The adoption of cryptocurrencies is seeping into the mainstream at an exponential rate. While most investors will buy products like bitcoin (BTC) and ether (ETH), some skeptical investors want to invest in the economics of cryptocurrencies without being directly exposed to the volatility of tokens.
This volatility is reflected in bitcoins recent record high of about $61,700 on the 14th. The month of March has been reached. It then dropped to a level of about $56,000 only to rise to about $59,000 at the time of publication. The market capitalization of bitcoin is currently larger than that of Visa and Mastercard combined.
For overly cautious investors, JP Morgan recently announced a cryptocurrency basket, or CEB, debt portfolio of 11 stocks. These stocks are either companies that have bitcoin as assets or companies in sectors that are complementary to cryptocurrencies.
However, it remains to be seen whether such a basket of stocks is effective compared to bitcoin. Ben Weiss, president and COO of CoinFlip – the company that operates bitcoin ATMs – told Cointelegraph: JP Morgan’s exposure to cryptocurrencies makes sense for people who traditionally want to invest in blockchain and cryptocurrencies without the volatility of cryptocurrencies.
The DAC contains a single-weighted basket of benchmarks. It spends 20% on MicroStrategy and 18% on Square. Both companies are led by well-known bitcoin advocates Michael Saylor and Jack Dorsey, respectively. Moreover, both companies have bitcoins as a separate asset on their balance sheets.
MicroStrategy is a publicly traded company that owns the most bitcoins, 91,326 BTC worth $5.25 billion, representing 71% of the company’s market capitalization. By comparison, Square owns 8,027 BTC worth $461 million, which represents only 0.4% of the company’s total market capitalization.
However, Joshua Greenwald, chief risk officer of cryptocurrency platform Uphold, explained to Cointelegraph why these actions could have a negative impact on investors: This can be a dangerous way to access BTC, as the pressure on management to hold large positions in BTC can result in additional negative leverage when selling.
CEB places the support of the cryptographic ecosystem at the heart of
In addition to companies that directly own bitcoin, companies that are connected to the cryptocurrency industry in a complementary way have also been highlighted for their apparent high correlation to bitcoin. In CEB, Riot Blockchain and Nvidia Corporation each have a 15% stake. The four companies mentioned above account for 68% of the total volume of debt instruments issued.
Riot Blockchain is a cryptocurrency mining company whose shares have absolutely exploded since February and have a strong correlation to bitcoin. Not only is Riot associated with bitcoin because of its mining operations, but it also has 1,175 BTC worth about $68 million on its balance sheet, representing 1.6% of its total Nasdaq market capitalization.
Nvidia Corporation is a manufacturer of GPUs that are now used in the mining industry to mine cryptocurrencies such as BTC and Ether. The speed of PoW crypto currency mining depends heavily on the performance and functionality of the GPUs used.
The growth of companies like Riot and Nvidia is directly linked to the growth of bitcoin through their participation in the cryptocurrency ecosystem. This applies to all exchanges that trade products in bitcoins, energy companies that mine bitcoins, and even payment platforms like PayPal that support bitcoins.
Other crypto stocks included in JP Morgan’s CSR are PayPal Holdings, Advanced Micro Devices, Taiwan Semiconductor Manufacturing Company Limited, Intercontinental Exchange, CME Group, Overstock.com and Silvergate Capital Corporation. All of these companies are connected to crypto and bitcoin in some way, whether it’s participating in the mining and energy process or listing bitcoin products on their exchanges, as is the case with CME and Bakkt, which are owned by ICE.
However, this basket lacks a Tesla share. The eighth. In February, Elon Musk’s company bought BTC for $1.5 billion. That move alone sent the price of bitcoin soaring $3,000 in a matter of minutes and demonstrates the impact Musk and Tesla are having on the crypto markets. In fact, the CEO effect in the cryptocurrency market is now known as the Musk effect. Given this, it would make sense to include Tesla shares in the BEC. But the reason J.P. Morgan has excluded Tesla shares may be that they think the stock is vastly overvalued.
Even Sam Bankman-Fried, CEO of FTX, a crypto-currency derivatives exchange, mentioned to Cointelegraph that Tesla has an interesting correlation with BTC:
TSLA is probably the most interesting action: Both are speculative assets, their investors overlap, Tesla owns some BTC and both often move based on Elon Musk’s tweets. MSTR is a rather boring example.
Exposure to cryptography through CSR is limited
While JP Morgan’s CSR may provide an entry course for investors in traditional financial markets to get into cryptocurrencies, the real exposure the basket will give bitcoin investors seems limited, according to Weiss :
Most people invest in a technology company like MicroStrategy and less in bitcoin, despite having more exposure to it. If you compare owning stocks to owning bitcoin directly, bitcoin is still the best way to be exposed to bitcoin.
In addition, the potential for high fees can be a problem for legacy systems like JP Morgan. Greenwald gave his opinion on the matter: Maintaining safety standards and using a relatively user-friendly child care provider is likely to be more cost-effective than the annual fees charged for most managed solutions.
Moreover, the DAC is not the only way for retail and institutional investors to access bitcoin through traditionally regulated markets. Grayscale’s Bitcoin Trust has emerged as a promising choice for institutional investors to access bitcoin. In fact, it is the largest public holder of bitcoins in the world. It currently holds 649,130 BTC, which is worth about $37 billion.
Looks like it: Bitcoin ETFs may be coming to the US, but not all cryptocurrency investors think this is necessary.
In addition to Grayscale, two bitcoin exchange-traded funds – Target ETF and Evolve ETF – have launched in the Canadian market. One month after their launch, the two ETFs managed a combined total of about $1 billion in BTC assets. Bankman-Fried had a different opinion about the viability of the BEC:
You can try this and get some correlation, so it’s not completely useless. But at the end of the day, there will be significant investor demand for BTC or at least cryptocurrencies. I think they would be better off going international with publicly traded crypto-currency companies.
In addition to these methods, there are other ways for institutions to access Bitcoin. One of the most important strategies, besides buying bitcoins as cash balances, could be setting up digital payment channels. Amazon and Facebook are probably the most logical choices for this. Facebook could become the first major social marketplace to enable digital payments through its own stable of Diem, formerly known as Libra. Diem will be launched in 2021 and is expected to be a breakthrough for cryptocurrencies, stablecoins and even central banks in the digital currency space.
While this is a great sign that JP Morgan is trying to get into cryptocurrencies, the debt security looks like a bitcoin ETF in sheep’s clothing, with limited benefits to bitcoin compared to holding the asset itself. Therefore, it is very unlikely that experienced investors will flock in the long run, especially if all the bitcoins are mined and there is a shortage.
Morgan Stanley, a rival investment bank, has taken a different approach to giving its customers access to bitcoin. The 17th. In March, it announced investments in bitcoin for its high-net-worth clients. The investment bank, which has $4 trillion in assets under management, will offer its preferred clients the opportunity to invest in bitcoin through the Galaxy Digital Bitcoin Fund, Institutional Bitcoin Fund and FS NYDIG Select Fund. An allocation limit of 2.5% of the total portfolio is set for clients.
This move shows that this is not the right time to look for alternatives to BTC, as BTC is still in the early stages of adoption. ETFs and pseudo-ETFs could be a solution in countries where investors are restricted by restrictive regulations. Otherwise, there seems to be no real alternative to buying and hacking bitcoins.
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