Citi Reveals Top Crypto Stock Picks Ahead of Q3 Earnings

Jennifer Sanasie (0:00)

On today's Public Keys with the New York Stock Exchange, Bitcoin ETF shed almost a billion dollars in two weeks as hot inflation revives rate hike fears. Citi is more bullish on crypto equities ahead of Q3 earnings and why a Wall Street veteran is betting on Avalanche. I'm Jen Sanasie, let's get into it.

Happy Monday, everyone. We are days away from Q3 earnings, and Citi is turning more bullish on crypto equities. The bank upgraded Galaxy and Gemini this week. While downgrading Securitize, Citi points to a stronger backdrop. Crypto's total market value climbed to nearly $3 trillion last quarter, and ETF money is flowing back in. It also says investors are rewarding the companies building crypto's infrastructure, not just betting on token prices. Joining me now to break it down is Pete Christiansen, Director of Digital Assets Equity Research at Citi. Hello.

Pete Christiansen (0:51)

Good morning, Jen.

Jennifer Sanasie (0:52)

Thanks for being here with me.

Pete Christiansen (0:53)

Great to be here.

Jennifer Sanasie (0:54)

All right, let's dig into this. We're talking about companies that are positioned on tokenization and market infrastructure with a preference for AI-enabled infrastructure that's really driving what you're looking at. Just lay a foundation for me.

What's standing out for you?

Pete Christiansen (1:11)

Sure. There's two areas, three actually. I think most equity investors are trying to avoid just pure crypto beta. They can get that in many different ways. We're looking for something that is more infrastructure laden, that certainly produces a convergence between TradFi and digital assets. Those key areas, obviously, we see that in the Bitcoin miners as they're transitioning, pivoting from Bitcoin mining into hyperscale and high-performance compute. The next area, which is all the buzz this year, is certainly tokenization of real-world assets.

There's not as many names to play in that area right now, and things are still being figured out. But we do cover Securitize, which could be a large beneficiary and also bullish, which we are quite bullish on. It's our number two pick. Then I think the third area, Tengental, I think we get more into stable coins and agentic payments and more things that modernize our rails, particularly in terms of value transfer.

Jennifer Sanasie (2:23)

I mentioned in my intro, Securitize downgraded. Talk to me a little bit about why, especially given the fact that we're talking about tokenization being a major theme here.

Pete Christiansen (2:31)

Yeah, no, we're very positive on the theme. We actually do believe Securitize has a very impressive stack and great positioning. However, that being said, we think investors should be a little bit more incremental. It's kind of playing where we are in the hype cycle. And that name has been quite volatile, I think at one point it jumped north of $15.

And I think investors need to be more incremental, see the data points as they come by, to see how you need economics are going to involve. We still don't, we're not exactly sure.

Yes, we do believe that tokenization is going to proliferate among equities, bonds, what have you. But how much are they going to get paid for it is a big question. The other issue is there's some technical lock up expiry issues with their shares at certain thresholds, so at $12.50, $15, $17.50, certain shares of the sponsor get unlocked. So that could introduce some short term supply. So I think at this point, the risk reward, I think, is a bit more balanced. The reason why we downgraded to neutral and we'll look for a better opportunity to get back in.

Jennifer Sanasie (3:47)

Securitize, a tokenization play, Bullish, the parent company of CoinDesk, also a tokenization play. If investors are looking to make a bet on this narrative, what should they be listening for in the Q3 earnings calls?

Pete Christiansen (4:03)

Well, I'm sure we'll hear positive rhetoric from both Bullish, our number two pick, and a great play on the tokenization theme, and also from Securitize. I think more important to watch over the next couple weeks will be the official launch of trading at the New York Stock Exchange, Nasdaq, we'll see DTCC come out. So I think that's going to be the initial focus. The SEC's innovation exemption is a little bit limited at first. Seventy-five tickers per trading venue, caps on market cap, and I think that's appropriate. We need to work out the kinks and see how this flows initially.

But I think that investors are starting to come around to the value prop. There's certainly a value prop for issuers. There's certainly a value prop for retail. When you think about like, I own McDonald's stock, for instance, and I could show them a shareholder, I can get, I don't know, 20% off a Big Mac or something like that. So that whole ownership pricing model, which is kind of interesting, from issuers, they get a sense of real-time data. But the buy side investor has been questioning, okay, do we really need this?