My Small-Cap Stock for 2025 Is a Picks and Shovels Play in Crypto and Finance

Every new trend and meta has a common theme. Whether it was the dot-coms or real estate fueled by the MBS craze, cannabis, or artificial intelligence, the words: picks and shovels echo throughout history. The picks-and-shovels strategy emphasizes investing in suppliers rather than speculators. Instead of betting on high-risk, high-reward companies within a trend, investors find the infrastructure or tools that the industry needs for growth and stability.

Take, for example, the internet boom: the real opportunity lay in companies like Cisco Systems (CSCO), which produced routers, or Ciena (CIEN), known for its fiber optics, rather than the flashy dot-com names of the time. When it comes to artificial intelligence, Nvidia (NVDA) has been the standout picks-and-shovels play, along with Palantir (PLTR), Broadcom (AVGO), and Marvell Technology (MRVL).

Macro Trends Resurfacing Cryptocurrency

With the results of the recent November elections, the cryptocurrency market has emerged from a challenging bear period and found its place back in the spotlight. Many traditional investors find direct investments in Bitcoin or Ethereum too risky, leading some to gravitate towards ETFs that monitor these major cryptocurrencies. MicroStrategy (MSTR) has become a popular stock for those looking to benefit from Bitcoin indirectly. Yet, the average investor on Main Street is often unsettled about venturing directly into cryptocurrency.

This inclination towards safer options brings us to my 2025 “Big” Small-Cap opportunity, a picks-and-shovels company in the cryptocurrency and finance sector: DeFi Technologies (DEFTF). With a market capitalization nearing one billion dollars and an average daily trading volume of 1.4 million shares, this company is demonstrating solid fundamentals and is expected to make a transition to a Nasdaq listing very soon.

Why DeFi Technologies Stands Out

DeFi allows investors to benefit from approximately five dozen different cryptocurrencies without the speculation that typically accompanies them. This company showcases exceptional growth metrics, robust net cash flow, and a flourishing balance sheet filled with valuables—qualities not widely seen in the cryptocurrency arena.

A critical part of DeFi’s business is their asset management segment, Valour, which is, indeed, the company’s crown jewel. Valour offers a portfolio of over 60 exchange-traded products (ETPs), a European variant of ETFs. Over time, assets under management (AUM) in their ETPs have surged from $106 million at the end of 2022 to over $920 million two years later. In fact, DeFi has managed to grow its AUM monthly for two consecutive years, even through a bear market.

Anticipating that the company may report over $1 billion in AUM by the end of 2024 creates a substantial growth prospect for 2025. Revenue is generated through management fees and staking rewards, which has made for a lucrative business model—yielding an estimated 8-10% revenue on AUM.

Projected Financial Performance

Despite the possible absence of AUM growth, DeFi could reach revenues of $80 million to $100 million in 2025, with the recent $97.5 million earned from its arbitrage trading desk within the first 11 months of 2024. Given that these trades are low-risk and capitalize on market inefficiencies, the projected total revenues for 2025 could comfortably exceed $200 million.

When looking at the projections of $141.5 million in revenue and $71.4 million in net income by company management, a potential earnings per share exceeding $0.30 seems reasonable. These figures demonstrate a trailing P/E ratio below 9 and a price-to-sales ratio of 7. Comparing these stats with Robinhood (HOOD) and Coinbase (COIN) reveals a stark difference in valuation.

Strategic Growth and Outlook

DeFi plans to launch an additional 40 ETPs in Europe next year and aims to extend its reach to Singapore, Africa, and the UAE, a move that could easily double its AUM in 2025. Given that each ETP costs around $50,000 to launch and requires only $675,000 in AUM for profitability, the company’s operation costs are a fraction of its revenue at just $10 million annually.

Furthermore, the balance sheet supports future growth, with only $6 million in debt, hedge against a position of $12 million in cash and cash equivalents alongside $48.5 million in digital assets. Holding significant amounts in Bitcoin, Ethereum, and Solana enables the company to maintain liquidity while accelerating growth potential through acquisitions.

A Unique Investment Opportunity

In conclusion, DeFi Technologies enters 2025 with robust growth momentum and a stock price that continues to underperform given its potential. The complex blend of strong fundamentals and strategic growth initiatives marks this company as an asymmetric opportunity within the small-cap segment, making it my top pick for 2025. Investors looking for a way to correlate with the burgeoning cryptocurrency market without diving directly into risks can find in DeFi a solid alternative.