Directly investing in digital assets comes with many risks, which keeps some would-be investors on the sidelines.
Besides the inherent risks of new asset classes, cryptocurrencies also come with a steep learning curve, the user interfaces aren’t always intuitive, and keeping them secure is a pain.
If you’re looking for exposure to cryptocurrency and blockchain technology but aren’t ready to own the digital assets outright, you might be more comfortable buying shares of a company that provides blockchain-related products and services.
Here are 5 US stocks to gain exposure to cryptocurrencies and blockchain technology without leaving your brokerage account!
Full disclosure: I own OSTK. This article is my personal opinion and should not be taken as investment advice.
1. Overstock.com (NASDAQ: OSTK)
Way back in 2014, Overstock.com, led by visionary CEO Patrick Byrne, was one of the first online retailers to start accepting cryptocurrency. However, only about 1% of their online sales currently comes from cryptocurrency transactions.
Since then, OSTK has made two significant investments in the crypto space: Medici Ventures and the tZero platform.
Medici Ventures is a wholly owned subsidiary of Overstock.com and was created to manage the company’s investments in blockchain technology. They are focusing on 6 key areas: capital markets, money and banking, identity, land, voting, and the underlying technology.
tZero is a platform that aims to tokenize traditional financial securities – which reduces settlement time and costs, increases efficiency and auditability, and provides transparency in an industry full of corruption.
OSTK is planning to sell off their online retail business (Overstock.com) so they can focus solely on crypto. The sale of their business will provide ample cash to enable long-term blockchain investments like tZero to mature.
One other interesting motivation behind OSTK’s involvement in the crypto realm is Patrick Byrne’s vendetta against Wall Street, which has been going on for over a decade. Ever since the banks started attacked OSTK by manipulating the market with a practice called “abusive naked short selling,” Byrne has publicly made it his mission to fight Wall Street corruption.
Naked Short Selling is when a broker sells stock that has not previously been, or cannot be, borrowed by that trader – essentially selling something that you do not have the ability to sell. Brokers who abuse this ability still earn a commission and can heavily manipulate a market.
In 2016, Overstock.com received a $20 million settlement from Merrill Lynch from the “naked short selling” accusations.
Meanwhile, Byrne is using the transparency and auditability of financial services provided by tZero, to attack Wall Street’s highly profitable (and illegal) practice of abusive naked short selling, which the banks desperately want to protect. In simple terms, tZero prevents naked short selling by recording all transactions on a blockchain.
Wall Street banks are yet again coming after Byrne by shorting OSTK. However, this tactic appears to have backfired against them as the OSTK share prices have grown tremendously, leading to a potential “short squeeze” opportunity. If Byrne – a 3-time cancer survivor and one of the few who dares to take on Wall Street – can pull it off, it will hurt the banks and cause OSTK’s share price to skyrocket.
What you’re betting on: Tokenized Securities taking off with tZero and Patrick Byrne winning the fight against Wall Street.
2. Square Inc. (NYSE: SQ)
Square Inc. includes both Twitter and the payment application Square, which recently announced they would be offering Bitcoin trading for most users.
Offering Bitcoin brings publicity to Square and has the potential to dramatically increase their customer base. However, there is a ton of competition in the the US market. Coinbase and Gemini still dominate the market, but we’ve also seen Cobinhood announce fee-less trading of both Bitcoin and Ethereum.
CEO of Square Inc. Jack Dorsey recently predicted:
Bitcoin will overtake the dollar in importance as it becomes the single global currency of the internet within a decade.
Dorsey is a personal investor in Bitcoin and Lightning Labs, one of the companies creating the Lightning Network. Lightning Network has the potential to render most alternative currencies and some privacy coins obsolete.
With the US tax regulations regarding crypto still unclear, Square takes a risk in integrating Bitcoin payments into their company. However, it’s arguable that companies who avoid crypto are taking an even bigger risk.
What you’re betting on: Square continuing to evolve as a payment app while successfully integrating cryptocurrency payments long term.
3. CBOE Global Markets (NASDAQ: CBOE)
CBOE Global Markets is an American company that owns the Chicago Board Options Exchange and the stock exchange operator BATS Global Markets.
CBOE is the largest exchange for options contracts and the largest stock exchange by value traded in Europe. They were also the first to launch Bitcoin Futures (XBT) trading, just 10 days before CME. Bitcoin Futures are expected to bring big institutional money to the space.
Another potential growth opportunity is the Winklevoss brother hope to list their Bitcoin ETF on the Bats Global Market. Although the SEC denied the Winklevoss ETF proposal in early 2018, we may see the SEC change their stance and start allowing Bitcoin ETFs after they spend more time observing the futures contracts. If Bitcoin ETFs start getting approved, CBOE will benefit handsomely.
What you’re betting on: More institutional money participating in the futures contracts and the SEC approving Bitcoin ETFs.
4. MGT Capital Investments (OTCMKTS: MGTI)
With facilities in both Sweden in Washington state, MGTI is one of the largest Bitcoin mining operations in the US. MGTI used to focus on cybersecurity (and were even developing a privacy phone), but they’ve since divested this business unit and now plan to go all in on cryptocurrency mining.
With a recent purchase of 2,000 Bitmain S9 rigs, MGTI is deploying more than 7,000 Bitmain S9’s and 50 GPU-based Ethereum miners. Their total operation is expected to generate nearly 100PH/s of total hash power.
In early 2018, MGTI made an “amicable split” with the controversial John McAfee who was leading the cybersecurity unit at the time. This controversy may worry some potential investors, however on the other hand it simplifies MGTI into a pure crypto mining play. Not to mention, McAfee can be a PR nightmare.
What you’re betting on: MGTI is heavily dependent on the price of Bitcoin, as this affects the profitability of their mining operation.
5. Advanced Micro Devices, Inc. (NASDAQ: AMD)
AMD is a US-based company that develops computer processors, servers, and related technologies for both consumer and business markets. AMD’s main competitors include Intel and NVIDIA.
Investing in the chips used for mining cryptocurrencies is analogous to investing in shovels during the gold rush. Instead of being directly tied to the price of cryptocurrencies, investing in AMD offers a piece of the upside without as much risk.
However, the mining industry is cutthroat, and AMD faces severe competition from both NVIDIA and Bitmain. Ethereum is still being mined by GPU chips because them market is under the assumption that using the more efficient application specific integrated circuit (ASIC) chips was impossible. However, Bitmain just announced they will be selling ASIC chips specifically for mining Ethereum, which poses severe risks for AMD’s mining business.
If these new ASIC chips are a significant improvement over traditional GPU rigs, the market will be flooded with AMD’s devalued GPU chips, causing serious inventory problems for AMD.
It’s unclear what percentage of AMD’s business is directly tied to mining, but Seeking Alpha estimates 3–4%.
What you’re betting on: GPU mining will stay relevant even if Ethereum is no longer mined with GPU chips.
Whether you believe in a crypto future or you just want to dip your toes into this asset class, these 5 stocks will allow you to test the waters without the risks of owning digital assets outright.
Of course, this also depends on your opinion of the US Stock Market. Many experts believe we’re due for a serious correction.
What do you think about these alternative crypto investment strategies? Are you exposed to blockchain or cryptocurrencies outside of owning the coins?