- The launching of Bitcoin (BTC-USD), in 2009, marked the first successful rollout of a cryptocurrency.
- While many investors flocked to “buy Bitcoin” few, to this day, understand there’s more to “investing” in cryptos than simply adding the actual digital currencies themselves to a portfolio.
- The secret is in appreciating the distributed nature of the underlying Bitcoin infrastructure – blockchain – and tapping it as an opportunity to leverage decentralized performance for a portfolio.
- And the way to implement a strategy based on that theme isto use not just BTC, but other Bitcoin-like behaving assets.
A Winning Strategy – Mix and Match
Instead of buying and holding Bitcoins, a better approach would be to map out a portfolio strategy that uses a mix and match approach. By that, what I mean is you construct the crypto part of the portfolio using a mix of:
- The Market-maker approach: Getting direct exposure by owning digital currencies and tokens in the crypto universe
- The Blue-Chip approach: Adding some stalwart companies that use Bitcoin and/or its underlying technologies
- The Fund/ETF approach: Investing in some ETFs that have significant exposure to cryptos and related ecosystems
Constructing a portfolio based on these three building blocks helps investors leverage the power of decentralized digital currency exchanges, as well as the underlying potential of those currencies. In addition, because some exchanges offer more than just a platform to buy and sell cryptos, this approach provides an opportunity to decouple portfolio performance from the vagaries of erratic swings in Bitcoin (and other digital currency) valuation.
The Market-maker Approach
Today’s digital currency market has evolved significantly since the 2009 debut of Bitcoin. Evolutions in FinTech (Financial technology) have put Decentralized Finance (DeFi) and Decentralized Applications (Daps) to the forefront. One platform that taps into these cutting-edge concepts is SwapDEX.
A great way to add Bitcoin-like exposure to a portfolio of investments is by buying SDX tokens from digital asset trading platforms like SwapDEX. Doing this decouples a portfolio from traditional Bitcoin-linked performance metrics. One reason is that, unlike traditional BTC exchanges, where investors buy/sell Bitcoins, SwapDex provides a wallet-to-wallet trading experience to make it easier to trade a broad array of digital assets and utilize easy swap options.
In essence, this type of decentralization gives investors the option to wear multiple hats – that of a taker, maker, a liquidity provider or just a swapper of digital assets. This adds more flexibility to portfolio-building strategies with Bitcoin-like assets. Additionally, the absence of a registration requirement adds speed and agility when implementing buy, sell, exchange, swap decisions.
The in-house and P2P lending facility adds yet another investment opportunity to the platform. It’s almost like investing in a private bank or Credit union. As well, the development roadmap envisions a future where SDX token buyers on the platform themselves become shareholders – an attractive element for income-seeking investors.
The Blue-Chip Approach
There’s an old saying that goes something like this: What’s good for the goose is also good for the gander! So, how does that adage apply to the world of cryptos, blue chips and portfolio construction? Well, corporate activity, such as payment processing, logistics planning, and supply chain management depend on technology. The better those technologies evolve, the better their prospects bode for the users (i.e. companies) of those technologies.
Many blue-chip companies are gravitating to digital currencies and tokens such as Bitcoin, Ethereum, SDX. These include names like:
- Microsoft Corporation (MSFT) – They use Bitcoin in their Xbox ecosystem
- Amazon.com, Inc (AMZN) – Amazon-owned Whole Foods accepts Bitcoin, Bitcoin Cash, Ether, Gemini dollar
- Starbucks Corporation (SBUX) - They’re accepting a variety of Cryptos through the Flexa platform
- PayPal (PYPL) – Now accepting Bitcoin and a number of other virtual currencies including Ethereum, Litecoin, and Bitcoin Cash
Other blue-chip stalwarts are tapping into the power of the underlying decentralized recordkeeping abilities of blockchain to simplify their operations. These include names like:
Depending on investor comfort levels, other great fits for the blue-chip approach may include companies that provide the building blocks, for successful implementation of cryptocurrency and blockchain strategies, to other corporations. Names in this class include:
While some of these blue-chippers are experimenting with blockchain to bring efficiencies into their supply and distribution networks, others are also advanced users of those technologies.
By adding some or all these blue-chip names into the portfolio, investors can mitigate portfolio risk associated with directly buying and owning Bitcoin (or other cryptos). Additionally, as use of the underlying technologies mature, individual names in this list could provide further up-side potential for the portfolio.
The Fund/ETF Approach
Picking individual blue-chip companies to add to a portfolio that provides Crypto/Bitcoin-type exposure, might not be every investor’s idea of fun. There’s a fair degree of diligence required in understanding what technologies drive the business (e.g. is it good to own because they buy/sell products and services using cryptocurrencies; or is there value because of blockchain exposure?). It is only after that understanding is established that an informed decision should be made to add the name to a portfolio.
For such investors, leaving those decisions to the experts might be the best approach to add Bitcoin-type leverage to their portfolios. And the best way to do that is to add ETF’s, which carry a basket of companies exposed to cryptocurrencies and blockchain, to the portfolio. Some choices to implement this approach include:
- Reality Shares ETF Trust - Reality Shares Nasdaq NexGen Economy ETF (BLCN)
- Amplify ETF Trust - Amplify Transformational Data Sharing ETF (BLOK)
- Innovation Shares NextGen Protocol ETF (KOIN)
- First Trust Indxx Innovative Transaction & Process ETF (LEGR)
- Grayscale Bitcoin Trust (BTC) - (OTC:GBTC)
A price-performance chart of these ETFs, for the past 10-months, tells it all and makes the case for BTC-decoupling and embracing decentralized finance.
Start Decoupling Now!
Sure, Bitcoin is the 800-pound (or should we say the US$19,000+) gorilla in the room, and the dominant player among its cryptocurrency peers. However, anyone holding the currency directly, as part of a long-term investment portfolio, would have experienced tremendous volatility along the way.
With regulators closely monitoring the virtual currency space, and many central banks moving to establish their own (government-sanctioned) Bitcoin competitors, perhaps it's time to rethink the value of direct Bitcoin (buy/hold) exposure. The three strategies outlined above leverage the decentralized structure of Bitcoin, while decoupling portfolios from BTC’s volatility and potential regulatory risk.
Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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