There are many different categories stocks can fall under, but one of the most common ways to classify them is by size (based on market capitalization). In this vein, there are three main categories: small-cap, mid-cap, and large-cap.

Small-cap stocks are those with a market cap between $300 million and $2 billion; mid-cap stocks range from $2 billion to $10 billion; and large-cap stocks are those above $10 billion.

There's no "right" one to invest in, and proper diversification encourages investors to own a mix of different-sized stocks. But let's take a look at small-cap stocks and examine what they can do for your portfolio.

Higher risk-reward proposition

Contrary to their name, small-cap stocks are not necessarily young companies that recently went public, although they can be. Many have mature businesses and have been around for quite a while. A small-cap stock may simply operate in a smaller market. In today's environment, after the steep sell-off this year, a lot of mid-cap stocks have fallen back into small-cap territory as well.

Small-cap stocks generally present a bigger risk-reward proposition, because they can grow faster than their larger peers but also come with greater risk, because there may be more volatility in their earnings reports quarter to quarter. They also may not have the same impregnable balance sheets investors tend to flock to during a recession.   

But I love small-cap stocks and would recommend having at least a few in your portfolio, especially if you have a long-term investment horizon. Small-cap stocks give the average retail investor an opportunity to outperform institutional investors and the broad market. For example, the Russell 2000 small-cap stock index has beaten the benchmark S&P 500 and Dow indexes since the turn of the century.

Data by YCharts.

Why can small-cap names outperform?

Small-cap stocks aren't as heavily covered by analysts on Wall Street, because these equity research teams are usually part of investment banks that use analyst coverage as a way to drum up business. There's more incentive for analysts to focus on bigger companies with more money to spend. Additionally, many mutual funds internally choose not to purchase small-cap stocks because of their greater potential for volatility.

This leaves a lot of room for investors to find great companies flying under the market's radar. Let me give you a few examples from my own portfolio. One small-cap stock I own is Silvergate Capital (NYSE: SI), which has a $1.67 billion market cap as of this writing. Silvergate is one of the first banks that built a real-time payments system specifically for large cryptocurrency traders and exchanges, because the U.S. banking system doesn't operate in real-time, while crypto trades around the clock.  

When the price of Bitcoin took off in 2020 and 2021, the stock had a first-mover advantage and surged as more institutional investors started to trade crypto. While things have cooled off during the crypto winter, I still expect more institutional traders to move into crypto trading long term, which positions Silvergate well. Now, this is an early market, and its future is still uncertain, but you can also see how much growth potential it might have with the institutional space still in the early innings of crypto trading.

Another example is a real-estate stock called Seritage Growth Properties (NYSE: SRG), which has a market cap of about $650 million. Originally spun out from Sears to maximize the value of the retailer's real estate, Seritage has really struggled since the start of the pandemic. Recently, management said it's planning to sell all of the company's remaining assets, pay off its debt, and distribute the remaining earnings to investors. The stock currently trades at $11.30 per share, but management expects the distribution proceeds from the liquidation to range from $18.50 to $29.00 per share. Just one analyst covers the stock.   

Years of struggles and concerns about the mall and shopping center real estate that makes up Seritage's portfolio have kept the stock trading at a huge discount to the liquidation estimates. But even at the bottom of the range, investors could enjoy a more than 60% return in approximately two years' time.

Buy some small-cap stocks

Everyone has their own investing strategy, and there's no requirement to buy small-cap stocks. However, all but the most conservative and risk-averse investors could benefit from dedicating at least a small percentage of their portfolios to these stocks.

They've proven they can outperform the broad market long term, and they give investors a better chance of finding overlooked gems.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here's what small-cap stocks can do for your portfolio appeared first on The Motley Fool Australia.

What happened 

Today's inflation report sent the crypto world reeling as a sell-off hit the entire industry. Headline inflation was 0.1% month over month in August, but core inflation (which excludes energy) was up 0.6%. On a year-over-year basis, overall inflation was 8.3%. The market had rallied in recent days on hope that inflation is slowing, but that doesn't appear to be the case, at least for now. 

