Cryptocurrency is an emerging asset class that has become increasingly popular in recent years. I see a number of valid reasons to consider investing in crypto.
First, I think some investors are intrigued by the idea that digital currencies will replace fiat money in the future – and that makes buying cryptocurrencies an attractive decision. Second, I think crypto represents an alternative investment, similar to art or collectibles. It may make sense for the right investor to allocate a small percentage of your portfolio to assets other than stocks, bonds and cash.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
But choosing which cryptocurrency to buy can be like throwing a dart at a wall. While Bitcoin And Ethereum are two of the most common options Dogecoin or Shiba Inu actually create a practical utility on the road?
Rather than trying to predict which digital currencies will be the most valuable, I would encourage investors to think about ways to gain exposure to cryptocurrency without actually purchasing specific tokens or coins.
Below I will explore how billionaire investor Jeff Yass of hedge fund Susquehanna International Group (SIG) is investing in crypto.
According to SIG’s latest 13F filing, the company has steadily built a position in Coinbase worldwide (NASDAQ: MINT). Over the past year, the fund has grown its stake in Coinbase tenfold, from about 51,330 shares to 877,400.
At its core, Coinbase is an exchange where investors buy and sell cryptocurrency. In some ways it is similar to brokerage firms such as Robinhood or Charles Schwabbut with an intense focus on crypto. Like a traditional brokerage firm, Coinbase generates most of its revenue from transaction fees.
While the buying and selling trends in the crypto world can ebb and flow just like stocks, I like the idea of investing in Coinbase for a number of reasons.
While crypto is still somewhat of a niche industry, I think Coinbase’s brand is a valuable intangible asset that is difficult to compete against from the perspective of established established brokers.
Furthermore, investing in Coinbase provides broad exposure to the crypto industry. Instead of speculating on which individual cryptocurrencies will increase in value, Coinbase presents a diversified platform with many different digital currencies.
To me, this is a subtle advantage, as Coinbase stock is unlikely to experience the same level of volatility as a specific cryptocurrency on any given day. Additionally, because Coinbase makes money from transaction fees, the company benefits when cryptos experience heavy buying or selling activity.
Another way SIG invests in crypto is via MicroStrategy (NASDAQ:MSTR). Over the past year, SIG’s position in MicroStrategy has increased from approximately 2.2 million shares to 3.8 million shares.
MicroStrategy is a very unique way to invest in crypto. The company is actually an enterprise software company that specializes in data analysis based on artificial intelligence (AI). However, MicroStrategy’s balance sheet contains one very important line item in particular.
In the quarter ended June 30, MicroStrategy had $5.7 billion in digital assets on its balance sheet. This is by far the company’s largest item on the assets side of the balance sheet. According to the footnotes in the quarterly filings, MicroStrategy’s digital assets “consist exclusively of bitcoin.”
While owning Bitcoin on the balance sheet may seem excessive, this type of diversification between assets is not as uncommon as you might think.
Often, large public companies will actually invest in other companies while they are still private. However, the company may choose to hold onto its shares even after the company it invested in pursues a liquidity event such as an initial public offering (IPO).
Ultimately, companies may choose to sell their shares or reduce their positions in the companies they have invested in – hopefully at a profit. This style of portfolio management can help companies grow cash and strengthen liquidity in ways beyond increasing sales and increasing cash flow.
New 13F registrations for the third quarter should be available in the coming weeks. I’m curious to see how Yass and his billionaire hedge fund cohorts have invested in crypto in recent months.
In particular, Bitcoin and other mainstream cryptos have witnessed outsized activity following a series of bullish comments on the industry from presidential candidates Kamala Harris and Donald Trump, as well as Robert F. Kennedy Jr. before ending his campaign.
While rhetoric at the intersection of politics and crypto has likely influenced the price of several coins in recent months, I see opportunities like Coinbase or MicroStrategy as solid options at the moment.
Coinbase takes more of an agnostic and insular approach to investing in crypto, and I think the company is an attractive option for those interested in digital currencies.
Moreover, if you believe in the long-term idea that cryptocurrency will become more widely adopted in the future, then MicroStrategy’s choice to keep Bitcoin on its balance sheet makes a lot of sense, as the company will be able to benefit from gains in its position.
The main difference that I think investors should be aware of is that the price of Bitcoin is quite volatile – certainly more so than many stocks or short-term investment instruments such as bonds or money market instruments.
For these reasons, MicroStrategy’s financial flexibility may be considered riskier compared to other companies that primarily have more liquid assets on their balance sheets.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $20,993!*
-
Apple: If you had invested $1,000 when we doubled in 2008, you would have $42,736!*
-
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $407,720!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 28, 2024
Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Coinbase Global. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool recommends Charles Schwab and recommends the following options: Short December 2024 $67.50 calls on Charles Schwab. The Motley Fool has a disclosure policy.
Here’s How Billionaire Jeff Yass Is Investing In Crypto (Hint: It’s Not Bitcoin) was originally published by The Motley Fool
