Bitcoin stocks are arguably the dumbest Bitcoin game
If you believe in bitcoin, you buy bitcoin. And if you’re wary, stay away. This is the easiest way to calculate investment options when it comes to the world’s most infamous speculative rate. Of course, you can join Telegram and Reddit groups claiming to understand and predict cryptocurrency price reversals, which makes you much smarter than everyone else. Great job.
But there is another option: invest in the stocks of companies associated with bitcoin, including those supplied by miners computers that solve the complex algorithms that underlie the cryptocurrency network. That is, to buy shovels in the gold rush. However, this could be the dumbest bet.
Take Canaan Inc., the largest member of the Elwood Blockchain global stock index, for example. A Hangzhou-based company makes chips and hardware used in miners. You might think that as the price of Bitcoin and therefore the demand for it continues to rise, people will be clamoring for more installs. The main incentive for this is that if you run such a machine, you can receive bitcoins yourself as a reward, and as the price rises, the value of such a prize also increases.
It doesn’t work that way. Canaan’s sales fell in June and September, and it posted a loss for four straight quarters. This is during the period when the price of Bitcoin rose by a moderate 30%. According to Bloomberg, sales analysts have no choice but to speculate about the revenue outlook or target share price.
However, such equity investments are not important for bottom line, but for stock returns. Canaan has done well in this regard, having increased 200% over the past year. Tesla Inc. earlier this month that it hit bitcoin and then Canaan telling investors that it had received long-term orders accounted for almost all of that profit.
This huge gain over the past year is paltry compared to Bitcoin itself, which is five times that of a year ago. In fact, collectively betting on sister horses as tracked by the Elwood blockchain index will make you lag behind.
There are a few exceptions. MicroStrategy Inc. is a supplier of business intelligence software. But now he’s gone broke for Bitcoin and raised about $ 1 billion last week by selling convertible bonds with the sole purpose of buying more. This large bet has seen the company’s stock surpass even the cryptocurrency itself in the past few weeks.
Unfortunately, as my Bloomberg News colleagues Crystal Kim and Tom Contiliano have noted, its shares are trading at a premium of about 50% to Bitcoin’s price and this comes after a 25% fall in the stock price since its peak on February 9th. They wrote that it would be like buying bitcoins at $ 75,019 each when they were trading at $ 49,000. This is clearly not the smartest investment.
And this is the problem. There will no doubt be times when individual stocks, or even a combination of them, will become a sound investment strategy. But in the long run, if you really think Bitcoin is the winner, then there really is only one clear way to bet on it.