Investing in stocks that invest in bitcoin

Some investment mandates specifically preclude a direct investment in cryptocurrencies, but there are ways to invest in stocks that provide an indirect exposure to bitcoin.

Perhaps the most high profile of these is Tesla, which recently announced a $1.5 billion (about R23 billion) investment in bitcoin, equivalent to nearly 10% of its treasury assets.

“Having some Bitcoin, which is simply a less dumb form of liquidity than cash, is adventurous enough for an S&P 500 company,” tweeted Tesla CEO Elon Musk recently.

Musk was persuaded of the benefits of bitcoin as a store of value by MicroStrategy CEO Michael Saylor, who challenged Musk to convert the Tesla balance sheet from US dollars to bitcoin.

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Musk later clarified his interest in bitcoin in a second tweet saying, “To be clear, I am *not* an investor, I am an engineer. I don’t even own any publicly traded stock besides Tesla.

“However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere. Bitcoin is almost as fiat money. The key word is ‘almost’.”

That news sent bitcoin, and Tesla’s share price, on a rampage, before both gave back some of their gains.

The strong move into bitcoin, though massively beneficial to the share price over the last month, adds risk and volatility to the company outside of its involvement in the production of electric vehicles.

Saylor has become a bitcoin cheerleader, recently hosting a bitcoin corporate strategy conference for thousands of senior executives to explain how, and why, they should adopt this new form of money.

His reasoning: the inevitability of the US dollar’s further decline as fiat money issuance has gone into overdrive. MicroStrategy last week announced that it had spent another $1.03 billion on bitcoin at an average price of $52 765 per coin (the price has since dropped to about $43 600).

READ MORE: We ask the experts: As Bitcoin crashes through R700k is it cheap at the price?

The company provides business intelligence, mobile software, and cloud-based services, but has recently attracted attention for its embrace of bitcoin as a treasury reserve asset, based on expectations of further US dollar weakness, declining returns from cash, and macroeconomic instability.

“The company now holds over 90 000 bitcoins, reaffirming our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, can serve as a dependable store of value,” said Saylor in a statement last week.

“We will continue to pursue our strategy of acquiring bitcoin with excess cash and we may from time to time, subject to market conditions, issue debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase additional bitcoin.”

The company spent over $1 billion in 2020 acquiring bitcoin at an average price of about $16 000.

The 175% surge in bitcoin since then powered MicroStrategy’s share price briefly above $1 000, before retreating to $752.

The stock is now widely regarded as a proxy for bitcoin.

Grayscale Bitcoin Trust has become the default entry point for companies and firms to gain exposure to bitcoin where their investment mandates specifically preclude them from directly investing in cryptos.

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This is a dilemma that is facing many investment firms now realising they can no longer ignore the outsize returns generated in this new asset class.

Grayscale takes care of issues such as bitcoin custody.

Though the stock price tends to mimic bitcoin, this is an imperfect correlation.

Investors are often paying a hefty premium for entry, and the swings in the stock price can be more exaggerated than bitcoin itself.

Another evangelist for bitcoin is Jack Dorsey, CEO of Twitter and founder of electronic payments firm Square, which has about 3% of the $150 billion digital advertising market.

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