For those who had the wherewithal to stick with cryptocurrencies in 2017, you were probably well rewarded for your troubles. After beginning the year with a combined market cap of less than $18 billion, the aggregate market of virtual currencies soared by almost $600 billion, ending the year at $613 billion -- an increase of more than 3,300%. It may go down as the best year for any asset class in history.
Gains like these are certainly bound to turn heads. However, investing in cryptocurrencies usually means having to use decentralized cryptocurrency exchanges to buy and sell virtual currencies. Some retail investors, and many institutional investors, want absolutely nothing to do with loosely regulated cryptocurrency exchanges that could be located in markets well beyond the borders of the United States. Still, this hasn't stopped the urge to invest in cryptocurrencies for some retail investors and/or institutions.
These three stocks are highly tied to the cryptocurrency market
The solution for these folks is to find a middle ground. In other words, find equities that can be bought and sold on reputable stock exchanges like the New York Stock Exchange, or at worst the over-the-counter (OTC) exchanges, which also have significant links to specific cryptocurrencies, or the market as a whole. If you want cryptocurrency exposure without having to deal with decentralized virtual currency exchanges, the following three stocks may be worth your consideration.
Bitcoin Investment Trust
In terms of equities with the highest exposure imaginable to cryptocurrencies, or should I say bitcoin, it's the Bitcoin Investment Trust (OTC:GBTC). The thesis behind the Bitcoin Investment Trust is really simple: It holds a relatively fixed amount of bitcoin in its portfolio, which, more or less, is supposed to follow the nominal price of bitcoin. Though it comes with an exorbitantly high expense ratio of 2%, valuing the Bitcoin Investment Trust should be relatively straightforward. However, that's not been the case for a long time.
As of this past weekend, the Bitcoin Investment Trust had a market cap of $2.71 billion. However, the 181,699 bitcoins that were being held as assets at the end of February were worth about $1.74 billion by Sunday evening, March 11. What should be a straightforward method of tracking bitcoin currently boasts a 56% premium to the actual value of its assets under management.
Why the premium? This is a question pundits have been asking for more than a year, and still no one knows for sure. It could be the improved liquidity that comes with being able to move in and out of the position, relative to decentralized exchanges, or it might just be an emotion-driven premium. Either way, the Bitcoin Investment Trust is heavily tied to bitcoin, and it currently boasts one heck of a premium to its assets under management.
HIVE Blockchain Technologies
Another way to boost your cryptocurrency exposure through the stock market is with publicly traded cryptocurrency mining company HIVE Blockchain Technologies (OTC:HVBTF).
Cryptocurrency mining involves the use of high-powered computers to solve complex mathematical equations that are a result of the encryption used to protect transactions from hackers. These equations essentially proof a series of transactions, known as a block, ensuring that no two coins were spent twice. The first person or business to solve a block of equations receives a reward, which is paid in crypto tokens. Not all virtual currencies run on this proof-of-work model, but bitcoin and Ethereum do, as an example.
Though HIVE Blockchain Technologies is really just getting started, it's already marginally profitable. In its recently reported third-quarter operating results, it notes nearly $3.3 million in sales, a gross margin of more than 72%, and net income of $149,724. Mind you, this works out to $0.00 on an earnings-per-share basis because of how many shares are outstanding, but the belief is that once HIVE ramps up its mining centers in Iceland and Sweden it'll be capable of $150 million in revenue per year.
The company is also hanging on to some of the coins it's mined, which can fluctuate in value and provide more leverage for investors. However, keep in mind that these fluctuations can go both ways, meaning a loss in crypto market value would adversely and immediately affect HIVE's margins. Plus, without operating cash flow, the company has relied on dilutive bought-deal offerings to expand its cryptocurrency mining capacity.
A third stock with growing leverage to the cryptocurrency market is online home-goods retailer Overstock.com (NASDAQ:OSTK). Overstock made headlines by being the first to really embrace a smorgasbord of altcoin payment options at checkout. It partnered with ShapeShift, which acts as a digital-currency intermediary, allowing consumers to pay with dozens of different cryptocurrencies when checking out using Overstock's platform, including Ether, Bitcoin Cash, Dash, and Monero, to name a few.
But accepting digital coins is just the beginning. Overstock's board has authorized the company to retain more of those virtual currency payments in its portfolio, rather than quickly converting them into U.S. dollars. Overstock had once kept about 10% of received digital currencies in its investment portfolio, but it has since boosted this figure to as much as 50%. That gives Overstock a growing tie-in to the cryptocurrency market.
Furthermore, subsidiaries of Overstock are developing blockchain solutions. Overstock.com CEO Patrick Byrne is such a believer in these projects and the long-term outlook for blockchain technology that he's exploring the possibility of selling the traditional online home-goods business and using the proceeds to fund blockchain development.
Though it has the least exposire of the three stocks mentioned here, Overstock offers perhaps the most diverse array of crypto holdings in its investment portfolio as a result of customer payments. However, without any consistent profitability, investors in Overstock would have to be willing to take a leap of faith on seeing its underlying blockchain solutions succeed.