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Crypto stocks for your equity portfolio

avatar of @karamyog
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WhatTheFUD
@karamyog
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3 min read

Institutional investors and High Networth Individuals (HNIs) are truly warming up to Bitcoin. Last week, billionaire hedge fund manager, Bill Miller, said on a talk show that 50% of his personal net worth is tied to Bitcoin & Crypto. That is a huge bet and his rationale is the skewed risk-reward of cryptocurrencies. Last year a number of institutions warmed up to Bitcoin, including companies such as Tesla. This draws a lot of retail interest as well. However, for any number of reasons, retail investors may not be able to invest in Bitcoin or may not be able to invest as much as they want to.

For example, in India, there is still no legal clarity about Bitcoin. In the US, one cannot hold Bitcoin in their retirement account. Some investors may want regulatory scrutiny of the asset they are purchasing to feel safe. There are many reasons. For such investors, there are other ways to gain exposure to the cryptocurrency space. Here are a few such equities that one can buy if buying Bitcoin is not feasible.

  1. MSTR (MicroStrategy) - With annual revenue of less than $1 billion, and Bitcoin holdings worth $5 billion, one can safely say that exposure to this company is simply exposure to Bitcoin. This is as pure as it gets. However, this stock is more an option on Bitcoin, than a delta-one derivative. In case Bitcoin price falls below the company's purchase price (consider it as the strike price for the option) and for some reason stays below for considerable time, one can consider their investment as option premium.
  2. COIN (Coinbase) - In case you want exposure to an Exchange and feel that betting on trading fees earned from growing cryptocurrency adoption is a safer way to go, then this should be your pick. It is a less risky bet compared to MSTR because Coinbase deals with more cryptocurrencies. It has multiple revenue streams (custody, lending, etc.) and it will also get into derivatives soon after its acquisition of FairX.
  3. MARA (Marathon Digital Holdings) - Bitcoin exposure - Check; Exchange - Check; Mining - You can check this with MARA. This is a mining company based in the US and also holds 4,800 Bitcoin. This is not my favorite pick on the list. There is a lot of negative press about Proof of Work being bad for the environment and even Ethereum is planning to go Proof of Stake. Most of the innovation in the cryptocurrency space is related to DeFi and NFTs - both will soon be mostly driven by Proof of Stake Blockchains. If Marathon can also move to be a node operator/validator on PoS blockchains, then this is a stock worth looking into.
  4. GLXY (Galaxy Digital Holdings) - This is a cryptocurrency investment manager and financial services, provider. As more HNIs warm up to Bitcoin, this space will heat up Galaxy is well-positioned to take advantage of that. This is a good stock if you want exposure to a cryptocurrency business with cash flows.

Notable Mentions

  1. Riot Blockchain - A smaller Bitcoin mining company based in the US. In case this company can pivot faster than Marathon to diverse revenue sources, then well, this could be a better bet than Marathon.
  2. Tesla Inc. - Tesla holds some Bitcoin on its books. However, if you want exposure to another hot sector - Electric Vehicles - and some Bitcoin, then sure you can take a look at this stock. However, this shouldn't be bought because you want Bitcoin exposure.

The chart shared above shows an interesting result. GLXY is up 100% in the last year, compared to Bitcoin's 9% return. Of course, the contrast is stark because of the 1-year period that I have chosen. Both MARA and TSLA have also outperformed Bitcoin. COIN and MSTR look more like beta play if Bitcoin is the market reference.

Posted Using LeoFinance Beta