Crypto Made ✨ Simple ✨: Hot Wallets vs. Cold Wallets
Given the FTX situation and current skepticism around crypto exchanges, I want to go over alternative ways to store your crypto.
When it comes to storing your crypto, you have two choices: “hot” or “cold.”
The difference here is simple. “Hot” wallets are connected to the internet, and “cold” wallets aren’t.
You may also see the terms “hot storage” and “cold storage.” For the purpose of this article, “wallet” and “storage” are interchangeable.
Crypto Titans & Seed Phrases
Metamask and Coinbase Wallet are popular examples of hot wallets. When you create an account with any hot wallet, you’ll get a “seed phrase,” which is a list of random words.
You’ll need to save that list of words (in the exact order in which they’re listed) in a safe place. Think of the seed phrase as a password to recover your wallet if you lose access to it or need to load it onto a new device.
Pros & Cons 🤔
Managing your own seed phrase is the downside of self-custody. However, it also comes with a very important upside: You’re not relying on someone else to hold on to your crypto.
Given what’s happened with FTX, Celsius, Voyager, and other exchanges/crypto platforms this year, letting someone else control your coins is clearly not always safe.
As for cold wallets, these are seen as the safest way to store your crypto.
Examples of cold wallets include Trezor or Ledger, physical devices that you plug into your computer to access your coins. These also require a seed phrase to access your coins later.
The downside with cold wallets is that you can’t really do much with your crypto once it’s in a cold wallet. With a hot wallet, you can still use apps in the crypto world, such as the ones we’ve gone over in prior articles: Uniswap and Zerion.
Either way, having self-custody puts full responsibility on you to keep track of your crypto.
Alternatively, when you have your crypto on an exchange, they’re the custodians. The benefit of having an exchange in control of your coins is that you don’t need to worry about managing things like private keys or seed phrases.
Ultimately, it’s up to you and your personal preference whether you keep coins in exchanges, hot storage, or cold storage. Personally, I have money in all three (most in cold storage, almost as much in hot storage, and the least on Coinbase).
On Friday, we’ll go over the importance of public blockchains for tracking crypto, which is also very pertinent given the FTX situation, so be sure to tune in!
With earnings season in full swing, there’s a lot to cover. But if you’re pressed for time, check out my summary in the video below. ⬇️
Performance Update
Performance:
Disruptors Index: 3.9%
S&P 500: 3.99%
Nasdaq: 6.67%
Russell 2000: 2.96%
ARKK: 11.2%
Top 3 Performers:
DocuSign Inc. (NASDAQ: DOCU) +21.27%
Teladoc Health Inc. (NYSE: TDOC) +18.92%
Plug Power Inc. (Nasdaq: PLUG) +15.49%
Bottom 3 Performers:
Ethereum USD (ETH-USD) -24.09%
Bitcoin USD (BTC-USD) -21.89%
Desktop Metal Inc. (NYSE: DM) -8.37%
It’s been a great week for growth stocks with many of the disruptors up 10% or more.
However, our weekly portfolio return took a hit due to the selloff in crypto, with Bitcoin and Ethereum down over 20% for the week. Earnings helped us out as well, lifting stocks such as PLUG 0.00%↑ Plug Power Inc. (Nasdaq: PLUG) and LMND 0.00%↑ Lemonade Inc. (NYSE: LMND).
Earnings Update 💸
PTC Inc. (Nasdaq: PTC)
Highlights:
Operating margin up to 28.99% from 24.08% year over year.
Big growth drivers like Arena (PLM), Thingworx (IOT), Onshape (CAD), and Vuforia (AR) are already profitable or nearing profitability.
“Velocity” segment (high-growth products) annual revenue (fiscal 2022) grew 29% from 2021 (includes Onshape, Arena).
Expecting $560 million in free cash flow in fiscal 2023.
Even though this earnings season was for calendar Q3, it was fiscal Q4 for PTC 0.00%↑, wrapping up a great 2022.
As a reminder, PTC 0.00%↑ is the dominant player in the product lifecycle management (PLM) industry, which essentially means it creates tools to help companies innovate and create quality products.
To be successful at this, it’s developed some of the most cutting-edge technology, such as the growth drivers listed above: Thingworx, Onshape, and Vuforia.
In my opinion, these are why PTC 0.00%↑ has real value. And the fact that margins in these products are coming down and almost profitable is a great sign for 2023.
Overall, PTC 0.00%↑ reported sales growth of about 7% from a year ago. That’s not a lot for a “growth stock,” but it’s not as bad as it looks.
Right now, the biggest issue for PTC 0.00%↑ is the strong dollar. Over half its sales are to countries outside the U.S., all of which saw their currencies decline against the dollar in Q3.
So, if you take out the effect of the strong dollar, the revenue growth would’ve actually been 16%.
Finally, the thing that stuck out to me the most on its earnings call was that even though the company is cautious for economic reasons, the demand for its products is basically off the charts.
This is a perfect example of “disruptor company” demand versus “disrupted company” demand.
Here’s the direct quote from the CEO:
Proto Labs Inc. (NYSE: PRLB)
Highlights:
$84.6 million in cash, no debt, and only $96.1 million in total liabilities.
