How to Allocate to Bitcoin: Alternative Ways to Play the Cryptocurrency

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Bitcoin is rallying again. In fact, according to CoinTelegraph, the price of the world’s most famous cryptocurrency has hit its second highest price ever. Just this year, bitcoin has appreciated 165%.

While investing directly in cryptocurrency is relatively easy now thanks to apps like Robinhood and Coinbase, you may have some reservations about holding cryptocurrencies directly.

Bitcoin is associated with any number of scams, hacks and underpins much of the criminal blackmarket these days. Beyond that one of the advantages of crypto trading can also be a disadvantage; wild price swings that can happen literally any time, as unlike stocks, bitcoin and other cryptocurrencies trade 24/7/365.

However, the excitement around bitcoin’s latest surge, which famous trader and Market Wizard Paul Tudor Jones says is just in its first inning may leave you wondering if there are ways to gain exposure to this asset class without suffering from some of its drawbacks such as storing and easily converting it to fiat currency.

For those wanting to participate in the latest bitcoin rally or allocate a part of their portfolios to the asset class for long-term exposure, there are many alternatives that will allow you to capture some of bitcoin’s upside without some of the specific drawbacks of direct cryptocurrency ownership.

You should keep in mind however that all of the options below will have their own set of unique drawbacks such as company-specific risks or a lack of tight correlation to bitcoin itself. While many alternative bitcoin plays have explosive upside, they are also likely to be volatile and potentially have plenty of downside too, especially if the bitcoin rally runs out of steam. Ultimately if you’re a “true believer” in the long-term price of bitcoin, it may be best for you to hold the cryptocurrency directly.

Keep in mind that none of the below alternative bitcoin plays are recommendations. You should do your own research and due diligence before investing or trading any of the below.

Bitcoin Trusts: Grayscale Bitcoin Trust (GBTC)

Of all the options on this list, the Grayscale Bitcoin Trust is the closest to a “pure play” on holding bitcoin directly. You can think of GBTC as a fund that offers shares based on the price of bitcoin. The fund takes in capital from private investors which it then uses to buy up bitcoin. It then lists shares of the fund which can be bought by investors through the OTC markets. The fund is listed OTC as the Securities and Exchange Commission has not yet formally approved a bitcoin ETF, despite the best attempts of the Winklevoss twins.

Being listed on a lightly regulated OTC exchange is one risk to evaluate. The other is that GBTC will follow the price swings of bitcoin, but not perfectly. There may also be times when you regret not being able to sell overnight or on the weekend when the price of bitcoin moves violently in one direction or the other.

This year GBTC has returned 173%, actually more than the return of bitcoin itself. This is possible because shares of funds such as trusts can trade at either a premium or discount to their underlying holdings. With relatively few options for bitcoin funds that trade on the public stock markets, it’s not surprising to see GBTC trading at a discount as bitcoin again becomes the asset class of choice for many investors.

For more information on GBTC, we recommend reading this excellent overview from Decrypt.

Blockchain Stocks: Riot Blockchain (RIOT) and Marathon Patent Group (MARA)

Are the massive returns in bitcoin not enough for you? Looking for a leveraged play? Then blockchain stocks might be of interest. Just keep in mind the gains in many of these names have been equalled and then some by the crashes, which have been even more severe than previous crashes in BTC itself.

You also have to keep in mind that the returns of these stocks, at least partially, come from the management of the companies themselves and are not based purely on the price of bitcoin. Before investing in blockchain companies you need to evaluate the company management teams, earnings trends and technological approaches of the respective companies. Many blockchain stocks can have tenuous at best connections to bitcoin and the underlying technology, such as Long Blockchain, the blockchain off-shoot of the Long Island Iced Tea company.

Two of the more notable options are Riot Blockchain (RIOT) and Marathon Patent Group (MARA). Despite being two of the more notable pure play stock options on blockchain, both RIOT and MARA were until recently trading at penny stock levels, showing that these are high-risk options that at times have lost a lot of money as interest in bitcoin and blockchain waned.

