How to Invest in Bitcoin Stocks Without Actually Buying Bitcoin
Investing in Bitcoin But Staying in Dollars
One of my first bitcoin investments was actually through the stock exchange. I felt more confident starting at a more common field than jumping right in. This article summarizes my research, showing you how to invest in bitcoin stocks and covering alternative ways to invest in bitcoin. Discover assets that correlate to bitcoin, allowing you to enjoy its success without buying actual bitcoins. We'll go over bitcoin proxy stocks, bitcoin trusts, Bitcoin ETFs, and bitcoin mining companies' stocks. Learn how you keep your position in dollars while diversifying your portfolio with bitcoin.
Investing in the Future Of Money
Bitcoin's popularity is ever-increasing with the booming cryptocurrency market. Millions of people all over the world are investing in Bitcoin with growing numbers. Bitcoin has become one of the most exciting investment opportunities out there. However, new investors to Bitcoin may find the available options intimidating or confusing. There are simple platforms to buy Bitcoin, however, some investors would want to keep their dollars while reaping the fruits of bitcoin's rise in value. Furthermore, in many countries, withdrawing cryptocurrency back into your bank account is rather complicated.
This article is not investment advice. Before making any investment decision, consult an expert and conduct thorough research. To learn more about bitcoin, check this fascinating list of recommended bitcoin podcasts and YouTube channels. Don't Trust. Verify.
Which Bitcoin Investment Opportunities Exist?
For everyday investors, i.e. retail investors, the most common options for bitcoin investments through stocks are the following:
- Buying a Bitcoin Backed Trusts (Exchange Traded Trusts)
- Buying a Bitcoin ETF (Exchange Traded Funds)
- Investing in Bitcoin Proxy Stocks
- Investing in Bitcoin Mining Companies Stocks
This article will discuss each one of those. Additionally, some options are exclusively available to institutional investors, banks, hedge funds, and more. These include investing in Bitcoin convertible notes, supplying debt for companies that purchase bitcoin, and so on.
Why would institutional investors decide to invest in Bitcoin through an intermediary?
Some pension funds, insurance companies, IRAs, and significant hedge funds do not allow direct investments in Bitcoin, banned by their investment policy. Convincing an investment committee could take years. On the other hand, buying bonds or bitcoin-backed loans suits their policy perfectly, and they can make decisions in no time.
How to Invest in a Bitcoin Trust Fund?
When investing in a Bitcoin Trust Fund, you basically purchase a part of a huge pile of bitcoin. Many investors are familiar with an ETF, an Exchange Traded Fund. This type of investment spreads the risk across multiple stocks (like the Nasdaq QQQ) or other assets (like a Gold ETF). Trusts and ETFs differ slightly, with one significant difference.
Unlike an ETF, a trust cannot easily offer more outstanding shares. This means that the market trades only the existing shares, which leads to a premium or discounted price compared to the base asset.
Simply put, this could cause the price of the shares to go above or beyond the Bitcoin price. Additionally, higher management fees are paid to trust than to an ETF, which are discussed in the next section
The first Bitcoin Trust fund was created by Grayscale Investments back in 2013 and has been making steady gains ever since. The most prominent Bitcoin trust today is Grayscale Bitcoin Trust (GBTC), whose underlying assets are solely Bitcoin. The Grayscale Bitcoin Trust is a unique financial instrument, which lets you invest almost directly in the value of bitcoin.
The good part about buying GBTC shares is the simple, dollar-based liquidity it provides you. To invest in GBTC, you have to make sure your broker gives you the required trading permissions, as it's traded in the over-the-counter markets (OTC). I use Interactive Brokers, and they give me quick access to everything.
The GBTC trust has a relatively high expense fee of 2% yearly, which means that you pay Grayscale a yearly 2% fee of your holding for managing the money. The high fee comes from the fact that it's a trust and not an ETF.
How much bitcoin does GBTC own?
There are currently about 63,890 Bitcoins in Grayscale's Custody, making it one of the most significant bitcoin holders globally. The trust market cap as of October 2021 reached more than 32 Billion dollars. When purchasing a share of GBTC, you receive ownership in about 0.001 Bitcoin (a 1000 share package stands for about 1 Bitcoin).
How to Invest in a Bitcoin ETF?
What exactly is an ETF?
An exchange-traded fund (ETF) is a basket of securities that track underlying assets or indexes. More precisely, it is a mixture of stocks, commodities, or bonds, which allows you to spread risk depending on the type of ETF. Among those are ETFs trading on the stock exchange containing multiple companies’ shares and bonds and might include other assets such as gold, real estate funds, or in our case, bitcoin.
Can I invest in a Bitcoin ETF?
