Since the beginning of 2021, Bitcoin has attracted a lot of interest from multiple mainstream investors. It has captivated billionaire Elon Musk and hedge-fund moguls such as Alan Howard and Paul Tudor Jones among others across the globe. Apart from its skyrocketing price, the cryptocurrency has also gained support of major banks.
Despite that, Bitcoin’s volatility, high value and the fact that it’s not backed by a financial institution makes it a complicated investment. So, what should investors consider while investing in the cryptocurrency? For starters, people can invest in the cryptocurrency without holding coins themselves. In other words, they can invest in firms that hold bitcoins.
How safe is it to invest in stocks of bitcoin-related companies?
Investing in such companies is a much safer and easier option compared to investing directly in bitcoin. Such investments can be done through a financial institution’s brokerage account, which gives the investor some security and ease of use, and offers some protection from losses. For any account related queries, investors can contact managers of brokerage accounts. The investor can set or change passwords, or gather documents for filing taxes — none of which is possible if a person is holding bitcoin directly.
Such investments may still not shield an investor from bitcoin’s volatility. There are many firms that have added bitcoin to their balance sheet or accept the cryptocurrency as payment. People can also invest in publicly traded companies that have technology related to trading bitcoin or use blockchain.
Moreover, whenever the value of bitcoin surges, like the recent rally, it doesn’t mean that stocks of bitcoin-related companies would see a similar spike. For example, bitcoin-mining device maker Canaan posted four straight quarters of losses last year over a period when bitcoin rose by about 30 percent. The sales of the company, which makes chips and equipment used in miners, dropped in June and September quarters last year.
So, no matter, what you do — purchase bitcoins directly or invest in a stock — perform an in-depth study before buying and invest an amount that you can afford to lose.
Who’s joined the bitcoin bandwagon?
Recently, companies such as Tesla and MicroStrategy have directly invested in bitcoin. In fact, the cryptocurrency has grabbed a lot of mainstream attention after Tesla announced on February 8 that the electric carmaker had invested $1.5 billion in Bitcoin and would begin accepting payments for its cars and other products with the cryptocurrency in the near future.
MicroStrategy, an enterprise software company, said it planned to sell $600 million in convertible debt and use the proceeds to buy bitcoin.
There are firms such as Square and Paypal where people can make payments in bitcoin. Some of the bigger names, such as Microsoft, IBM, Google, SAP and Amazon, use blockchain in different parts of their business.
For example, an investor can buy stocks of firms that make graphics processing units, required for computers to solve math equations for blockchain technologies, or invest in funds having exposure to cryptocurrencies and blockchain technology such as Ark Next Generation Internet exchange-traded fund.