23,816 unique product developers served, up 366 year over year.
Hubs revenue growth of 38.5% year over year.
Hubs gross margin up to 26% from 17.2% year over year.
Fifth straight positive cash flow quarter.
Unfortunately, we got a rough earnings report for PRLB 0.00%↑ in Q3. Sales fell 4.1% in the past year, and they expect Q4 sales to be down 10.2% year over year. Its margins have also fallen in recent quarters.
Clearly, the market was unhappy with this report. However, I still like the stock for all the reasons I listed above.
The biggest reason is its Hubs business, which it acquired in 2021.That’s still seeing impressive growth in revenue as well as margins, and I believe it’ll continue to do that — but for now, it’s still a relatively small part of the company.
PRLB 0.00%↑ is also very solid from a financial standpoint. Its cash balance is almost as much as its entire liability balance, and it has no debt. So, while it’s not ideal to see revenue and margins fall for the time being, there’s still a lot of value in its financial position.
Speaking of value, the stock is currently trading at a market cap of $654 million, while its 2023 sales are expected to be $491 million.
That gives it a price/forward sales ratio of 1.33, which is extremely low for a company with great financials, positive cash flow, and disruptive technology.
So, despite the temporary pocket of negative sales growth, I still believe the future is bright for PRLB 0.00%↑.
Energy Fuels Inc. (NYSE: UUUU)
Highlights:
$2.9 million in sales, up 480% year over year (still super small).
$88.7 million in cash versus no debt and $19.2 million in total liabilities.
Plan to have at least one facility up and running next year.
760,000 pounds of uranium in inventory.
At least 3 million pounds worth of contracts — could be up to 4.2 million pounds over the next eight years.
Increased guidance for 2022 uranium production from 110,000 pounds to 130,000 pounds.
We got some more great news from UUUU 0.00%↑ from its Q3 earnings report, with the most important thing in my opinion being their increased production guidance for 2022.
Considering there’s only one quarter left, an 18% increase from 110,000 to 130,000 pounds is impressive.
Looking farther out, UUUU 0.00%↑ now has over 3 million pounds worth of uranium contracts, which could increase to as much as 4.2 million pounds versus 760,000 pounds in its current inventory.
So, UUUU 0.00%↑ still has lots of work to do when it comes to production, and it plans on opening up one or two of its U.S. facilities in 2023 to prepare for the demand.
Next week, we’ll go over the last of the disruptors’ earnings for Q3: LMND 0.00%↑, TTD 0.00%↑ The Trade Desk Inc. (Nasdaq: TTD), PLUG 0.00%↑, and Desktop Metal Inc. (NYSE: DM).
We’re not out of the bear market quite yet … but when things shift, innovative growth stocks with strong balance sheets tend to rocket. And quickly!
Which is why you want to be in these stocks prior to the big move up!
For coverage and guidance on stocks with BIG potential, click here to find a membership tier that’s right for you!
The Truth Behind the S&P 500 Earnings 💸
I also want to give an update on the broader market earnings this week as earnings season is just about done.
As of last Friday, 91% of S&P 500 companies had reported Q3 earnings. Of those companies, 71% reported better-than-expected sales, and 69% reported better-than-expected earnings per share (EPS).
Doesn’t sound too bad, right?
Trust me, it’s not as good as it sounds. Lots of these companies are coming off the high from all the COVID stimulus money, and that inflated growth from 2020 and 2021 is wearing off fast.
Plus, Wall Street likes to set the bar low to make things look better than they actually are, which can really distort the bigger picture.
For example, despite the majority of companies beating estimates, the overall earnings growth rate for Q3 is only 2.2% year over year. That’s the lowest growth rate since Q3 2020, and if it wasn’t for energy companies, it’d be a lot worse:
We also can see analysts taking no time to adjust Q4 estimates downward. The expected Q4 EPS growth now stands at -1.7%, a far cry from the 3.6% estimate from only a month ago.
The same rule applies for their 2023 estimates. Overall, analysts are still predicting earnings growth of 5.8% in 2023, which comes out to about $232.51 EPS for the entire index.
However, you can see on this chart that total EPS estimates have been moving down sharply over the past month (2023 estimates is the top line, 2022 is the bottom):
Analysts aren’t the only ones marking down estimates — the companies themselves are doing it as well. In fact, only 25 companies in the S&P 500 have reported positive EPS guidance for Q4, while 52 companies have reported negative EPS guidance.
So-Called “Blue Chips”
Overall, I think we’ll continue to see margins move down for the time being, especially if we get another rally in energy prices.
As I’ve said before, I believe it’ll get more and more apparent that many of the “blue chips” that were beloved by investors over the past years and decades are not exactly healthy.
Some of these companies will fail before others, but in the meantime, there’s a lot of potential for growth stocks with positive cash flow and solid balance sheets to shine.
With each earnings season, that’ll become increasingly obvious to the market.
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Is there a "3rd" option for crypto wallets. I use a ledger to work with Metamask. Sort of a cold/hot right? Or are there also major risks?
Thanks for good info., on hot and cold storage...I have some hot, Coinbase and Wealth Simple in Canada.