the overall impact on performance is limited. In addition, Xinhuo Technology, although the most pure concept stock, lacks foresight, has a low coin value, and is deeply in debt. Xiongan Technology has the weakest concept and a low coin value, making it difficult for its performance to support its continued market performance.

Of course, the sector investment heat is strong, and the short-term strength of bitcoin will continue to drive related concept stocks higher. It is advisable to focus on Meitu Company and Ecolink.