When bitcoin lost nearly half its value during the final month of last year, many felt the dip vindicated the claims that bitcoin was in an asset bubble. Many referred to it as a modern day tulip. Since the decline however, the value of a bitcoin has remained remarkably stable. Spikes on fundamental catalysts aside, it has maintained an average value just shy of $600. Regulatory reforms, exchange crises and high profile opinions have all sparked a certain amount of volatility, but the longer the relative stability remains, the more credible the cryptocurrency will become. Investors are recognizing this, and are seeking investment opportunities in the digital currency space. Here are three very different stocks that could be the answer to a risk averse investor seeking exposure.
Fortress Investment Group LLC (NYSE:FIG)
The first is hedge fund Fortress Investment Group. Last year, Fortress became the first publicly traded company to disclose involvement in the bitcoin market, reporting a $20 million holding of the digital currency in its end of year financials. The company ending up reporting a paper loss on its bitcoin foray (it recorded $3.7 million in unrealized losses on digital currency during 2013), but it suggested that the space was finally getting some Wall Street attention.
On March 18, 2014, Fortress announced that, alongside private equity firms Benchmark and Ribbit, the company had swapped $13 million worth of bitcoin, the assumption being that this is the remainder of the original $20 million bitcoin holding, for an equity stake in Pantera Capital Management, the manager of the three-month old Pantera Bitcoin Partners fund. While Pantera Capital Management has not yet released full details of the financials involved in the deal, the company has announced that it will give all three investors a minority stake in Pantera Capital Management, and an interest in the management and performance fees of the bitcoin fund. To offer some historic insight into Pantera Capital Management, the fund invested approximately $10 million in Bitstamp Ltd., the now dominant dollar-centric bitcoin exchange, a matter of months before it rose to prominence.
Fortress offers investors a low risk, low reward, exposure to the cryptocurrency space. The company had approximately $61.8 billion of assets under management as of December 31, 2013, and whatever the terms turn out to be, a $13 million share of a bitcoin fund is unlikely to dramatically affect its share price, especially in the short term. Having said this, it is the first major institution to financially back an interest into the cryptocurrency space, which might hint at a more substantial involvement in the future.
Systemax Inc. (NYSE:SYX)
The second addition to the list is brand retailer Systemax Inc. Systemax owns electronics retailer TigerDirect, which announced in January 2014 that it had started to accept bitcoin as a method of payment for more than 200,000 products available through its web platform, TigerDirect.com. The platform used, BitPay, a third party bitcoin payment processing application, to facilitate the transactions.
On March 13, TigerDirect announced it had taken more than $1 million in bitcoin sales, making it the second major online retailer to do so. In addition, the retailer saw a 50% spike on sales of some items in the aftermath of the announcement. The top-selling items on the site were video cards, power units, tablets, Xbox units and other high-tech items.
Systemax offers investors bitcoin exposure on a similar footing to Fortress. The company is a large, established retailer, making it relatively immune to the risks associated with bitcoin, yet its decision to start accepting the cryptocurrency via TigerDirect means there remains a level of exposure to bitcoin's potential.
Bitcoin Shop Inc. (OTCQB:BTCS)
The final addition to the list is online retailer Bitcoin Shop. Touted as the Amazon (NASDAQ:AMZN) of bitcoin, the company went public through a reverse merger at the beginning of February. First developed by two NASA engineers during 2013, the Bitcoin Shop is an online retailer that conducts its transactions in bitcoin. According to a recent CNBC interview, Bitcoin Shop CEO Charles Allen stated the reverse merger offered the company three major advantages over a traditional IPO. To quote:
The first, publicity. Our company sells products to consumers and they pay with bitcoin, so the publicity we're getting from being public is immense. Second is transparency. There has been skepticism around bitcoins in general, and being public will give both customers and investors the opportunity to look under the hood. The third is time to market. We closed this deal in three weeks, which includes doing the merger, pinning out the assets and raising almost $3M.
While touted as the Amazon of bitcoin, this is somewhat incorrect in that the company does not have any sort of logistics chain. Instead, it leverages the logistics of other retailers and acts as a form of market maker between consumer and retailer.
At present, Bitcoin Shop offers more than 140,000 products across 450 product categories through an Amazon affiliation (prompting the Amazon comparison), a number set to increase on the back of a recent deal signed with Best Buy (NYSE:BBY).
On March 25, the company announced it had led a Series A equity financing round that raised $1.5 million for GoCoin. Alongside Bitcoin Shop, the round included funding from former Facebook (NASDAQ:FB) COO, Owen Van Natta and Andrew Frame of Ooma. GoCoin is the first, and at present only, international platform for digital currencies.
Bitcoin Shop offers investors exposure to the bitcoin industry, without exposing them to the fluctuating value of the cryptocurrency. The company's platform runs a live algorithm that converts its products prices according to the real time value of bitcoin, meaning the company neither wins nor loses in the event of a fluctuating bitcoin.
Having said this, there is considerable risk involved with investment in Bitcoin Shop. While it has a first mover advantage in the space, its current reliance on an Amazon affiliation means that if Amazon decides to start accepting bitcoin, Bitcoin Shop would likely lose a large portion of its customer base. To overcome this risk, the company must focus on expanding its offerings, a process that has already started with the Best Buy deal.
Contrary to popular belief, bitcoin investment is not just limited to holding the digital currency. There are a range of alternative exposures, with a range of risk profiles, which will attract more and more attention the longer bitcoin remains stable versus the dollar. Further, as the second addition to this list highlights, there will likely be additional opportunities before the end of the year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.