You can have both in a growth-oriented portfolio, but you have to get the balance right.
Before we get any further down this asset-class struggle — pitting crypto against Wall Street — I want to lay it all out here. I’m a stock investor, and that will continue to be my investment vehicle of choice for securing a comfortable life for me and my family. However, since October of last year, I also began to dabble in cryptocurrency.
The value of Bitcoin (CRYPTO:BTC) has nearly quadrupled since I began warming up to the leading form of cryptocurrency nearly five months ago. I’m fortunate, but I don’t consider myself skilled in the art of Bitcoin. It’s dangerous to confuse success with aptitude, especially in this highly speculative game. Bitcoin has shot higher in each of the past five months, but the rapid ascent is also a fair warning about the inherent volatility and risk that comes with the next-gen currency.
I don’t own a lot of Bitcoin, but at 3% of my portfolio, it’s not insignificant. Let me show you what I’m buying, and how, when it comes to choosing between asset classes, you can have your stock and crypto, too.
Bit by bit
It certainly feels a lot easier to just invest in stocks. You have decades of proven outperformance over lesser asset classes. If you narrow your focus to industries and companies you know better than most investors, you’ll go in with an advantage.
The fundamentals are there for dissecting. The bullish catalysts and potential pitfalls are there for tracking. The market whims will throw a wrench in the best plan, but eventually, the best companies bubble up to the top to deliver market-thumping returns.
There are some clear bullish arguments for cryptocurrency, in general, and Bitcoin, in particular. Some savvy investors see it as a portfolio hedge against the negative effects of inflation. Bitcoin is seen as a way to profit from a potential decline in the dollar’s value if the Fed keeps printing money. There’s a certain scarcity to Bitcoin supply, in particular, that’s making it appealing to tech CEOs including Tesla‘s Elon Musk and MicroStrategy‘s Michael Saylor, who have turned their idle cash into ten-figure investments in crypto.
Investing in stocks is easier in theory, but why wouldn’t you allocate at least some of the money that you’re earmarking for risky portfolio plays in Bitcoin? One can always say that billionaire CEOs, including Musk and Square‘s Jack Dorsey, can afford to be vocal bulls of crypto, but when an elite money manager like ARK’s Cathie Wood is staking her returns on Bitcoin, you want to pay attention.
Into my portfolio
It’s easy to buy Bitcoin these days. Of course, Dorsey was going to make Square’s Cash app an early marketplace for buying and selling cryptocurrency. He’s a believer. I own some Bitcoin tokens, but my largest position in crypto is actually Grayscale Bitcoin Trust (OTC:GBTC).
The trust owns tokens in secure cold storage. Grayscale was a hard sell a couple of years ago when it was routinely trading at a 30% or higher premium to its actual Bitcoin position, but the climate is far kinder these days.
Grayscale Bitcoin Trust was backed by 0.00094685 Bitcoin per share as of Thursday’s market close. With Bitcoin at $48,221 at that time, that translates into $45.66 in Bitcoin per share. Grayscale Bitcoin Trust closed at $41.40, a surprising 9.3% discount to Net Asset Value. Grayscale does charge a high 2% annual fee, but at this discount, you’ve got four years covered.
I wish the fee were lower, but it’s not as if buying Bitcoin directly is free. The leading marketplaces charge at least 1.5% to buy — and again to sell — crypto. Grayscale Bitcoin Trust is also easier to buy through traditional brokerages and within most IRAs to give the potential upside more tax-deferred oomph.
I also own Tesla Motors, so technically, I have Bitcoin exposure there, too. However, Musk purchasing $1.5 billion in Bitcoin means it’s going to have to appreciate substantially for it to move the needle for the electric-car maker with a market cap of roughly $600 billion. MicroStrategy’s Bitcoin position is a much larger part of its market cap, but the business itself has clocked in with six consecutive years of slight declines in revenue.
If you want the best of both worlds, you may also want to consider one of Wood’s ARK funds with cryptocurrency exposure to Bitcoin via Grayscale Bitcoin Trust, as well as some of the market’s more dynamic growth stocks.
Author: Rick Munarriz