Three of the big movers in crypto today are Coinbase Global (NASDAQ: COIN), which fell as much as 9.3% and is down 6.6% as of 2:30 p.m. ET; Silvergate Capital (NYSE: SI), which fell 7.4% and is now down 6.4%; and cryptocurrency Solana (CRYPTO: SOL), which is down 7.2% today. 

So what 

From a trading perspective, the move is pretty simple. Higher inflation likely means the Federal Reserve will increase interest rates for longer than investors were hoping. That results in a lower valuation for assets like stocks, especially growth stocks, and that's why the Nasdaq Composite is down 4.3% today. Crypto values are generally correlated with stocks, which is why crypto valuations plunged today. 

A drop in crypto prices is generally seen as negative for Coinbase and Silvergate, which offer crypto solutions to their customers. Coinbase's trading, for example, tends to fall in down markets and that's where the company generates most of its revenue. Silvergate may not see adoption of crypto and digital banking products increase if crypto values drop. 

As much as the crypto industry would like to think that it's independent of the broader market, trading has been driven by traditional financial trends like interest rates and economic activity. Given the fact that inflation is still high and the Federal Reserve is likely to act aggressively next week to increase rates, that means lower valuations for crypto and crypto-related companies. 

Now what 

The market is trying to grapple with multiple competing trends right now. Employment is strong and much of the economy is doing well, but inflation is high and interest rates are going up, which generally leads to a recession. 

As these macro factors persist, the crypto market continues to innovate and build, which is a chaotic process. There are days when it seems like crypto could enable great innovations and others that it seems like hacks and scams are more common than real builders. 

I think the crypto industry has a lot going for it long-term, but this is like investing in internet stocks in the 1990s when the industry was very immature. No one knew exactly which companies would win or what business models would be best, but it was clear there was an opportunity.

As painful as days like this are, they can also be great buying opportunities. A few years from now no one will remember a single day's drop, but investors never forget buying great companies when the market is down because that's where the big money is made. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This ETF from provider BetaShares doesn't invest in cryptocurrencies like Bitcoin (CRYPTO: BTC) directly. Instead, it invests in companies that provide "'picks and shovels' exposure to the companies building crypto mining equipment, crypto trading venues, and other key services that allow the crypto economy to thrive".

Some of its current top holdings include Silvergate Capital Corp, Microstrategy Inc, and Coinbase Global Inc.

But unfortunately for the BetaShares Crypto Innovators ETF's early investors, there hasn't been much in the way of good news since its launch. On its first day of ASX life, CRYP closed at $11.28 per unit. But as it stands at end of trading on Tuesday, this ETF is asking just $4.89. That's a fall of almost 57%.

Of that fall, 23.35% has come during the past month alone. But now that we have seen such savage falls, many investors might be wondering if this ETF is in the bargain bin.

Is the BetaShares Crypto ETF a buy or a sell today?

Well, let's check out what two ASX expert investors reckon. Felicity Thomas from Shaw and Partners and Ben Nash from Pivot Wealth both joined a Livewire podcast recently where they shared their views on this ASX ETF.

Here's some of what Nash had to say:

This one's a buy from me. I think crypto is a really interesting space, the blockchain technology has so many applications that I think we're only just starting to see that. I think it will just grow and continue to grow. Also, the house always wins, so a lot of the companies that this particular ETF is investing in, they're companies that are not necessarily tied to the price or value of cryptocurrency or other digital assets but instead that make money when they're more and more popular. So I think that it's a huge growth area.

So that's pretty unequivocal there. Fortunately, Thomas agreed that CRYP units were a buy. Here's some of what she added:

It's another buy from me. It's off 45% from its original initiation price. I really like what Ben said, in that it's the picks and shovels of cryptocurrency in different companies, rather than direct cryptocurrency. You make money on the buyers and sales. So with ANZ and NAB and all the majors getting into cryptocurrency, I think it's here to stay.

