My Small-Cap Stock for 2025: A Picks and Shovels Play in Crypto and Finance

In the world of investing, trends come and go, but a common thread underpins many of them: the picks-and-shovels strategy. This approach focuses on investing in the tools and suppliers needed for an industry’s growth rather than the high-risk, high-reward companies that often dominate headlines. The strategy has proven successful through various technological booms, from the dot-com era to the real estate bubble, and it remains applicable today in sectors like cryptocurrency and finance.

Understanding the Picks-and-Shovels Strategy

The picks-and-shovels concept emphasizes the reliability and potential profitability of companies that provide essential services and infrastructure to growing industries. For example, during the internet boom, savvy investors turned to companies such as Cisco Systems (CSCO) and Ciena (CIEN), which supplied the necessary hardware rather than chasing risky dot-com stocks.

In the realm of artificial intelligence, Nvidia (NVDA) has emerged as a leading picks-and-shovels play, whereas others like Palantir (PLTR) and Broadcom (AVGO) also draw attention as reliable suppliers in this burgeoning field.

Revisiting Cryptocurrency

Bouncing back from a challenging bear market, cryptocurrency has regained traction, with traditional investors wary of directly purchasing volatile assets like Bitcoin or Ethereum. Many opt for exchange-traded funds (ETFs) that house leading cryptocurrencies, while MicroStrategy (MSTR) remains a popular Bitcoin proxy stock. Yet, the average investor in Main Street USA is hesitant to dive directly into the elusive world of cryptocurrency.

DeFi Technologies: A ‘Big’ Small-Cap Opportunity

This brings us to my small-cap stock for 2025: DeFi Technologies (DEFTF). With a market capitalization nearing one billion, an average daily trading volume of 1.4 million shares, and solid fundamentals, DeFi is poised for significant growth. Having filed its Form 40-F in September, the company is set on making its way to a Nasdaq listing.

DeFi Technologies provides a unique opportunity for investors to benefit from approximately 60 cryptocurrencies without the associated risks of speculation. This company has showcased impressive growth, solid net cash flow, and a robust balance sheet filled with cash and digital assets—qualities not commonly found in the cryptocurrency sector.

Business Segments and Growth Potential

Operating multiple business segments, including DeFi infrastructure, crypto research, market making, asset management, venture investments, and an arbitrage trading desk, DeFi Technologies displays a diversified revenue stream. Its asset management segment, Valour, presents a portfolio of over 60 exchange-traded products (ETPs), akin to ETFs in Europe. The assets under management (AUM) for these ETPs skyrocketed from $106 million at the end of 2022 to over $920 million within two years—indicating consistent growth, even during adverse market conditions.

Management projects that they will generate revenue of 8-10% on AUM, leading to an estimation of $80 million to $100 million in 2025, assuming no further growth. Given the ETPs’ consistent upward trend, a doubling of AUM is certainly within the realm of possibility.

Assessing Revenue Streams

Additionally, from January to November 2024, DeFi’s arbitrage trading desk generated $97.5 million in revenue, emphasizing its focus on low-risk trades. They have strategically capitalized on market efficiencies without experiencing losses, making this segment an integral part of their business model. With conservative estimates projecting 2025 revenues exceeding $200 million, DeFi Technologies showcases a compelling financial future.

Strong Financial Position

Despite holding $6 million in debt, DeFi Technologies possesses $12 million in cash along with $48.5 million in digital assets, including Bitcoin, Ethereum, and Solana. This fosters a strong balance sheet capable of supporting growth through differing avenues, including potential acquisitions. The current low valuation—trailing P/E below 9 and a price-to-sales ratio of 7—positions DeFi Technologies as a standout investment opportunity when compared to its competitors like Robinhood (HOOD) and Coinbase (COIN).

Conclusion

As DeFi Technologies moves into 2025 with accelerating momentum, its blend of strong growth metrics and deep value represents a unique opportunity for small-cap investors. With an innovative product line and robust fundamental indicators, DeFi stands out from the typical high-risk, high-reward crypto investments, making it my top small-cap idea for the upcoming year.

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Top Small-Cap Stock for 2025: Invest in DeFi Technologies and Profit from Crypto Growth