Citi Reveals Top Crypto Stock Picks Ahead of Q3 Earnings

On today's public keys at the New York Stock Exchange, Bitcoin ETF shed almost a billion dollars in two weeks as hot inflation revives rate hike fears. City is more bullish on crypto equities ahead of Q3 earnings and why a Wall Street veteran is betting on Avalanche. I'm Jen Sassie. Let's get into it. Happy Monday everyone. We are days away from Q3 earnings and city is turning more bullish on crypto equities. The bank upgraded Galaxy and Gemini this week while downgrading secure ties. City 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 company's building crypto's infrastructure, not just betting on token prices. Joining me now to break it down is Pete Christensen, director of digital assets equity research at City. Hello. >> Good morning, Jen. >> Thanks for being here with me. >> Great to be here. Thank you. >> All right, let's dig into this. Um, we're talking about companies that are positioned around tokenization and market infrastructure with a preference for AI enabled infrastructure that's really driving um, what you're looking at. Just lay a foundation for me. Uh, what's standing out for you? >> Sure. So, there's kind of two areas uh, three actually. Um, and I think most equity investors are trying to avoid just pure crypto beta. They can get that in many other different in many different ways. So we're kind of looking for something that is more infrastructure laden uh that certainly produces uh a convergence between tradi and and and digital assets. So those key areas obviously we see that in the bitcoin miners as they transitioning pivoting from uh from bitcoin mining into uh hypers scale and and high performance uh compute. The next area which is all the buzz this year is certainly tokenization of real world assets. Um there's there's not as many names to play in that area right now and and things are still being uh uh figured out but uh we do cover secure ties uh which could be a large beneficiary and also bullish uh which we are quite bullish on uh it's our number two pick and then I think like the third area tangental I think we get more into like stable coins uh and agentic payments and and and and more uh things that modernize our our rails particularly in any any in terms of value transfer. >> I mentioned in my intro securitized downgraded uh talk to me a little bit about why especially given the fact that we're talking about tokenization being a major theme here. >> Yeah. No, we're we're very positive on the theme. Um we we actually do believe Securitize has a very impressive stack and great positioning. Um 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. Um, and that name has been quite volatile. Um, I I think at one point it jumped north of $15. Um, and I I think investors need to to to be more incremental, see the data points as they come by. Uh, to to see how unity economics are going to evolve. We still don't we're not exactly sure. You know, yes, we 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 is a big question. The other issue is there's some technical uh lock up expiry issues with their shares at at certain thresholds. So, at 1250, $15, $1,750, certain shares of the sponsor uh get get unlocked. So, that could introduce some short-term supply. So I I think uh I think at this point um uh the riskreward I I think is a is a bit more balanced. The reason why we we downgraded to neutral and we'll look for a better opportunity to get back in >> securitize a tokenization play bullish the parent company of CoinDesk also a tokenization play. Um if investors are are looking to to make a bet on this narrative what should they be listening for um in the Q3 earnings calls? Well, um, we'll hear I'm sure we'll hear uh positive rhetoric from both bullish, our number two pick and and and a great play on the tokenization theme and also from securitize. Uh, 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, uh, I think that's going to be the initial focus. The SEC's innovation exemption is is a little bit limited at first. um 75 tickers uh uh per trading venue um caps on market cap and and and I think that's appropriate. We need to work out the kinks and see how this flows initially. Um but uh I think that uh investors are starting to come around to the value prop. Uh there's certainly a value prop for issuers. Um there's certainly a value prop for retail. Um when you think about like um uh hey I own McDonald's stock for instance and I can show them I'm 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 sense of real-time data but the buy side investors been questioning okay do we really need this uh and the the the way equity markets are structured today are are fairly efficient. So I think the the narrative that's emerging there is collateral mobility uh as a as a major opportunity. There's uh we think about the prime brokerage business today and how most of our clients are are are posting or overcolateralized. They're putting collateral to to work too early just to avoid operational mishaps. Uh I think tokenization really brings a a broader efficiency to that whole process and could induce more trading. uh and certainly um um um uh better use of and more efficient use of collateral. >> I want to pivot and talk about strategy. Now we have the Msei planning to classify strategy as non-operating which would make it ineligible for indexes globally. Talk to me about what we should be watching here and what are the different scenarios we're going to see play out for strategy or we might see play out for strategy. >> No, that's that's fair. Uh