„Bitcoin shares“ – is it worthwhile investing?
Anyone who wants to participate in the Bitcoin course buys Bitcoin. At least that is the obvious assumption. However, it seems that more and more investors are deviating from this strategy and increasingly investing in stock companies that have contact with the crypto ecosystem or park their reserves in Bitcoin themselves. Good idea or badly invested money?
More and more companies, especially Nasdaq’s MicroStrategy, are deciding to invest part of their reserves in Bitcoin. Even if it is currently still a niche market, the macroeconomic environment suggests that this Crypto Bank trend is strengthening. These companies include publicly traded equity companies.
Some private investors may now be tempted to buy their shares in order to participate in the rise in Bitcoin’s price. However, this idea is generally not advisable. After all, one should only invest in a publicly traded company if one is primarily convinced of its business model.
On the other hand, if you are only interested in the performance of the Bitcoin price, you should buy Bitcoin or at least a security representing Bitcoin, but not a company that has invested a certain percentage of its assets in Bitcoin. But are there exceptions?
Mining shares as a leveraged investment?
If, for example, you want to bet on a rising gold price, then an investment in well-managed gold mining shares can often provide above-average profit from the price development. Instead of investing in gold directly, it is quite common to diversion via mining companies in order to generate additional leverage.
By analogy, one could also rely on Bitcoin mining companies. The share of 8 Hut Mining, for example, has gained about 140 per cent in the last 12 months. Measured by the Bitcoin share price development, this is a rather meagre performance. The additional risk has not really paid off. A direct investment in Bitcoin, without the economic risks of a company, would have come out roughly the same.
Asset managers in high spirits
Similarly, provided the company does a good job in the market, one can benefit from the rise in Bitcoin’s share price by investing in a crypto asset manager. The best known example is Galaxy Digital. The share price of the crypto asset manager has more than quadrupled in the last 12 months, outperforming the benchmark Bitcoin.
This indicates a certain hype among equity investors. However, with more and more comparable offers, pioneers such as Galaxy Digital could quickly come under pressure. Especially if the big asset managers like Fidelity or BlackRock come around the corner with their own products. So the multiplication of company valuations has yet to prove itself in the coming months. However, a crash is not to be feared, provided the Bitcoin share price remains reasonably stable. Around 80 percent of the market capitalisation is attributable to the company’s Bitcoin contributions.
Bitcoin on credit: MicroStrategy has taken the plunge…
In principle, the acquisition of securities financed by loans is not advisable. Many investors have lost house and home by borrowing money from the bank to take part in supposedly safe stock market rallies.
The fact that the software company MicroStrategy now wants to expand its initial investment of 450 million US dollars in Bitcoin by a further 400 million US dollars in Bitcoin through a bond issue is correspondingly critical. Especially since it is not an asset management company but a technology company. The intended raising of capital does not therefore serve to expand its operational business. Those who are particularly strict could say that investor money is being misused for speculation.
The reaction of shareholders and analysts has accordingly not been long in coming. After the announcement of the issuance plans, the share price slumped by around 15 percent. Citibank has also downgraded the share to „sell“. So it is probably not only the weak Bitcoin price that is to blame for the fact that some air has escaped from the share.