The Bitcoin buzz has turned up a few more notches, a tonne more than is healthy for any serious investment vehicle. But it’s hardly surprising considering its value has increased about tenfold this year, smashing last week through an US$11,000 per unit valuation. At one point last week it gained US$1,000 in just 12 hours – a terrific way to make a bundle for anyone who could time that right. Market cap has surpassed a staggering US$250 billion.
Similarly ethereum, a rival cryptocurrency started in Canada and a popular platform for app developers, has hit a record high. It’s currently trading around US$442 with a market cap of more than US$42 billion.
In a milestone move, the CME Group said Friday it would bring Bitcoin out of the Wild West and into the mainstream a bit, by offering investors the opportunity to trade Bitcoin futures, with a traditional trading window and circuit filters that would not only curb volatility but give skeptics a chance to sell the market short.
So is Bitcoin, created in secrecy by an unnamed tech whiz of unknown nationality eight years ago, the real deal or another tulip craze bubble? It’s certainly possible it’s a $3 bill. No one controls the supply of Bitcoins in circulation or stands behind their value in the event of a crash, as a central bank might. Institutional investors won’t touch the cryptocurrency with a barge pole and organized crime loves it because it allows them to launder money online anonymously.
A real breakthrough for aggressive investors could come when Bitcoin exchange traded funds (ETFs) hit the market. But what many don’t realize is that Bitcoin is already having a real impact on a number of stocks in the market. So, even if you want nothing to do with cryptocurrency, you may already have exposure to it and are seeing added volatility in the stocks you hold. Similarly, if you want to get added exposure to Bitcoin without investing in it directly, these same stocks offer an indirect way to get involved.
A long queue of players in Canada and the U.S. have been trying to squeeze past regulators for the past three years. Not one prospectus has so far been approved although the rumour mill always has something just around the corner, for the simple reason they don’t pass the transparency sniff test.
As far as regulators are concerned, Bitcoin is a deep and dangerous swamp too closely linked to the dark net. They don’t want a share of the blame if the Bitcoin party comes crashing down to earth and the dancehall floor is covered in blood.
Still, the operators of ETFs, including Evolve Funds Group in Canada and ProShares in the U.S., are eager to gamble big on Bitcoin. The Winklevoss twins, most famous for their legal battle with Facebook founder Mark Zuckerberg over ownership of his social media site, have been begging the Securities and Exchange Commission (SEC) to approve their Bitcoin ETF (COIN) for four years. So far, their prospectus has just collected dust and they’re getting no further ahead than they did with Zuckerberg.
In Canada Don and Alex Tapscott, self-styled gurus of all things Internet, recently abandoned plans to go public with a blockchain venture capital company. NextBlock was aiming to raise a hefty $100 million by promising to offer “unique access to the new Internet of value.” Then before the father-son duo behind NextBlock could close the deal it was discovered that their circular contained false claims. Four of the eight high-profile advisors they claimed to have on their team had, in fact not signed on, including a senior board member from digital asset broker Coinbase.
CIBC quickly pulled out of the Tapscotts’ IPO and hedge funds, who had planned to invest big, instead sprinted for the door. The bad press may have tarnished the Tapscotts’ market credibility, but not the meteoric rise of Bitcoin.
Still, for investors who don’t mind taking on added risk in exchange for improved returns, there are ways to play Bitcoin without actually buying the digital currency. The best option is to invest in companies who are cozying up to Bitcoin, but whose fortunes are not so closely tied to the cryptocurrency that they will fail if it fails.
Just remember, these stocks have already been running and should be approached with a healthy degree of caution. Regardless of what you think of Bitcoin, maybe you already hold some of these stocks and it’s at least good to know what might have been pushing them higher of late.
- Square (SQ/NYSE), a digital payments platform that enables sellers to turn mobile and computing devices into point-of-sale solutions, accepts Bitcoin. Medium exposure to Bitcoin. 12-month return 283 per cent.
- Overstock.com (OSTK/NASDAQ), the first major online retailer to accept Bitcoin, partnered with leading exchange Coinbase to creates a seamless Pay With Bitcoin option at checkout. Significant exposure to Bitcoin, Overstock is an incubator of blockchain technology. 12-month return 256 per cent.
- Shopify (SHOP/TSE), a cloud-based e-commerce platform designed for small and medium-sized businesses, gives merchants the option of accepting Bitcoin payments. With more than 400,000 merchants, Shopify has become an important source of bitcoin transactions. Significant exposure to Bitcoin. 12-month return 140 per cent.
- Nvidia (NVDA/NASDAQ), a designer of graphics processing units for gaming and the Bitcoin mining industry. There is some concern that Nvidia is too closely linked to the bitcoin-ethereum craze. Significant exposure to Bitcoin. 12-month return 130 per cent.
- PayPal (PYPL/NASDAQ) the digital payments platform whose competitors include Visa and Mastercard, added Bitcoin to the list of currencies it accepts in 2014. Medium exposure to Bitcoin. 12-month return 94 per cent.
- Microsoft (MSFT/NASDAQ), the software giant best known for its Windows OS, is trying to stay current by branching out into new areas such as business processes and intelligent cloud. Microsoft customers are able to use Bitcoin to add money to their Microsoft accounts and for purchases at Windows and Xbox stores. Small exposure to Bitcoin. 12-month return 38 per cent.
- Intuit (INTU/NASDAQ), the software company that provides financial solutions for consumers, small businesses and accounting professionals, has integrated Bitcoin payments into its QuickBooks PayByCoin service. Small exposure to Bitcoin. 12-month return 33 per cent.
- Bitcoin Investment Trust (GBTC/OTCQX) gives investors exposure to Bitcoin by tracking its price without the challenges of buying and storing Bitcoins. However it’s trading at a significant premium to its underlying holdings. Market cap US$2.9 billion. Significant exposure to Bitcoin. 12-month return 1,600 per cent.
MORE ABOUT BITCOIN:
- Cryptocurrency explained by gold-buyer Russell Oliver a.k.a the Cash Man
- Who is Satoshi Nakamoto? The bitcoin search may not be over
- Australian claims he’s founder of Bitcoin
- Hospital pays thousands to end attack known as ‘ransomware’
- Senate recommends ‘light touch’ when regulating Bitcoin
- From Microsoft to Google to Nokia, it’s Big Tech reporting season
- Bank of Canada considering ‘potential merits’ of electronic money
- Internal Finance memo warns of potential for Bitcoin-related crime