The cryptocurrency market has been experiencing a major boom since 2020 and all through this first quarter of 2021. However, being a notoriously unstable nature of digital asset’s prices remains a barrier that keeps many volatility shy investors out – for this bracket of investors, crypto related stocks might be a viable option.
“Cryptocurrency investing today is a bit like living in the early days of the 1850s gold rush, which involved more speculating than investing,” is the general perception that old guard investors have of digital assets, as summarised by Wells Fargo Investment Institute’s Head of Real Asset Strategy, John LaForge.
However, regardless of their personal perceptions towards the assets themselves, the potential of capital gains might be too enticing to ignore – especially when well established entities like Visa, Master Card, Tesla are all scrambling to get in on the action. In this scenario, looking into listed companies that have reasonable exposure to the cryptocurrency and blockchain sector become a worthy option.
To be more specific, these companies that operate in sectors ranging payments, to semiconductors, and a number of brokerage firms that have taken to crypto investing have far out performed investor staples like the S&P 500. For example, two listed companies in the banking and payments sector – Square Cash App and NYSE listed crypto bank, Silver Gate – both saw their stocks making explosive gains due to their openness towards digital assets.
The two company’s stocks ran laps around the S&P 500 from 2019 right into the first quarter of 2021 – with the former seeing more than 300% gains, while the later made gains more akin to the kinds we are used to being in the cryptocurrency space at over 1000%. In comparison, the S&P 500 had only seen 22% gains from 2019 to early March 2021.
However, anyone looking to make gains from cryptocurrency related stocks should keep in mind, though these stocks may not be as volatile as crypto, they may still be significantly more volatile than other stocks – especially those with business models that have digital assets in their core.
Tesla Motors is a fine example. When Tesla reported to the SEC that it had made a purchase of roughly $1.5 billion worth of BTC and had plans to accept it as a form of payment, the company found the value of its shares moving in tandem with the price of BTC.
“With Tesla diving into the deep end of the pool on bitcoin, Musk runs the risk that this sideshow can overshadow the fundamental EV (electric vehicle) vision in the near term for investors.” As Wedbush market analyst, Daniel Ives, told CNBC.
As it turned out, Ives’ point of view carried a few harsh truths to it – as the price Bitcoin started to dip, Tesla stocks were not far behind.
However, Ives was not entirely against the move as he noted how Tesla pulled in more than $1 billion off of the investment, calling it a “smart move at the right time for Tesla.”
Conclusion
Right now the cryptocurrency market is going through the biggest bull run in the history of its existence, so it is only natural that corporations that take on the risk may see some gains as investor interest continues to climb. However, one should always remember that trading stock or any other type of asset is always risky business. Do your own research.
