Technology investors don’t normally get involved in alternative currencies or asset classes, but there is a lot of buzz around bitcoin. Some notable investors and technology CEOs are diving into the cryptocurrency. We are seeing the asset class emerging as part of the recommended allocation strategy for some institutional investors and investment banks.
There is no denying that bitcoin is a strong currency today. Bitcoin almost quadrupled this year, after almost doubling in 2019. The stakes are high. We’ve seen rallies fail in a frightening way before. Bitcoin plummeted 74% in 2018 after some monstrous years. However, like others, I decided to make bitcoin a small part of my portfolio. And, as a technology investor, there are ways to participate in the crypto revolution without trading in real currency.
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A little bitcoin
In the past two months, investments related to bitcoin have grown and represent 2% of my portfolio. It may not seem like much, but it is enough to provide me with the potential for strong gains for the digital currency revolution without the threat of bursting my portfolio if the bubble breaks.
I currently have three investments marching at the pace of cryptography. The first is Grayscale Bitcoin Trust (OTC: GBTC), the first publicly traded security investing exclusively in bitcoin. There is a downside to the grayscale Bitcoin Trust – and I will talk about that soon – but it is my biggest position. My second largest position is MicroStrategy (NASDAQ: MSTR), a dormant provider of corporate analytics with a less-than-sleepy approach to capital allocation. Spoiler alert: MicroStrategy has many bitcoins.
My third and smallest position is bitcoin itself.
Let’s start with Grayscale Bitcoin Trust. The trust has become a way for investors to buy and sell an investment that goes up and down with bitcoin. The problem with the trust is that it trades at a good premium compared to the bitcoin it owns. He ended last week with a 24% premium to the $ 22 per share he owned in bitcoin. The premium was much higher in the past due to the scarcity of the product, but this difference is expected to decrease as more vehicles reach the market. It may or may not help that buying cryptocurrencies has never been easier than now.
Fintech darlings Square (NYSE: SQ) and more recently PayPal (NASDAQ: PYPL) facilitate trading for as little as $ 1 in bitcoin. Square’s Cash app and now PayPal have been actively promoting access to digital currency. Easy access to bitcoin at cost will devour the heady grayscale Bitcoin Trust prize for the currency you own, but the counterattack here is that easier access will increase exposure, ownership and, ultimately, prices encryption.
MicroStrategy is ending what should be its sixth consecutive year with a single-digit drop in revenue. The interesting thing here is that CEO Michael Saylor has been buying bitcoin with MicroStrategy’s liquidity, and now has a lot of cryptography.
MicroStrategy purchased an additional 29,646 bitcoins for $ 650 million at an average price of $ 21,925 per #bitcoin and now #hodl a total of 70,470 bitcoins purchased for $ 1.125 billion at an average price of $ 15,964 per bitcoin.https: //t.co/j6wVLXIzoa
– Michael Saylor (@michael_saylor) December 21, 2020
We’re talking about $ 1.125 billion in bitcoin purchases that have risen to $ 1.9 billion in value, with the digital currency reaching $ 27,000 on Sunday night. This would be a great position for a technology titan, but in this case, it is big business for a winding technology company with a market capitalization of around $ 3 billion.
Some technology investors prefer to own more than just investments that have become representatives of bitcoin. Square and PayPal offer a strong advantage as leading payment platforms that happen to have a bitcoin boost. There are also pick and shovel games in the form of bitcoin mining companies and blockchain stocks that are expected to thrive if the platform continues to rise as it gains broader acceptance.
More ways to have a little bit of skin in the bitcoin game will come. The market never ignores an expansion trend for a long time. Corrections will be inevitable, but volatility can also be an ally for risk-tolerant investors. Fasten your seat belts, bitcoin investors. It is a rough road ahead in 2021, but investors continue to show up in 2020.