As of 2021, an increasing number of high-end fund managers and banks want to join the Bitcoin ETF pool. Fidelity Bank filed a request for a new Bitcoin ETF, while also other ETF managers such as VanEck including are going in the same way. These are all signs of bitcoin's popularity and the need for new investment vehicles. Grayscale also announced that they would convert their GBTC trust into an ETFS, once approved, to lower expenses costs and be more attractive to investors.
As all ETFs are regulated by the SEC, which has still not approved a bitcoin ETF, there is no direct bitcoin ETFs trading on the New York exchange. There are, however, two other options
Bitcoin Futures ETF
Starting October 19th, 2021, a new ETF is trading on the New York exchange, which represents the beginning of a regulatory revolution. After years of pending qualification, ETF provider ProShares has received approval for its BITO Bitcoin futures exchange-traded fund.
What this means is that this ETF does not own Bitcoin directly. The fund invests in Bitcoin futures contracts, which are a technical investment term that describe a speculative contract on the future price of Bitcoin.
As the ETF does not hold Bitcoin directly, the prices of futures contracts it invests in are supposed to track Bitocin quite precisely, however, it may vary and change. Additionally, the ETF incurs 0.85% yearly expense fees.
How to Invest in Bitcoin Proxy Stocks?
Lately, more and more publicly traded companies have decided to purchase substantial amounts of bitcoin and put it on their balance sheet. Bitcoin proxy stocks refer to public companies with a prominent position in bitcoin. In other words, the amount of bitcoin these companies have is so large that the bitcoin rate could affect the stock value directly. Having such a large amount of bitcoin ties the company's future and stock value with the digital currency's performance.
Buying shares in one of these companies could expose you to bitcoin in a similar fashion to buying Bitcoin. Many large corporations are investing in these companies as a proxy for bitcoin. Furthermore, some institutions are not allowed by the regulation to own bitcoin. Consequently, JPMorgan, one of the largest US banks, recently announced on a crypto exposure basket an investment opportunity for its client that tracks bitcoin proxy stocks.
Following the Bitcoin proxy stocks hype, a new ETF is set to launch soon, called BTCR. This ETF by Volt capital will create a basked of such Bitcoin proxy stocks.
Popular Bitcoin Proxy Stocks
Nowadays, many companies have invested in Bitcoin. Recently, I found an amazing website called Bitcoin Treasuries, listing most companies that announced a bitcoin position. Nonetheless, there are only a few publicly listed companies with Bitcoin investments. The following companies are some of the latest popular bitcoin proxy stocks traded on the New York Exchange.
Micro Strategy (MSTR) is a company that develops and manages enterprise strategy tools for the business market. Michael Saylor is the CEO of Micro Strategy and is one of the bitcoin community's top influencers.
In late 2020 and early 2021, Michael Saylor took his company's free cash of approximately 450 million dollars and invested it in Bitcoin. As of March 2021, Micro Strategy purchased over 90,000 bitcoins and held over 4 Billion dollars worth of bitcoin. They did it with their cash and by raising convertible notes bonds to raise extra capital.
Looking at Micro Strategy today, it is probably a company you'd ever hear of unless it's bitcoin purchasing. It is the first large company to put bitcoin in its books. Consequently, the company's valuation jumped almost 5X fold since the bitcoin purchase.
Block Inc (Formarly Square) was founded in 2009 by Jack Dorsey, who is also the founder of Twitter. It is a mobile payment company that helps businesses accept credit card payments easily with any mobile device. They provide sellers with point-of-sale solutions and many other advanced mobile financial services made simple. Jack Dorsey's company has grown to be one of the major players in the financial services sector.
One of the driving forces within Square is its Cash App, a mobile application that allows users to get and transfer cash easily to other people. In 2017 Square added an ability buy and sell bitcoin within the app.
As of 2021, Square decided to invest 160 million dollars and purchase bitcoin on its books. Jack Dorsey is a bitcoin advocate and highly believes in its future. Looking forward, Square wants to establish itself in the mobile payment sector, as well as open doors for cryptocurrencies and digital payment solutions.
Coinbase (COIN) is one of the first cryptocurrency exchanges ever, established in 2012 by Brian Armstrong and Fred Ehrsam. In one of the most popular crypto IPO, Coinbase went public in a direct listing on the NYSE for a whopping 100 Billion dollar valuation.
The San Francisco-based company has quickly become one of the most popular exchanges, with more than 56 million users worldwide. But what makes this company so different from others? It's fully remote with over 1200 employees (and growing) who work worldwide! Moreover, there's even no official headquarters for the company, 100% remote.
At Coinbase, you can easily and securely trade cryptocurrencies with just a few taps on your phone or computer. Coinbase is also favorable among large institutions, insurance companies, and much more. These hold billions of dollars worth of crypto in Coinbase's custody. Additionally, the company makes crypto payments easier, launching Coinbase Commerce as an easy payment gateway for Shopify and WordPress websites.
