Cryptocurrency Bitcoin (CRYPTO: BTC) was one of the best investments you could have made in the past few years. It has increased approximately sixfold in the last 24 months, and several times more over its lifetime.
Bitcoin’s market capitalization has soared to around $820 billion, more than a third of the total value of cryptocurrencies. Bitcoin’s rate of appreciation could slow to this large size, making possible a bear market for Bitcoin in 2022 if investors cool down.
Meanwhile, the technology is creating value in the broader cryptocurrency space, including the data analytics firm Palantir Technologies (NYSE: PLTR) launch of Foundry for Crypto. While Bitcoin’s earnings track record is impressive, Palantir shares could overtake Bitcoin in 2022. Here’s why.
Is Bitcoin predicted for a mild year?
Bitcoin has grown over 29,800% over its lifetime, showing how ridiculously good this investment has been for early investors. The price has continued to multiply, increasing about sixfold over the past two years, but only 20% over the past 12 months.
Bitcoin is currently on the decline after hitting an all-time high at the end of 2021. Admittedly, no one can predict the course of cryptocurrency prices. But Bitcoin does not have income or free cash flow like stocks, which can be a kind of compass to value them. Bitcoin and other cryptocurrencies are primarily a function of supply and demand.
Let’s assume that investors begin to hesitate to “buy the dip” due to Bitcoin’s negative price momentum. If so, investors could see a soft 2022 for it and other cryptos, especially after the massive price action seen from 2020 and 2021.
Foundry for Crypto can help the industry
Cryptocurrencies have become popular for several reasons; they run on blockchain technology, a type of ledger that publicly tracks each transaction as a continuous chain so people can’t alter it.
Blockchain technology means that cryptocurrencies are decentralized; they are not run by one party, like how the government controls the US dollar. The unregulated nature of cryptocurrency is an advantage for many crypto investors, but there could be obstacles that slow down how decentralized currencies are adopted by society.
For example, the cryptocurrency space has become something of a Wild West, where scams are rampant, and coin “pump and dump” schemes typically leave investors with losses after founders give up. the project once they have made money.
Palantir’s Foundry is a software-as-a-service data platform that interacts with data to help users make actionable decisions. It can integrate data, perform analysis, create models, map and track decision making. It’s almost like Iron Man’s power armor; it doesn’t work on its own, but it makes a superhero when combined with the user.
Palantir launched Foundry for Crypto to gain exposure to the growth of cryptocurrencies and decentralized applications. Foundry for Crypto lists offerings including anti-money laundering, fraud detection, intelligence for decentralized applications, and analytics on blockchain. It’s still very early days, and Palantir will need to elaborate on the program’s progress over the coming quarters and years. Still, Foundry could prove a valuable tool in a space where security and regulation are lacking. Cryptocurrency is still speculative, but some believe it could become a huge field, which could be a huge opportunity for Palantir in the long run.
Why Palantir Could Soar in 2022
Bitcoin isn’t the only asset to come out of a big run; Shares of Palantir also struggled amid a market-wide sell-off in tech stocks. Shares are currently near 52-week lows, falling from $45 per share to below $17.
Palantir’s price-to-sales ratio declined on a forward basis from near 48 to below 17 as the company’s revenue continues to grow while the stock price declines. Meanwhile, free cash flow has turned positive over the past year, a good sign that the company is on the path to profitability. Adjusted free cash flow was $119 million in Palantir’s last reporting period, the third quarter of 2021, compared to negative $53 million in 2020.
The reduced valuation of the stock could present an excellent buying opportunity, as the company turns a corner by producing free cash flow. Management has maintained a long-term revenue growth projection of at least 30% per year over the next four years.
If the market returns to favoring fast-growing companies, Palantir’s improving financials and signs of continued growth in the coming quarters could make it a big winner in 2022.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.