Categorized | Investments

Are there any bitcoin stocks worth buying?

Are there any bitcoin stocks worth buying

When the dust finally settles and the calendar changes over to 2018, investors are likely to look back on 2017 as the year of the cryptocurrency.

Having begun the year with a $17.65 billion aggregate valuation, the market cap of all cryptocurrencies combined reached $199.37 billion as of Nov. 4. That’s a year-to-date return of 1,030%. To put this in some context, it’s taken the broad-based S&P 500 decades to return more than 1,000%, but the average digital currency has done so in roughly 10 months.

Leading the way, even though it’s “underperformed” its digital peers this year, is bitcoin. After beginning the year below $1,000 per coin, bitcoin recently surged as high as $7,500, marking a gain through the first 10 months and four days of roughly 675%. Its current market cap of $122 billion comprises more than 60% of the aggregate market cap of the nearly 1,200 virtual currencies, and it’s left investors wondering if bitcoin stocks could be the next hottest thing.

Three reasons bitcoin has been unstoppable in 2017

Pushing bitcoin higher has been a mix of fundamental, emotional, and news-driven events. Fundamentally, investors are excited about the potential for blockchain, the underlying technology of many cryptocurrencies, including bitcoin. This digital and decentralized ledger records transactions without the need for a financial intermediary like a bank, and it’s expected to be a major step forward in security for the financial services industry.

Emotionally, bitcoin has appealed to retail investors who don’t want to miss the boat. These once-in-a-lifetime gains have attracted investors, big and small, but it’s mostly kept institutional investors relegated to the sidelines because of the unregulated nature of the currency.

More recently, news has been the biggest price driver. An upgrade to bitcoin’s blockchain during this past summer is expected to attract enterprise customers, while news released last week that the CME Group will be listing bitcoin futures for trading by the end of the year sent its price blasting higher. The entrance of institutional investors through futures trading should help calm bitcoin’s wild volatility, and perhaps improve liquidity.

Are there any bitcoin stocks to consider buying?

The big question for many investors is how they can take advantage of bitcoin without having to actually buy bitcoin. After all, until those future contracts are up and running on CME Group’s exchange, buying and selling bitcoin can only be done on decentralized exchanges, which often have wild volatility and potentially limited liquidity. The following stocks offer some degree of correlation to bitcoin, but not all are worthy of consideration.

Bitcoin Investment Trust

In theory, the most direct correlation to bitcoin should be found with the Bitcoin Investment Trust (NASDAQOTH: GBTC), run by Grayscale. This is a relatively passive fund that owns bitcoin and gives investors a potentially more liquid approach to investing in the virtual currency through their broker.

As of the end of October 2017, the Bitcoin Investment Trust held 172,144 coins, which at $7,390 would be worth $1.27 billion. However, the trust ended Nov. 3 with a market cap of $1.62 billion, representing a 28% premium to the current price. There’s really no explanation for this premium, other than improved liquidity over decentralized exchanges, but that doesn’t really merit a premium of this magnitude. Tack on a steep 2% annual management fee for a Trust that has virtually no active management, and this has all the hallmarks of a dangerous investment.

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