Over the past several years, cryptocurrency has been more and more popular as an emergent asset class. There are a few good reasons, in my opinion, to think about investing in cryptocurrency.
First of all, purchasing cryptocurrency have become an alluring option for certain investors who are fascinated by the prospect of digital currencies eventually taking the place of fiat money.
Second, like art or collectibles, I believe cryptocurrency to be an alternative investment. For the proper investor, it may make sense to allocate a modest portion of your portfolio to assets other than stocks, bonds, and cash.
However, picking a cryptocurrency to purchase may be like hurling a dart against a wall. Although Ethereum and Bitcoin are two of the most popular choices, is it possible that Dogecoin or Shiba Inu may one day provide some useful applications in the real world?
I would advise investors to consider methods to get exposure to cryptocurrencies without actually purchasing any particular tokens or coins, rather than attempting to forecast which digital currencies will be the most valuable.
I’ll go into how Susquehanna International Group (SIG), a hedge fund run by billionaire investor Jeff Yass, is investing in cryptocurrency below.
Coinbase
In its most recent 13F filing, SIG said that it has been gradually increasing its stake in Coinbase Global (COIN 2.02%). The fund’s ownership of Coinbase has grown 17 times in the last year, from around 51,330 shares to 877,400.
I enjoy the notion of investing in Coinbase for a few reasons, even if buying and selling patterns in the cryptocurrency space might fluctuate like those in stocks.
Even though cryptocurrency is currently a very tiny market, I believe Coinbase’s brand is a key intangible that traditional incumbent brokers find difficult to compete with.
Additionally, investing in Coinbase gives you a wide range of exposure to the cryptocurrency market. Coinbase offers a diverse platform with a wide range of digital currencies rather than making predictions about which specific cryptocurrencies will increase in value.
The MicroStrategy
MicroStrategy (MSTR -6.05%) is another cryptocurrency investment vehicle used by SIG. SIG’s stake in MicroStrategy has grown from around 2.2 million shares to 3.8 million shares during the last 12 months.
MicroStrategy is a really special method of cryptocurrency investing. In reality, the company is an enterprise software company that specializes in data analytics driven by artificial intelligence (AI). But there is one very significant line item on MicroStrategy’s financial sheet.
MicroStrategy reported $5.7 billion in digital assets on its balance sheet for the quarter that concluded on June 30. On the asset side of the balance sheet, this is by far the biggest line item for the business. The footnotes in MicroStrategy’s quarterly reports state that the company’s digital assets are “comprised solely of bitcoin.”
Although it may seem strange to have Bitcoin on your balance sheet, this kind of asset diversification isn’t as unusual as you may imagine.
Large publicly traded corporations frequently make investments in privately held enterprises. Even when the business it invested in pursues a liquidity event, such an initial public offering (IPO), the corporation may decide to keep its shares.
Companies may eventually decide to reduce their stakes or sell their shares in businesses they invested in, ideally making a profit. Beyond increasing revenue and cash flow, this approach to portfolio management may assist businesses in strengthening their cash and liquidity.
Elections and crypto
In the next weeks, new 13F filings for the third quarter ought to be accessible. How Yass and his wealthy hedge fund colleagues have been making cryptocurrency investments over the last several months intrigues me.
Specifically, Bitcoin and other popular cryptocurrencies have seen a surge in activity following a slew of optimistic statements about the sector made by Donald Trump, Kamala Harris, and Robert F. Kennedy Jr. prior to his campaign’s conclusion.
Despite the fact that political and cryptocurrency hyperbole has probably affected the price of various currencies over the last few months, I currently believe that chances like Coinbase or MicroStrategy are good choices.
Furthermore, MicroStrategy’s decision to keep Bitcoin on the balance sheet makes a lot of sense if you think that cryptocurrencies will eventually become more generally used. This is because the firm will profit from improvements in its position.
Investors should be aware of the primary distinction, which is that the price of Bitcoin fluctuates a lot, maybe more than that of many equities or short-term investment vehicles like bonds or money market products.
Because of these factors, MicroStrategy’s financial flexibility can be viewed as riskier than that of other businesses whose balance sheets largely include more liquid assets.
