Bitcoin stocks are relatively new to the market. Largely because bitcoin was ignored by the mainstream media for years up until 2016, where it started to pick up some momentum. At the beginning of 2017, you could have purchased one bitcoin for approximately $1,000. The value of one bitcoin surpassed $19,000 during its peak that year.
Bitcoin is a digital currency that allows you to make and receive payments quickly and effortlessly. Bitcoin acts as an entry on a digital ledger; it has no central authority, no federal reserve bank or FDIC. Blockchain is the technology that maintains the bitcoin transaction ledger.
Some believe that blockchain technology will improve how we manage data, and bank. As well as, improve the fields of healthcare, transportation and logistics.
Now, whether bitcoin takes off and becomes a widely used digital payment system is yet to be determined. However, that hasn’t stopped traders from speculating on the digital currency.
That said, many investors have avoided trading bitcoin because of its lack of regulatory oversight. Instead, they’ve opted for trading bitcoin stocks.
The Best Bitcoin Stocks- Bitcoin Investment Trust (OTC: GBTC)
Founded by Grayscale, one of the largest digital currency asset managers on the globe. Its goal is to track the market price of bitcoin, minus fees and expenses. The Bitcoin Investment Trust is a private, open-ended trust that offers several features that bitcoin doesn’t.
Advantages of picking the Trust over bitcoin are that it’s IRA-eligible, a titled security while having built-in security and storage. It trades on the OTC Markets and was the first publicly traded bitcoin stock.
Each share of stock represents 0.092 bitcoin, as of November 30, 2017. With bitcoin’s price now fluctuating between 4 and 5 figures, the Bitcoin Investment Trust offers a low barrier to entry for those wanting exposure to the digital currency.
In addition, Grayscale has created other products that feature other cryptocurrencies like: bitcoin cash, ethereum, ethereum classic, litecoin, xrp, zcash, and zen. However, only the Bitcoin Investment Trust and Ethereum Classic Investment Trust (OTC: ETCG) are publicly traded.
Now, the Bitcoin Investment Trust came under attack in 2017 when well-known short-seller Andrew Left, founder of Citron Research, issued a short report on the stock.
source: Citron Research
The argument Citron made was that the Bitcoin Investment Trust was overvalued based on its NAV. In fact, at times, the premium has been as high as 60-100% In other words, at certain times you might be paying the Bitcoin Investment Trust $2 to own $1 of bitcoin.
How is it possible?
It was and still is, the only pure bitcoin play in the stock market. When bitcoin prices started going crazy in 2017, stock traders started piling in and out of GBTC shares trying to capitalize on its volatility. Valuation in the short-term can get out of line and markets can stay irrational longer than you can stay solvent.
Bitcoin Stocks- The Best Of The Rest
Overstock.com (NASD: OSTK)- Publicly traded since 2002, Overstock is best known for being an online retailer and a survivor of the dot-com bubble. The company founder, Patrick Byrne, is considered an advocate on cryptocurrencies and bitcoin.
In 2014, Overstock became the first publicly traded company to accept bitcoin payments on its website. However, tZero, the company’s blockchain subsidiary (83% owned) is why traders are talking about Overstock a bitcoin stock.
tZero is a digital securities market platform. The firm’s goal is to build a token trading system to trade tokenized securities. It wants to be the first SEC approved venue for initial coin offerings and SEC approved trading venue for crypto-securities.
On August 9, 2018, tZero received a letter of intent by a group of investors to buy into as much as $270M of the company. At some point, Ovestock will spin-off tZero, till then expect the stock to move along with bitcoin.
Now, there are other stocks to look at if you want to play bitcoin. However, since it is not its main business than they won’t always move in the same direction as bitcoin.
Advanced Micro Devices (NASD: AMD)- not a pure bitcoin play but still worth putting on your watch list. The chip-maker makes powerful graphics cards that are used in cryptocurrency mining. However, its a small portion of its business at the moment.
Bitcoin Stocks – Be Careful
Trading bitcoin requires an appetite for risk.
Longfin Corp. IPOed at the height of the bitcoin craze. The stocked closed its first-day trading at $5.17 on Dec 13, 2017, five days later it traded as high $142.80 per share. Months later the company delisted from the NASDAQ and now trades on the OTC Markets.
Other fly-by-nite companies emerged, changing their names to suggest its business is affiliated with blockchain and/or cryptocurrencies. Eventually, the SEC took a more aggressive stance on the matter. They spent more time educating the public and disciplining bad actors.
With so many unknown variables surrounding bitcoin, how it will be regulated and used, owning bitcoin stocks as an investment is very risky.
There have been attempts to create a bitcoin ETF but the SEC has rejected all proposals to date.
Bitcoin started to really take off in 2016 and 2017. Its price action remains volatile. The majority of companies claiming to be blockchain companies are fly-by-nites.
Longfin’s stock price went from around $5 to over $140 in a matter of days, and later got delisted. Now, savvy traders were able to take advantage of these volatile moves. However, novice investors who got caught up in the hype surrounding bitcoin got burned.
We’ve seen this type of excitement before, in sectors in like marijuana, 3-D printing, social media, the internet, solar energy, and many others. When the hype train leaves the station the only ones left are the bag holders.
It’s too early to tell what the best bitcoin stocks of the future will be. That said, it’s better to be a trader of these companies than an investor.