Dabbling in Digital

Mike Zaccardi

IF YOU’RE LIKE ME, you want to stick with your long-term investment plan, while remaining open to new ideas. It’s a balancing act—to avoid missing a new, long-lasting trend, while not getting caught up in a bubble.

That’s how I feel about cryptocurrencies. Their market cap has swelled to $2.6 trillion. But what does that mean? Contrast that to the value of the global stock and bond markets: Each is about $125 trillion.

To me, it makes sense to have some exposure to bitcoin, ethereum and the like. A portfolio weighting in proportion to the global investable market of cryptocurrencies amounts to about 1% of assets.

That’s probably not a huge dollar amount for most investors. But I’d argue that anything much above 1% risks becoming an outsized, speculative bet. At the same time, having zero exposure could be seen as being underweight.

Buying crypto directly is expensive. Coinbase has transaction fees of roughly 1.5%. The new ProShares Bitcoin Strategy ETF (symbol: BITO) sports a lofty 0.95% expense ratio, along with other risks. But you don’t have to open a Coinbase account to get digital exposure, nor must you purchase a bitcoin exchange-traded fund. There’s another option.

I was intrigued by a list of companies with digital asset exposure put together by Bank of America Global Research. The list of 43 stocks includes many companies we know well. All of them either own cryptocurrencies outright, or have invested in digital assets and the blockchain.

As I see it, owning a basket of crypto-exposed stocks could be a cheaper option than buying cryptocurrencies directly. The downside: It adds more complexity to my portfolio—and it’s yet another investment group I’d have to track.

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Brent Wilson
Brent Wilson
1 year ago

I agree with the proposition to allocate a small portion of your portfolio to crypto. People can argue all day long about the merits of crypto. But as these major companies on your stock list invest in crypto adoption, and crypto investing becomes more accessible to regular investors, it’s clear that crypto is not going away.

Where I disagree is relying on indirect exposure to crypto via investing in the stocks you mention. I don’t want to depend on a company’s investment into crypto remaining consistent, or that it will drive a company’s performance in a similar manner to the performance of the actual coin. I would much rather invest directly in the token and pay a 1.5% purchase fee.

Also, a 1% allocation might be a little light. I see the logic, being tied to the 2.6 trillion number you mention in the context of global bond and global stock market caps. But consider the crypto market cap was $493.5 Billion one year ago. Crypto is growing exponentially, so I would shoot for a higher target for asset allocation in the 2-5% range, focusing on the most heavily weighted market cap coins you mentioned, such as Bitcoin and Ethereum.

Randy Dobkin
Randy Dobkin
1 year ago

I bought Bitcoin with Robinhood, unaware of any fees. So far it’s been a 10-bagger, though my investment is still way under 1% of my portfolio.

1 year ago

Thanks for the info. The names of three already-analyzed stocks which are heavily weighted with bitcoin would be helpful.

Last edited 1 year ago by dl777

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