All in all, Coinbase is a fascinating company that has grown into one of the most promising and exciting players in the crypto market, and I'm excited to see where the future will take it!
Being the world's largest car manufacturer by market cap and renowned for its high-end Electric Vehicles didn't stop Tesla (TSLA) from entering the world of bitcoin. The company is among the few listed companies to have purchased Bitcoin, 1.5 Billion dollars worth of it to be exact. Moreover, Elon Musk is one of the biggest and most famous supporters of this digital currency.
Lately, in an official 8-K filing to the SEC, Elon Musk added the title "Technoking of Tesla" to his CEO title. At the same time, his CFO, Zach Kirkhorn, was announced as "Master of Coin". Certainly, changing the title indicates a positive movement towards Bitcoin. We might see Tesla increasing its Bitcoin position even further, let alone allowing customers to buy cars with it. Though Tesla trade at a high price, its bullish Bitcoin position could pull it even higher if the Bitcoin rate continues to rise.
PayPal (PYPL) is one of the leading online payment providers in the world, whose services include money transfers and credit card payments. The company pioneered online payments in the early 2000s and has become a giant global payment provider, powering worldwide e-commerce businesses and connecting buyers and sellers across the world.
Starting in 2020, PayPal allows users to acquire bitcoin through its platform. Users can now buy and sell bitcoin easily and seamlessly, as with all PayPal payments. Though they do not hold bitcoin on the balance sheet, its huge market cap, and global outreach validate bitcoin's support.
Bitcoin and Crypto-Related SPACs
Circle is the company behind the stablecoin USDC. They have a partnership with Visa and are among the largest volume trading stablecoins in the world. They are planning to go public through a SPAC merger in late 2021, for a valuation of over 2 Billion dollars.
If you're new to the SPACs world, check out my complete SPAC dictionary for beginners, to understand the basic terminology.
How to Invest in Bitcoin Mining Stocks and Bitcoin Mining Companies?
Bitcoin mining companies are the backbone of bitcoin. With thousands of servers and rigs mining new bitcoins, they are among the bitcoin market's biggest players. Their financial model is straightforward:
- Mine Bitcoin with huge servers and rigs.
- Sell the mined bitcoin.
- Pay for electricity in fiat (dollars).
- Keep profits and increase operation size.
There is almost a direct correlation between the profits these companies generate and the price of bitcoin. An additional important factor is the efficiency of computer chips and energy generation sources these companies can access.
Since the rise in Bitcoin value, some of these bitcoin mining stocks have gone up 10 fold. Here are a few examples of listed bitcoin mining stocks that have seen an increase in value recently.
Marathon Digital (MARA) is a digital asset technology company that mines cryptocurrencies. It focuses on the blockchain ecosystem and the generation of digital assets. Marathon's data center is located in Hardin, MT, and has an output capacity of 105 megawatts, making it one of the largest mining cryptocurrency operations across the United States. Once fully deployed, the Company’s mining fleet will consist of more than 103,000 miners capable of producing 10.36 EH/s.
The Marathon stocks rose by a staggering 2000% in 2020, from around 2$ to more than 40$. As of early 2021, Marathon holds almost 5000 bitcoins in its inventory.
Starting in 2016, Riot Blockchain Inc. (RIOT) focuses on bitcoin mining and aims to be one of the largest and lowest-cost Bitcoin producers in North America. The company now totals 15,040 miners operating in their center in New York. The company wants to grow, mine bitcoin from cheaper, renewable energy sources and continue to grow its operation. Additionally, RIOT stock rose more than 2000% during 2020. They are a smaller company than Marathon, holding currently almost 2000 bitcoins.
Argo Blockchain (ARBKF) is a London-based company providing an efficient and powerful platform for cryptocurrency mining operations. The company operates worldwide, with headquarters in London, UK, and North American offices. Argo Blockchain's shares are listed on the Main Market of the London Stock Exchange under the ticker: ARB and on the Over the Counter exchange in New York. The company has a relatively small operation which can, as of early 2021, mine approx. 100 bitcoins per month. Their total holdings as of 2021 are 599 bitcoins.
Unique Bitcoin Investments
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Investing in Bitcoin Stocks: Conclusion
To sum up, we can see many investment opportunities for those who wish to stay in the dollar currency. You can enjoy bitcoin's success with your existing fiat currency. Whether you choose to invest via a trust fund, a bitcoin proxy stock, or a bitcoin mining stock, one thing is crucial.
Firstly, do your research, go through the numbers, and understand what you're doing. Secondly, follow your intuition and your common sense, and take risks that fit your appetite. These are, in my opinion, the most important characteristics of a good investor. I believe this list will grow over time, with more fascinating companies joining the bitcoin world. It's all about cutting the fear factor and moving forward. Let's see what the future will bring!