Technical investors do not usually find themselves in currencies or alternative asset classes, but there is a lot of buzz around bitcoin. Some notable investors and technical executives are sticking their toes into the cryptocurrency. We view the asset class as part of the recommended allocation strategy for some institutional investors and investment banks.
There is no denying that bitcoin is a hot currency these days. Bitcoin has almost quadrupled this year, and it was after almost doubling in 2019. The risks are huge. We have seen that meetings are already spreading in a narrow way. Bitcoin dropped by 74% after a few sample years in 2018. Like others, however, I decided to make bitcoin a small part of my portfolio. And as a technical investor, there are ways you can participate in the crypto-revolution without trading in real currency.
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A bit of bitcoin
Over the past few months, bitcoin-related investments have grown to 2% of my portfolio. It may not seem like much, but it’s enough to offer me the potential to make strong gains for the digital currency revolution, without the threat of breaking my portfolio when the bubble appears.
I currently own three investments that are going up to the beat of crypto. The first is Grayscale Bitcoin Trust (OTC: GBTC), the first exchange to be invested in bitcoin only. There’s a downside to Grayscale Bitcoin Trust – and I’ll get to that soon – but that’s my biggest position. My second biggest position is MicroStrategy (NASDAQ: MSTR), a sleepy provider of industry analysis with a non-sleepy approach to capital allocation. Spoiler alert: MicroStrategy owns a lot of bitcoin.
My third and smallest position is bitcoin itself.
Let’s start with Gray Scale Bitcoin Trust. The trust has become a way for investors to buy and sell an investment that falls in line with bitcoin. The problem with the trust is that it trades at a healthy premium with the bitcoin it owns. It ended last week with a 24% premium to the $ 22 per share it owns in bitcoin. The premium has been much higher in the past due to the scarcity of the product, but the gap would have to narrow as more vehicles enter the market. It can also help or not, because it has never been so easy to buy cryptocurrency as it is now.
Fintech liefies Square (NYSE: SQ) and more recently PayPal (NASDAQ: PYPL) makes it seamless to trade up to $ 1 in bitcoin. Square’s Cash app and now PayPal have actively promoted access to the digital currency. Easy access to bitcoin at cost will contribute to the high premium of Grayscale Bitcoin Trust on the currency it owns, but the bullish counter here is that easier access will increase the exposure, ownership and ultimately prices of Crypto.
MicroStrategy is in its sixth consecutive year with a single-digit drop in revenue. The interesting ripple here is that CEO Michael Saylor bought bitcoin with MicroStrategy’s liquidity, and he now owns a lot of crypto.
MicroStrategy bought another 29,646 bitcoins for $ 650 million at an average price of $ 21,925 per #bitcoin and now #hodl bought a total of 70,470 bitcoins for $ 1.125 billion at an average price of $ 15,964 per bitcoin. https://t.co/j6wVLXIzoa
– Michael Saylor (@michael_saylor) 21 December 2020
We are talking about $ 1.125 billion in bitcoin purchases, which rose to $ 1.9 billion in value, with the digital currency reaching $ 27,000 on Sunday night. That would be a big position for a tech titan, but in this case it’s a big deal for a winding tech company with a market capitalization of about $ 3 billion.
Some tech investors prefer to own more than just the investments that have become a proxy for bitcoin. Square and PayPal offer strong suburbs as leading payment platforms that only have a bitcoin kicker. There are also pick-and-dig plays in the form of bitcoin mining companies and blockchain stocks that should thrive if the platform continues to climb as it gains wider acceptance.
More ways to have some skin in the bitcoin game will come. The market never ignores a booming trend for too long. Corrections will be inevitable, but volatility can also be an ally for risk-tolerant investors. Buckle, bitcoin investors. It is a bumpy road ahead in 2021, but investors will still arrive in 2020.