Cryptocurrencies have experienced a resurgence in 2019 after Crypto Winter (an extended bear market) gripped the asset class during the latter part of 2018.
Bitcoin is up nearly 150% year-to-date and other major cryptocurrencies have followed along. At Capital 10X we believe that cryptocurrencies, specifically bitcoin (BTC), can act as a strong hedge to the overall markets. Bitcoin has serious potential as a store of value and as a medium of exchange. Check out our deep-dive on Bitcoin on Grizzle to learn more.
In our opinion, the best way to invest in the potential of bitcoin and other digital assets is to own those assets directly. Despite the fact that buying and holding or trading cryptocurrencies can be done in 4 easy steps, we understand that some investors prefer to keep their investments in public markets.
While we were aware of a few higher-profile companies who had business models tied to bitcoin, we consulted our friends out on Twitter for some more names (feel free to send us more suggestions in the comments too).
For the most part I’m very underwhelmed with what options I have to play equity markets for leverage/exposure to $BTC
Still think it’s a worthwhile exercise to map out all the plays and slap on a @capital10x 5-star rating
Hit me with tickers ( $BTC exposure not shitcoins)🧐
— Thomas George (@thomasg_grizzle) May 16, 2019
We received plenty of great suggestions and after looking at the options available we settled on a few simple criteria to keep our research focused:
- Main focus of the company must be cryptocurrency related. This left out a few names such as Overstock (OSTK), JP Morgan (JPM), and more recently Facebook (FB), which all have crypto related businesses that are still secondary to their primary business model.
- The company must be listed on North American markets and available to non-accredited investors. While there are bitcoin and ethereum ETNs listed on the Nasdaq Stockholm exchange and a bitcoin mutual fund for accredited investors in Canada, those aren’t available to the average investor through their brokerage.
- Companies with greater exposure to bitcoin were favoured. We believe bitcoin is the best in breed of the many cryptocurrencies and although some altcoins may survive in the long run, there is more risk in building a business around them.
Without further ado, below are the companies we took a look at, sorted from best to worst, and their market cap. Also, don’t miss our deeper look at the best bets below the infographic.
A Deeper Look at the Best Bets
What became clear to us very quickly is that there are a very small number of ways to invest in public market equities that have legitimate businesses meeting our criteria. The clear winner in our analysis was the Grayscale Bitcoin Trust (GBTC). Not only does it have significant assets under management of over $2B USD, but it’s well traded even though it’s only available on OTC markets and is highly correlated to bitcoin. It is essentially a publicly traded proxy for bitcoin.
The next set of businesses with potential to ride the cryptocurrency wave were focused primarily on mining with Hut 8, Hive, and Riot. Hut 8 is the one company who is exclusively focused on mining BTC, but over the past several quarters they have really struggled to be profitable. They have yet to report earnings during the most recent bitcoin bull run so the next earnings report will tell investors whether they can turn the profitability corner as the hash rate for BTC increases.
Hive and Riot mine other cryptocurrencies in addition to BTC and have also struggled to show consistent profitability. Galaxy, however, is a different beast altogether, originally envisioned as the Goldman Sachs of crypto, it has also shown huge losses but it backstopped by the deep pockets of its founder Mike Novogratz.
To see how well these assets tracked the price of BTC we looked at how these companies’ share prices correlated to bitcoin over the course of this year so far, again GBTC was the clear winner.
|Company (Ticker)||Correlation to BTC YTD|
|Grayscale Bitcoin Trust (GBTC)||99.1%|
|Hut 8 Mining (HUT.V)||73.5%|
|HIVE Blockchain (HIVE.V)||42.7%|
|Galaxy Digital Holdings (GLXY.V)||37.5%|
|Riot Blockchain (RIOT)||30.3%|
While correlation to bitcoin is certainly important based on the long-term potential of BTC, we also looked at the overall returns of these different investments. Again bitcoin and the Grayscale trust have performed much better YTD with GBTC actually outperforming BTC (175% vs ~150%). All of the other best bet stocks we looked at showed much lower performance over the year ranging from ~50-85%.
YTD Performance BTC and Publicly Traded Crypto Companies
To help facilitate your own due diligence on these companies we’ve compiled links to their website and securities filings below:
In the interest of full disclosure, Capital 10X employees’ own shares in Hut 8, the Grayscale Bitcoin Trust as well as small amounts of Bitcoin and Ethereum. More information on the profiled companies can be found by reviewing public filings on SEDAR at www.sedar.com and the SEC at www.sec.gov. Writers at Capital10X.com are not certified financial analysts or licensed in the securities industry in any manner and the content of this report may not be complete, accurate or current.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.