Bitcoin is up more than 260% over the past 12 months – a stellar ride – and yet owning the asset is fraught with risks including wild swings in cryptocurrency prices. But there are several ways for investors to get a piece of the bitcoin boom without investing directly in bitcoin.
Several companies that exchange for bitcoin increases are publicly traded, including Galaxy Digital, the cryptocurrency investment company run by bitcoin bull Mike Novogratz, a top bitcoin bank called Silvergate and a mining company bitcoin Riot Blockchain. Investors who want to get exposure to bitcoin can also buy the popular Grayscale Bitcoin Trust.
There’s also a lot of buzz about an upcoming IPO: Coinbase, a top bitcoin exchange, is set to go public later this year. And many more established companies, like PayPal, are benefiting from the bitcoin mound.
“There are ways to get in touch with bitcoin without owning bitcoin,” said Daniel Polotsky, CEO and founder of CoinFlip, a bitcoin ATM machine that lets consumers buy cryptocurrencies with cash.
To be sure, crypto-linked stocks can be volatile despite the dramatic rise in demand for bitcoin over the past year.
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Earlier this week, for example, Janet Yellen – President Joe Biden’s choice for Treasury Secretary – made derogatory remarks about cryptocurrencies and triggered another sale. That comes shortly after a strategist at Bank of America dubbed bitcoin euphoria “the mother of all bubbles” And there have been recent stories of investors losing their crypto wallet passwords, leaving them unable to access their bitcoin.
Banks and other financial companies are benefiting from bitcoin boom
Bitcoin-related stocks are also unpredictable and can sometimes dive even on good news. That’s because their prices are tied so closely to bitcoin’s prices.
Silvergate, which reported earnings on Wednesday after the market closed, plunged nearly 15% on Thursday. That might be excessive considering the bank reported that its digital currency deposits more than doubled in the fourth quarter to $ 5 billion, up from $ 2.1 billion in the third quarter.
“2020 was a year of significant growth and expansion for our business … as investment in digital currencies increases among the institutional investor community,” said Silvergate CEO Alan Lane in a press release.
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Lane points to the fact that high-profile money managers like Paul Tudor Jones, Stanley Druckenmiller and Anthony Scaramucci have all embraced bitcoin so recently.
The interest from well-known money managers is a major reason why Silvergate is owned by Mike Venuto, portfolio manager of Amplify Transformational Data Sharing ETF, a fund that invests in bitcoin and blockchain technology companies.
Venuto, which also holds Galaxy Digital in the fund as well as bitcoin miners Riot Blockchain, Marathon Patent Group and Hive Blockchain, said it is looking for the pure play companies in crypto that benefit most from bitcoin’s rise.
“These are more mature companies with real financial issues,” says Venuto.
Their stock prices have fluctuated wildly recently along with bitcoin. But Venuto dubbed the “spikes and axes” of the industry to miners – companies that should do well as long as bitcoin prices go higher.
His fund also owns larger blue-chip stocks that are benefiting from rising demand for bitcoin.
Venuto is a favorite of Intercontinental Exchange, the parent of the New York Stock Exchange, because he is also the majority owner of Bakkt, a crypto futures trading platform. Bakkt announced earlier this month that it plans to go public by merging with a special-purpose acquisition company called VPC Impact Acquisition Holdings.
PayPal and Square could be big crypto winners
And the Venuto fund is also investing in digital payment giants Square and PayPal, which now allow users to trade bitcoin. BTIG’s fintech analyst Mark Palmer upgraded PayPal’s stock to a “buy” on Thursday, citing the company’s recent move into crypto as the main motivation.
Palmer said in a report that PayPal’s cryptocurency business could add more than $ 1 billion to the company’s annual revenue by next year and that the payment platform is “about to play a leading role in promoting crypto acceptance” for investors and traders.
The bitcoin bonanza should help Square along with MicroStrategy, a software company that recently made waves by saying it was putting some of its corporate cash into bitcoin.
These stocks could be better bets for investors who are not comfortable mining cryptocurrency themselves, said Hong Fang, CEO of OKCoin, a cryptocurrency exchange.
“Look Square: Much of its growth comes from its bitcoin business,” he said. “Square is now a crypto stock, to be honest.”
That’s another reason some believe crypto-linked stocks could continue to benefit. More big money managers may join so-called mum and pop investors and grab shares in companies like Square, PayPal and the upcoming Coinbase IPO.
That makes the recent bitcoin spike different from the surge more than three years ago, said Alda Leu Dennis, general partner of Initialized Capital, a venture capital firm with a stake in Coinbase.
“The 2017 bitcoin run was driven more by retail investors,” he said. “Now bitcoin is becoming more widely adopted and more organizations are investing in it.”