I think that was expected. We called it out on our last note. Um, we're not we weren't too surprised by that. Um, and and and the investors that we speak to that are are interested in uh amplified Bitcoin uh exposure or or or sometimes we get some investors interested in in understanding how the preferreds work. I don't think they're really indexers. Um, and they're not there to to beat an index versus those who are more thematic oriented. I think the key question I mean this is going to this is a tough year for for MSTR uh obviously dilutive there will be a negative Bitcoin yield for 26 be uh since they built up that cash reserve and and certainly had to sell some Bitcoin at unfavorable prices. So I think the key is how do they restart uh that Bitcoin yield generation for 27 um and and that will be a key question. And the other question and I think uh it was mentioned is um uh do does strategy think about capping its overall exposure to Bitcoin? Uh there was I think some some rhetoric out of the company that they are the central bank of Bitcoin. I don't know if that sat too well with that many investors. We keep on getting inbounds on that issue. um and you know given the point that Bitcoin is supposed to be this great decentralized uh um uh value exchange or monetary exchange uh mechanism. So there is some questions on that but I think for us the primary uh question is is is getting Bitcoin yield back back on the trajectory that it was before we hit this route in the summer. >> What's your uh bull baron base case for strategy? Oh. Um, well, it it it does vary quite a bit because it's not it's not a linear relationship and we also use city's uh bitcoin uh forecast which is run by our our macro team. Uh right now our team is forecasting 113k uh over the next 12 months. Uh with that we apply 1.2 1.25 25 MNAB which is really a multiple of the uh of the Bitcoin yield that we forecast which is I think around 6 or 7% which gets us to that uh 1.25 mechanism. Now we've seen the Bitcoin multiple uh the MNAV expand uh when when Bitcoin is is on a tear, sentiment gets ahead of itself. So it could certainly go higher uh than our than our current target. Um and then on the flip side it's the other way around, right? So, I think um you could see um if Bitcoin were to capitulate like it like it had somewhat in the middle of the year, you could see downside to to levels maybe even lower than we had over the summer. >> In my teaser at the top of the show, I mentioned almost a billion dollars of flow out of Bitcoin ETFs in the past two weeks with hot inflation um reviving bets on more rate hikes. I just want to talk to you a little bit about how the broader macro backdrop I guess how much does it matter when we're looking at crypto equities moving into our next earning season. >> Yeah, for certain names it it it does matter quite a bit and it does for those names that are have token beta that are exposed to Bitcoin prices, ETH prices, what have you. Um, and that goes for the exchanges like CoinDesk, uh, sorry, Coinbase, um, and and and some other names like that. we we we're more in favor of the names that have less exposure there. So our top pick is circle stable coins obviously is uh I think uh something that we're going to be talking even more and more about over the coming months once gen Genius Act gets implemented but yeah the macro is important right now with the miners we're facing a little bit of the AI AI unwind trade right now as risk enters the financing markets there and there's some perceptions of that um and and we're also looking at just yields on the Treasury curve and and how they're they're rising. uh you could kind of make the case that that creates a positive tailwind for Bitcoin in in that scenario as well. Uh so that's kind of that whole debasement trade could could kick up again and that's one of the things our strategist has been talking about quite a bit lately. >> All right, we got to go. But really quickly before I let you go, your top pick is circle. Talk to us about your circle target and what needs to happen for uh circle to get there. >> Yeah, we're our our target is 243. uh we are certainly above consensus there and and simply I mean uh I covered fintech for many years there's a reason why there was only a handful of major payment networks uh and we think the head start that they have especially now with Agentic Commerce but the liquidity that they have out there and the compliant nature of of their platform and now ARC coming to bear uh we think that they will be a preferred settlement rail for a lot of clients out there um I'm not I don't I'm not sure if they're going to be number one um or number two but I think they're going to be in the conversation for a long time and I think there's an incredible uh uh addressable opportunity that they can address across crossber payments real world asset tokenization a lot of these activities need to be settled in in something and we think stable coins will become a default uh in that case and then now agentic payments which is a super exciting space uh which uh we think there's a lot of upside there and and circles agent stack is in my view is is is quite an impressive offering. >> All right, Pete, we got to leave it there. Thanks so much for joining us. >> Thanks, Jen. >> And happy birthday. >> Oh, thank you so much. I appreciate it. Thank you. >> All right, that was Pete Christensen, the director of digital assets equity research at City. We're going to take a quick break. We'll be right back. Inside a dependable watch, hundreds of moving parts become one precise