Cryptocurrencies such as Bitcoin can see their prices soar and plunge in a matter of days -- and even minutes. In turn, cryptocurrency investors can quickly earn a fortune, but then just as quickly lose it all.
Yet there's an often-overlooked way to profit from Bitcoin's wild price swings, one that doesn't require you to predict whether the popular cryptoasset's price will rise or fall. In fact, this investment benefits from Bitcoin's volatility -- and can offer you the opportunity to do the same.
Intrigued? Then read on to learn more about it.
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The exchange titan
One relatively safe way to profit from Bitcoin's rising popularity is to buy stock in CME Group (CME 0.23%), which operates the leading Bitcoin futures exchange.
Bitcoin futures contracts are binding agreements that allow people to make bets on whether the cryptocurrency's price will rise or fall over a certain period of time. But while profiting from a Bitcoin futures contract requires that you correctly predict the direction and timing of Bitcoin's price movements -- a highly challenging endeavor -- investing in CME Group allows you to potentially profit from a far higher-probability bet: that trading volumes in Bitcoin futures will continue to rise in the coming years.
CME Group earns a small fee for each trade conducted on its exchanges. It therefore benefits when trading volumes rise, which often occurs during periods of heightened volatility. In this way, CME Group profits from Bitcoin's violent price swings -- both to the upside and the downside.
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Surging demand
CME Group is also benefiting from the rising popularity of Bitcoin futures among individual investors, as well as institutional investors such as hedge funds, family offices, and university endowments. Importantly, Bitcoin futures -- in addition to allowing traders to speculate on price -- give investors a way to hedge their direct cryptocurrency holdings.
For example, a person who owns Bitcoin and doesn't want to sell it -- perhaps to avoid capital gains tax -- could sell a futures contract to hedge his or her position until the contract's expiration date. Thus, futures can rightfully be seen as a form of insurance for Bitcoin holders. And by providing Bitcoin investors with a means to lock in gains and limit losses, CME Group stands to benefit from the growth of the overall Bitcoin marketplace.
Perhaps unsurprisingly, given traders' and investors' growing enthusiasm for cryptocurrencies, CME Group is enjoying record demand for its Bitcoin futures contracts.
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A low risk profile
Notably, rival exchange operator Cboe Global Markets (CBOE +1.44%) recently decided to put its Bitcoin futures market on hold, mainly because it could not compete effectively with CME Group's superior liquidity. By ceding this fast-growing market to its larger rival, Cboe is acknowledging CME's powerful competitive advantages. And if a high-quality business like Cboe couldn't challenge CME Group, it's unlikely that new entrants will pose a significant threat to the exchange giant.
Moreover, Bitcoin-focused trading is currently a relatively small -- but rapidly growing -- portion of CME's revenue. It's likely to provide a meaningful source of growth for the company, particularly if CME Group decides to roll out new futures contracts for other popular cryptocurrencies such as Ethereum in the years ahead. But even if Bitcoin futures trading volumes disappoint, investors would still have other ways to win, such as from the continued growth in future trading volumes on CME Group's other asset classes.
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Sweet, beautiful cash
Better still, CME Group offers investors something that is not typically found in the crypto world: a cash dividend. As an asset-light electronic intermediary, CME Group is highly profitable. It also produces bountiful free cash flow, which it passes on to investors via quarterly dividend payments and a variable annual dividend payout, which together typically amount to a yield of more than 5%.
As such, CME Group offers you a way to turn Bitcoin's popularity into cash in your pockets. If that sounds appealing, you may want to consider buying shares of this exchange titan today.
