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Bitcoin has risen more than 260 percent in the last year, a fantastic performance, but owning the asset comes with risks, such as crazy price fluctuations in cryptocurrencies. However, investors have several avenues to participate in the bitcoin boom without actually investing in bitcoin.
Galaxy Digital (BRPHF), a cryptocurrency investment company operated by bitcoin bull Mike Novogratz, a top bitcoin bank named Silvergate (SI), and bitcoin mining firm Riot Blockchain are among the publicly traded companies benefiting from bitcoin’s rise (RIOT). Investors interested in bitcoin may also purchase the well-known Grayscale Bitcoin Trust (GBTC).
There’s also a lot of buzz about a forthcoming IPO: Coinbase, a famous bitcoin exchange, will go public later this year. Many more well-known businesses, such as PayPal, are also benefiting from the bitcoin boom.
“There are ways to get exposure to bitcoin without actually owning bitcoin,” said Daniel Polotsky, CEO and creator of CoinFlip, a bitcoin ATM that allows users to purchase cryptocurrencies with cash.
Despite the drastic rise in demand for bitcoin over the past year, crypto-related stocks may be unpredictable.
Janet Yellen, President Joe Biden’s nominee for Treasury Secretary, made dismissive comments about cryptocurrencies earlier this week, causing another sell-off. This comes after a Bank of America strategist called bitcoin euphoria “the mother of all bubbles.” Investors have also recently lost their crypto wallet keys, making them unable to access their bitcoin.
The bitcoin boom benefits banks and other financial institutions.
Bitcoin-related stocks are also volatile, and even good news can cause them to plummet. This is because their prices are so closely linked to bitcoins.
Silvergate’s stock dropped nearly 15% on Thursday after the company reported earnings after the market closed on Wednesday. That may be excessive considering that the bank noted 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 substantial growth and development for our business…as institutional investor interest in digital currencies grew,” Silvergate CEO Alan Lane said in a press release.
Lane is referring to bitcoin’s recent adoption by high-profile money managers such as Paul Tudor Jones, Stanley Druckenmiller, and Anthony Scaramucci.
Mike Venuto, portfolio manager of the Amplify Transformational Data Sharing ETF (BLOK), a fund that invests in bitcoin and blockchain technology companies, holds Silvergate in part because of the interest from well-known money managers.
Venuto, who also owns Galaxy Digital, Riot Blockchain, Marathon Patent Group (MARA), and Hive Blockchain (HVBTF) in the fund, said he’s looking for pure-play crypto companies that will profit the most from bitcoin’s growth.
Venuto said, “There are more established firms with real financials.”
Their stock values, like bitcoin’s, have been massively fluctuating lately. On the other hand, the miners have been nicknamed the “picks and axes” of the industry by Venuto, who believes they will do well as long as bitcoin prices rise.
In addition to smaller blue-chip stocks, his fund holds more extensive blue-chip stocks benefiting from rising bitcoin demand.
Intercontinental Exchange (ICE), the New York Stock Exchange’s parent company, is Venuto’s favorite since it owns a majority stake in Bakkt, a crypto futures trading site. Bakkt revealed earlier this month that it intends to go public via a merger with VPC Impact Acquisition Holdings, a particular purpose acquisition firm.
PayPal and Square could be significant winners in the crypto market.
Venuto’s fund also invests in Square (SQ) and PayPal (PYPL), two digital payment giants that enable users to exchange bitcoin. On Thursday, BTIG fintech analyst Mark Palmer upgraded PayPal’s stock to a “buy,” citing its recent foray into cryptocurrency as the primary reason.
PayPal’s cryptocurrency market, according to Palmer, could add more than $1 billion to the company’s annual sales by next year, and the payment network “is poised to play a leading role in promoting the adoption of crypto” for both investors and merchants, according to a study.
The bitcoin boom could benefit Square and MicroStrategy (MSTR), a software firm that made headlines recently by announcing that it was investing some of its corporate cash in bitcoin.
According to Hong Fang, CEO of OKCoin, a cryptocurrency exchange, these stocks might be better bets for investors who aren’t comfortable mining cryptocurrency themselves.
“Take a look at Square: its bitcoin business is responsible for a lot of its growth,” she said. “To be honest, Square is now a crypto stock.”
Another explanation why some believe crypto-related stocks will continue to rise is because of this. More hedge funds can join so-called “mom and pop” investors in buying stock in companies like Square, PayPal, and the upcoming Coinbase IPO.
According to Alda Leu Dennis, a general partner of Initialized Capital, a venture capital company interested in Coinbase, the latest bitcoin boom is unlike the one that occurred more than three years ago.
“Retail investors drove the 2017 bitcoin runup,” she said. “Bitcoin is becoming more widely used, and more institutions are investing in it.”