If you believe in Bitcoin, you buy Bitcoin. And if you’re wary, you stay away. That’s about the simplest way of calculating your investment options when it comes to the world’s most infamous speculative bet.
Of course, you can join the hoards of Telegram and Reddit groups claiming to understand and predict the twists and turns in the cryptocurrency’s price, making you just that much smarter than everyone else. Well done.
But there is another option: invest in stocks of Bitcoin-related companies, including those that supply the “miners” — the computers that solve the complex algorithms which underpin the cryptocurrency network. That is, buy shovels in a gold rush.
That could be the dumbest bet of all, though.
Take Canaan Inc. the largest member of the Elwood Blockchain Global Equity Index. The Hangzhou-based company makes chips and equipment used in miners. You’d think that since Bitcoin price, and ergo demand, keeps rising then people would be clamoring to buy more rigs. The major incentive to do so is that if you run such a machine you can yourself get Bitcoin as a reward, and as the price rises the value of such a prize also climbs.
It’s not working out that way. Canaan’s sales in the June and September quarters dropped and it posted four straight quarters of losses. That’s over a period in which Bitcoin’s price rose a sedate 30%. According to Bloomberg data, there’s no sell-side analysts left to even guess at its revenue outlook or share price target.
Such equity investments are not about the bottom line, though, they’re about share returns. In that regard, Canaan has done well by rising 200% over the past year. Tesla Inc.’s announcement earlier this month that it had got into Bitcoin, followed by Canaan telling investors it had secured long-term orders, accounted for almost all of that gain.
Place Your Bets
You could invest in Bitcoin-related stocks. Or you could just by the cryptocurrency itself
Source: Bloomberg
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This huge return over the past year is minuscule compared to the rise in Bitcoin itself — which is five times higher than a year ago. In fact, on aggregate, betting on related equites — as tracked by the Elwood Blockchain index — would make you a laggard.
There are a few exceptions. MicroStrategy Inc. is a provider of business-analytics software. But now it’s gone all-in on Bitcoin and this past week raised around $1 billion through a convertible-bond sale for the sole purpose of buying more. That big bet drove the stock to outperform even the cryptocurrency itself in the past few weeks.
Unfortunately, as my Bloomberg News colleagues Crystal Kim and Tom Contiliano pointed out, its shares trade at about a 50% premium to the price of Bitcoin — and that was after a 25% plunge in the stock from its Feb. 9 high. It would be akin to buying Bitcoin at $75,019 apiece when it was trading at $49,000, they wrote. Clearly, that’s not the smartest of investments.
And that’s the problem. Without a doubt there’ll be times when individual stocks, or even a collection of them, will be a solid investment strategy. But over the long term, if you truly think Bitcoin is a winner, then there’s really just one clear way to bet on it.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