signal. Digital asset markets are just as complex. Coindesk data and indices turns fragmented market data into institutional grade data. reference rates and regulated indices. Benchmarks used to price markets and build financial products. Trusted by institutions for more than a decade. Coindesk data and indices build on the market standard. >> Welcome back to CoinDesk's public keys from the New York Stock Exchange. Our next guest calls tokenization a rebrand of crypto and a sign that Wall Street has finally come around. He's betting that a lot of that activity will land on Avalanche and his company, Avalanche Treasury Co. gives investors a regulated way to ride that growth. Joining me now is Bart Smith, the CEO of Avalanche Treasury Co. Hello. >> Hello. Thanks for having me. >> Thanks for being here. Now, with our last guest, we were talking about Q3 Q3 earnings. We're doing a lot of bull bear based cases. Set a foundation for us. Talk to me a little bit about the Avalanche ecosystem and give me your bull bear and base case. So uh over the course of the last particularly 90 days there's been a lot of great announcements uh you know with uptake of the avalanche ecosystem within traditional finance and you know I think one that uh kind of flew a little under the radar was the UAE uh is taking their national ID and putting that on uh on Avalanche uh which was you know a massive win for the ecosystem. So it's not just trady. Um right now I think under kind of in the background you're seeing a lot of uptake from banks, brokerages, asset managers. I think the macro environment has been really difficult. Obviously inflation's high. The you know we have wars in on two continents. Um and that that's kind of creating a lot of uncertainty. The VIX on Friday kind of exploded. Uh but yet crypto prices continue to rally back. Uh equity prices are at alltime highs. So, I think this is like a kind of a classic like riding a wall of worry environment. Um, I do feel like if you were to get through the midterms and you were to get to a softening inflation uh environment where you would think that that rates would come down, I do think that avalanche and just broadly crypto is kind of a coiled spring. I think when that environment happens, I think you're going to see prices rip. uh a a lot of the investors and folks I talked to, you know, they really get Bitcoin, Ethereum. They're starting to learn about different different digital asset ecosystems. Salana probably comes in after ETH. Talk to me a little bit about how Avalanche differentiates itself from from your perspective if you're talking to an investor who's just starting to learn about these different ecosystems and what they offer. What would you tell them? >> Uh I would say that the the original crypto, the the OG is uh is Bitcoin. It's it's one token and one chain. And then uh you know Vitalic Bdderin and and Gavin Wood and a bunch of the original Bitcoiners decided they wanted to do smart contracts and they created different chains that were onechain multicoin. Uh Emmanire the inventor and creator of Avalanche saw that that would be insufficient for a lot of different people because you know one person one chain's compliance or structure doesn't necessarily fit the need of all. So he created the avalanche ecosystem which is multicoin multi-chain. uh what we're seeing now as institutions like I said asset managers brokers banks are coming in they have to accept the compliance of the chain that they choose right and so if that chain is fully disclosed and they want to have a you know private transaction or they want to uh obscure their customers of their own private information they have to build on you know a layer two or they have to take on all these kind of different things that aren't core to the to the ecosystem it with Avalanche You can spin up your own L1. You can embed your KYC, embed your own AML, you can permission whomever and whatever you want people to see. So it really creates kind of a walled garden that institutions can feel comfort and build around, but yet connects to a fully decentralized, you know, high throughput EVM compatible chain. So I think that that's the big differentiator is that when you talk to institutions, they say, I don't know how to get off of zero. And what we say to them is that you can spin up your own chain. You it's totally up to you how what information you put in there. You can permission who you want. And that gets people to understand, okay, this is how I'm going to dip my toe in the water. And I think that's where Avalanche is having a lot of their success. >> Now, Avalanche Treasury Co. ticker Avat. Um, talk to me, talk to to investors who are watching this when they're thinking about maybe allocating capital to the Avalanche ecosystem. They could obviously own the spot crypto. they could look at an ETF or something like that or they could look at a treasury company. Why Avalanche Treasury Co.? >> So the, you know, I I came from the ETF world. Uh uh I was I was I was an ETF guy for for for many years and I and I and I still believe that the ETF is was one of the greatest uh financial uh services creations of all time. Uh the thing about owning a very volatile asset and and any any kind of nient technology like crypto is going to be volatile. uh an ETF has to respond to the market, right? If someone wants, you know, if if they come in on a day where there's a lot of exuberance in the market and they and money comes in that ETF, they have to buy uh you know, the underlying asset on that day. And conversely, when there's moments of fear, which