So that's how these two ASX experts view CRYP right now. Although this ETF's first few months of life haven't been easy, who knows what the future of cryptocurrency might bring to the companies that enable this technology.

The BetaShares Crypto Innovators ETF charges a management fee of 0.67% per annum.

The post The Betashares Crypto Innovators ETF has dumped 23% in a month. Is it now a bargain? appeared first on The Motley Fool Australia.

What happened

The price of the world's largest cryptocurrency, Bitcoin (CRYPTO: BTC), and several crypto-related stocks including the large cryptocurrency exchange Coinbase Global (NASDAQ: COIN) and the crypto bank Silvergate Capital (NYSE: SI) all are rising today. The cryptocurrency market has been in recovery mode this week, while Silvergate and Coinbase received positive sentiment from Wall Street. 

The price of Bitcoin had risen more than 4% over the last 24 hours, as of 3:07 p.m. ET today. Meanwhile, shares of Coinbase and Silvergate traded nearly 3.3% and 5.6% higher, respectively, during normal trading hours.

So what

Bitcoin is having a nice week and recently reached roughly $43,971, which is close to its highs for 2022, following a major pullback that began last October. It's hard to say exactly what is leading to the recovery and there's no indication that it will last.

But BlackRock CEO Larry Fink recently said in his annual letter to shareholders that Russia's invasion of Ukraine will hasten the speed at which central banks warm to and ultimately utilize digital assets. 

"The war will prompt countries to reevaluate their currency dependencies," Fink wrote in his letter. "Even before the war, several governments were looking to play a more active role in digital currencies and define the regulatory frameworks under which they operate."

Ukraine, for instance, has received roughly $100 million in crypto donations. Deputy Minister of Digital Transformation Alex Bornyakov said recently that because "the national bank is not really operating, crypto is helping to perform fast transfers, to make it very quick and get results almost immediately."

The flip side is in Russia, where digital assets may be helping some in the country avoid sanctions. Russian lawmakers have also discussed accepting cryptocurrencies like Bitcoin as payment for oil. Although there are both good and bad outcomes, it's likely countries and their governments and central banks will look at and think about cryptocurrencies differently now.

In other news, Silvergate and Coinbase saw a lot of bullish sentiment from Wall Street, as well some negative sentiment. 

Earlier this week, Bank of America analyst Brandon Berman initiated a buy rating on Silvergate and a $200 price target, implying strong upside from current levels even after a nice run this week. Silvergate has built a proprietary real-time payments network that allows parties on the network to send and clear payments instantly, which better facilitates crypto trading. Parties that join the network bring large sums of deposits to Silvergate Capital, which the bank can deploy into higher-yielding assets as interest rates rise. The bank is expected to see profits soar in a rising-rate environment. 

Coinbase has also seen some action on Wall Street. Earlier this week, the famous short-seller Jim Chanos disclosed that he and his fund are shorting the stock because they believe the company's earnings are inflated.

But today on Yahoo! Finance, MoffettNathanson analyst Lisa Ellis called Coinbase a "one-of-a-kind asset providing the infrastructure layer for the crypto economy." MoffettNathanson has maintained its buy rating on Coinbase and has a price target of $600, implying significant upside from Coinbase's current roughly $190 share price. 

Now what

I certainly think Fink makes some interesting points about how cryptocurrencies and digital assets have been positioned during the Russia-Ukraine conflict. Governments and central banks will likely take an even closer look at how they can use these newer digital currencies.

I am very interested and uncertain right now as to how Bitcoin will perform in the upcoming rising-rate environment. But I am bullish on Coinbase and Silvergate, as I like companies that provide the infrastructure for the burgeoning crypto industry, especially as the case for crypto adoption gets clearer every day. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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