Few assets can boast that their value has soared from 4 cents to $31,500 in just 12 years. The amount of bitcoins that you could buy in 2010 for $1 is worth $630,000 today. Pretty good, isn’t it? And at the highs of November 2021, these bitcoins would have brought the investor $ 1.38 million at all.
Opinions regarding cryptocurrencies are divided. While supporters consider them a new generation of means of exchange, opponents call the “crypt” useless, and in some cases even “evil”. Passions are heating up, fueling volatility. Meanwhile, a growing number of analysts and financial advisors recommend investing a small portion of capital in this asset class.
As a result, investors and speculators are beginning to look for possible ways and tools that will allow them to “join” the growing market. To begin with, there is always an opportunity to directly buy tokens, of which there are more than 19,670. But in this case, the question of storage arises, since tokens can be kept both in their own digital wallet and on the balance of the cryptocurrency exchange.
An alternative to direct investment is the purchase of securities of companies and exchange-traded funds that demonstrate a strong correlation with the digital currency market. This approach solves the storage problem, since these exchange products can be located on a regular brokerage account.
One of my favorites is the Bitwise Crypto Industry Innovators ETF (NYSE:BITQ), which invests in various companies that have bet on cryptocurrencies.
The collapse of cryptocurrencies from the peaks of November 2021
On November 10, 2021, bitcoin and ether (which account for more than 60% of the market capitalization of the entire asset class) reached record highs. However, they finished trading that day below the lows of the previous session, as a result of which the “key reversal” models were formed on the daily timeframe.
BTC – daily timeframe BTC – daily timeframe
Source: Barchart
Since then, a series of descending extremes has been forming on the bitcoin chart. As of May 31, the price was near the fresh minimum of May 12.
ETH – daily timeframe – daily timeframe
Source: Barchart
Ether showed similar dynamics, but in percentage terms it suffered even more than bitcoin, having recorded another minimum as recently as May 27.
Buying on drawdowns remains the optimal approach
In the long run, buying on drawdowns was a profitable strategy.
BTC – monthly timeframe BTC – monthly timeframe
Source: Barchart
On the bitcoin chart, you can trace the cycles of ups and downs of the leading cryptocurrency.
The same can be said about ether, which has been trading in a very wide range in recent years.
Many investors don’t like the concept of digital wallets
One of the obstacles to new participants in the cryptocurrency market is the convenience of storing tokens. You can turn to password-protected digital wallets. However, many people have heard terrible stories about lost keys that cost millions of dollars to careless investors.
Block (NYSE:SQ), formerly known as Square, is working on a cryptocurrency wallet, which the company’s experts called “rock”; the new tool is designed to facilitate the storage procedure.
Against this background, many investors and traders prefer to leave their tokens in the care of cryptocurrency exchanges. Coinbase (NASDAQ:COIN) recently scared some customers by informing them about the possibility of losing all tokens in the event of the exchange’s bankruptcy.
In short, storage and security issues remain obstacles to expanding the target cryptocurrency market.
BITQ is a good cryptocurrency “proxy”
Many investors trust only those assets that can be stored in traditional brokerage accounts. The emergence of many exchange-traded funds (ETFs) and bonds (ETNs) has expanded the audience of alternative investment products.
The VanEck Gold Miners ETF (NYSE:GDX), for example, has enabled many investors and traders to enter the gold market. Before the advent of GDX, potential players had to choose between direct purchase of metal, futures and shares of mining companies. GDX holds real gold on its balance sheet and demonstrates a strong correlation with the quotes of the precious metal.
The Bitwise Crypto Industry Innovators ETF (BITQ) portfolio is a mixture of securities of companies whose stock dynamics change following fluctuations in the digital currency market. The largest component of BITQ is MicroStrategy (NASDAQ:MSTR), a provider of enterprise data analysis software; followed by Galaxy Digital Holdings (TSX:GLXY), Coinbase, Silvergate Capital (NYSE:SI) and Canaan (NASDAQ:CAN), a manufacturer of cryptocurrency mining equipment.
BITQ also invests in the following companies:
BITQ ETFBITQ ETF
As of May 31, BITQ’s assets were valued at $60.663 million, trading at $8.88 per share. On average, 145,414 ETF securities change owners every day, and the commission is 0.85%. The latest dividend payment of $0.65 corresponds to a yield of 7.32%.
BITQ follows the cryptocurrency market
BITQ – daily timeframe BITQ – daily timeframe
Source: Barchart
Since then, it has lost 64% of its value. During the same period, bitcoin fell by 44.5% (from 56,915.26 to 31,600 US dollars). The difference in dynamics can be attributed to a drop in speculative interest. The rally of BTC and other cryptocurrencies is likely to lead to the growth of BITQ. We still have to find out whether the exchange-traded fund will be able to outperform the bull market of digital currencies.
BITQ is a good option for indirect investment in cryptocurrencies, since it has a diversified portfolio of companies that are associated with this market and are traded on a traditional stock exchange.