That was before 2020 however, when both of these stocks have rocketed to the moon, performing multiples better than even the price of bitcoin itself.

Colorado-based Riot Blockchain is a software application maker focused on developing blockchain technologies. Its portfolio companies include Verady, Coinsquare and Tesspay among others. Its stock has returned a jaw-dropping 508% YTD, more than 3x the returns of simply holding bitcoin this year. The stock, now trading at over $7 per share, rallied in an even more epic fashion during the last major bitcoin rally, topping out in the mid-40s per share before an equally impressive crash into literal penny stock territory: the stock was trading for less than fifty cents per share earlier this year!

Marathon Patent Group is a miner of digital assets, with its operations primarily in Canada. Even after its incredible year-to-date run of 457%, the stock trades just over $5.00 per share and still sports annualized returns of nearly -30% over the past five years. The stock has a long way to go to match its previous peaks of $55 and $40 per share, respectively, during the past two major bitcoin rallies in 2016 and 2018.

Major Payments Stocks: PayPal (PYPL) and Square (SQ)

If blockchain penny stocks are too racy for you, consider the major payments companies that have become more bitcoin-friendly this year, but also benefit from being major players across the payment ecosystem and not particularly dependent on the price of bitcoin for their overall stock performance. Two options in this space are PayPal (PYPL) and Square (SQ).

PayPal made a notable splash in October 2020 when it announced it was allowing its more than 300 million users to buy, sell and hold bitcoin, along with other cryptocurrencies through its online wallets. The company plans to expand cryptocurrency capabilities to its popular Venmo service and across international markets by the first half of 2021. Despite being a more conservative play on bitcoin, PayPal’s stock has been no slouch in 2020, returning more than 90%. Unlike penny stocks, PayPal has been a beautiful long-term investment as well, returning more than 42% annualized over the past five years.

PayPal must have noted rival Square, owner of the increasingly popular Cash App, which has made even more aggressive moves into the bitcoin world. According to, Square generated more than $1.6 billion in bitcoin related revenues in the third quarter of 2020. Even more notable might be Square’s recent move to hold bitcoin as part of the company’s reserve currency, with about 1% of the company’s total assets in bitcoin. Square’s stock has been on a tear this year, outperforming not only Paypal but the appreciation of bitcoin itself, with an amazing 224% YTD gain, and more than 75% annualized over the past five years. Not bad for a large, diversified payments company with a lot of different promising consumer and merchant business lines.

The downsides of treating stocks like PayPal and Square as proxies for bitcoin is that many other factors will impact the companies’ performance. The health of the e-commerce market, consumers willingness to adopt mobile payment technologies at an increasingly fast rate as well as the overall health of the economy will all likely weigh more on the performance of these two stocks than the simple fluctuation of the price of bitcoin. For those looking for a conservative, measured approach to gain some exposure to the bitcoin market these are potentially not bad options.

Wait for the Coinbase IPO or Direct Listing?

A final option for those looking to profit from bitcoin without holding it directly could be on the horizon with a Coinbase IPO. The cryptocurrency exchange’s future is tightly interwoven with the future prospects of not only bitcoin but a wide range of cryptocurrencies. Coinbase could potentially be an appealing investment as they generate revenues based on activity from crypto trading and related activities, which means the potential to profit from both spikes like we see in the later half of 2020, but also in volatile sideways markets and declines.

The obvious problem with waiting for the Coinbase IPO is that you have already missed out on at least one major move up in the latest bitcoin rally, not to mention two previous historic rallies in the past five years. There is no guarantee to the exact timeline of the Coinbase IPO and you will still have to monitor company-specific developments before getting comfortable investing in the stock.

If none of the above options appeal to you, you might be ready to buy bitcoin directly after all. For more information on how to buy bitcoin on a platform like Robinhood, visit our article on the topic here.


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