Bitcoin Investing Options
With Bitcoin recently moving to all time highs, I thought it might be good to review some of the ways that an individual investor can invest in Bitcoin, other than the obvious way of buying the coins from an online exchange like Coinbase or Crypto.com as I have done in the past. As my long time readers know, I have been an advocate of buying small increments of Bitcoin on a consistent monthly basis (dollar cost averaging) and just holding as a portfolio diversification strategy and limiting to around 2%-5% of the total portfolio. That approach has paid off nicely with the current run-up and I intend to continue to follow that approach moving forward. Having said that, in my research, I have learned about other ways to invest in Bitcoin that I thought would be interesting to share.
Grayscale Bitcoin Trust
The Grayscale Bitcoin Trust (GBTC) is a publicly traded closed end fund that holds Bitcoin, much like the GLD exchange traded fund holds actual gold in secured vaults. The difference is that an exchange traded fund's market value more closely tracks the book value per share of the ETF, whereas in the case of GBTC there is often a premium between the market price and the book value per share, due mostly to timing differences between valuations. As of 12/31/20 that premium was about 17%. The fund also charges a two percent annual fee and you have to be an accredited investor to buy in to one of their private placements, however you can buy shares on the market if your broker offers them - for example I don't see it on Robinhood but it does seem to be available on Schwab. These are pretty significant drawbacks in my mind and I'd rather wait until there is a Bitcoin ETF launched. Van Eck has recently submitted another application for a Bitcoin ETF and perhaps this time will be successful in getting it approved by regulators.
Microstrategy
Microstrategy (MSTR) is a publicly-traded data analytics and software company that generates considerable cash flow from its core business. The Company has decided to invest a significant portion of its cash on hand in Bitcoin (purchased almost $1Billion in 2020). The Company's CEO, Michael Saylor has articulated that the alternative to holding cash in a zero (and if you include inflation, negative) return environment for the next several years doesn't make much sense. Bitcoin's design has engineered it to be a superior store of value, with a limited supply and a very large (and growing) public network. He compares Bitcoin to a Google or Facebook network, but for money and the price appreciation is not a bubble, but the result of the network effect. By taking this approach of moving a large portion of the Company's treasury into Bitcoin, it makes the company an interesting play on Bitcoin that anyone can invest in. The stock is currently trading at about $392, but is obviously highly volatile due to the Bitcoin exposure plus the normal market volatility associated with a tech company so if you do decide to buy some shares you'll need to be prepared for a bumpy ride.
Paypal and Square
Paypal (PYPL) and Square (SQ) remind me of the merchants that supplied the gold miners during the gold rush, making money selling picks and shovels These companies allow their customers to buy and sell bitcoin on their apps and charge a fee for that service, without taking the underlying Bitcoin risk. Also, Square like Microstrategy has decided to invest a much smaller portion of its cash into Bitcoin (about $50M purchased). Paypal also has suggested that it may eventually allow for payment within its network for goods and services using Bitcoin, which would be a game changer. Either way, Paypal and Square are an interesting way to play the boom in Bitcoin without having a lot of direct exposure to Bitcoin. These companies also have a strong investment thesis in their own right as well run, profitable and financially strong fintech companies.
Blockchain ETF's
There are a few ETF's that invest in companies that are active in supporting blockchain technology, which although includes Bitcoin also includes other applications for blockchain technology so these would not be a pure Bitcoin play. The two largest ones (by market cap) are Amplify Transformational Data Sharing ETF (BLOK) and Siren Nasdaq Nextgen Economy ETF (BLCN). If you look at the ticker symbol links and scroll down, you can see the top holdings in the ETF to get an idea of what companies each one owns.
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021. To see all my books on investing and leadership, click here.
Stay safe, healthy and positive.