happen in crypto and there's a flood of orders go out, then then you have to sell on that day if you're the fund manager. And so that kind of exacerbates a lot of these cycles. Uh the nice thing about having a regulated permanent capital vehicle like the Avalanche Treasury Company is we don't have to respond to that, right? So when the market is fearful and the the you know the the our stock price might be trading below its intrinsic value, it provides an opportunity for us to buy back our shares in the market. Conversely, when you got to periods like we had last year where there was tons of exuberant exuberance and the stocks were trading in many cases at very high multiples compared to their underlying holdings, they were able to sell shares there and take those and buy the underlying asset. So I I believe that a permanent capital vehicle that does not have to respond to daily uh uh creation and redemption requests is is a better model and that also allows us to take an intermediate and long-term view on other things that we can invest in in the treasury company. So taking positions in uh other companies or other tokens or protocols that are building on top of the Avalanche ecosystem so that our shareholders can get exposure to not only the AVAC token but a more holistic uh exposure to the success of the Avalanche ecosystem. >> You mentioned you were an ETF guy and I know that you compare tokenization the tokenization moment to what we saw with ETFs in like 2010 2011. did give me a little bit of of a comparison here. Uh what was happening then, what's happening now? What are the parallels you see? So, it's funny because every everyone forgets that ETFs were demonized, you know, by by traditional asset managers in the 2006 to 2008 time frame. Um, as they were kind of taking more and more market share away from active management. Um, that there were all of these uh concerns that that that the ETF wouldn't hold up under stress and that, you know, if there was a a volatility event that they would it would crash and they would and they would crumble. And then obviously 2008 uh happened and the ETFs really shined. And on the back side of that, I think most of Wall Street kind of embraced ETFs as a positive thing and then kind of got on board and then obviously the industry was able to grow from there. I think I think we're in a similar trajectory right now where there was a lot of concern and some of it might be might have been well earned but by and large you know it does feel at at the most of it is just protecting the incumbency of traditional finance. Um, what you're seeing now is tokenization is just a way to say that we're accepting that crypto rails have benefits to the to the industry. And so, you know, I think I think the word tokenization is just saying crypto without all the baggage. And so I I think what you're seeing in all these partnerships with kind of the New York Stock Exchange and and and OKX and NASDAQ partnering with Kraken that these that you're seeing the the incumbent trad partnering with cryptonatives because tokenization is happening in real time and those partnerships are going to allow traditional rails to have the the compliance and regulatory uh requirements that that the traditional finance has. and traditional finance can can borrow those uh those digital asset rails that they're not an expertise in. And the two of them coming together is speeding up this process, which is why I think people are getting so excited about 2027 and what we're going to see as far as real world assets coming on chain. >> I want to draw on your ETF expertise one more time and pivot a little bit away from Avalanche. Uh we were previously on the show talking about Bitcoin and ETH ETF flows. Bitcoin saw a billion dollars flow out in the last two weeks. I almost a billion dollars. ETH I think saw almost a billion in the last three weeks. If we step out of that and take a look at it um against the broader macro picture, how should investors be making sense of these flows? >> I mean the flows are are an attribute to look at, but I think in the in the grand scheme of of trading volumes, it's there it's not a to it's not a majority of the asset. So I think it's a very important input. Bitcoin is a macro asset at this point and so it is it is driven mostly by people's future expectations of liquidity and interest rates and and the Treasury Department's activities. Um and so I think that at this point Bitcoin has matured into just being digital gold. And and I think that you're going to continue to see that narrative gain more and more appreciation from even the the the the most dogged uh holdouts. Um Ethereum is a little bit different, right? Because Ethereum is a smart contract platform, not dissimilar from Salana and and Avalanche. And so I think when people buy Ethereum, they're making future bets on the uptake of Ethereum versus Salana versus Avalanche. So I think that that is less of a pure macro play. Although liquidity in the markets is going to drive all crypto prices higher. So I would I would consider Ethereum more of a hybrid play on macro and the future um expectation of growth in tokenization on Ethereum whereas I believe that that with Bitcoin it's really just a a macro asset. >> All right, Bart, we got to leave it there. Thanks so much for joining us today. It was a pleasure having you on the show. >> Thanks. Thanks so much. All right, that was Bart Smith of the Avalanche Treasury Co. That's it for CoinDesk's public keys at the New York Stock Exchange today. I'm Jen Sassy. Thanks for watching and we'll see you next week.