How Do You Get (or Avoid) Crypto Exposure as More Companies Adopt Digital Assets?

Volatility: Depending on where you sit, you either love it or hate it.

If you sit at a professional trading desk, you probably love volatility because you’re well-versed in all sorts of strategies designed to benefit when prices are rising or falling. If you’re a long-term investor sitting at your computer at home as you contemplate retirement, volatility—especially on the downside—can be really scary.

Enter bitcoin. With volatility well in excess of gold or equities, the world’s most popular cryptocurrency may, for some, be a trader’s dream. For investors, there’s certainly the allure of buying low and selling high, but there’s also a good chance of doing just the opposite.

At the same time, while bitcoin is gyrating in the mid-$30,000 range—well off its highs above $60,000 earlier this year—some who want to shy away from those big price swings may be wondering what kind of cryptocurrency exposure they have in the stock market. Those on the other side of the fence might be looking for exactly that kind of potentially lucrative risk taking.

“There is an ever-growing set of ways to get bitcoin and overall cryptocurrency exposure,” said Brock Pierce, a digital currency pioneer who ran for president in 2020.

Please note that as of this writing, bitcoin futures are the only cryptocurrency product available to qualified TD Ameritrade clients on the thinkorswim® platform, and not all clients will qualify to trade them. Visit the Bitcoin Futures page for more information.

Equities Have Growing Exposure to Cryptocurrencies

More and more established companies have been wading into the bitcoin waters, not to mention smaller firms whose business models focus on cryptocurrencies. Aside from directly investing in cryptocurrencies, buying derivative products, or investing in funds, what are some ways investors can get—or may unwittingly have—exposure to crypto?

Tesla (TSLA) bought $1.5 billion in bitcoin and said it would start taking the cryptocurrency as payment before reversing itself because of environmental concerns. BlackRock (BLK) has been dabbling in bitcoin futures investing. CME Group (CME) offers futures for bitcoin and ether (/ETH)—the second-most-popular cryptocurrency. Payment companies Square (SQ), PayPal (PYPL), and Visa (V) have turned their attention toward crypto. Business analytics company MicroStrategy (MSTR) has invested billions in bitcoin.

Then there are chip makers such as Advanced Micro Devices (AMD), Taiwan Semiconductor Manufacturing (TSM), and NVIDIA Corp. (NVDA), which supply processors used in cryptocurrency mining—the process that uses decentralized computers to create new digital currency and confirm crypto transactions. Miners themselves include Riot Blockchain (RIOT), Hive Blockchain (HVBTF), and Bit Digital (BTBT).

Different types of companies have different levels of exposure to cryptocurrencies, with the miners being quite tied to cryptocurrency volatility but payment companies seemingly less so.

“For companies that just hold bitcoin on their balance sheet, the exposure is straightforward because bitcoin is a component of the asset and should be taken into consideration when valuing the company,” explained Haohan Xu, CEO of Apifiny, a global digital asset trading network.

Some crypto companies can benefit from rising crypto prices beyond simply enjoying an appreciating asset they own. When the price of bitcoin goes up, crypto trading volume also usually goes up, benefitting companies like crypto exchange platform Coinbase Global (COIN).

Harder to Avoid, But Maybe Not a Bad Thing

With bitcoin and other cryptocurrencies becoming more widely accepted and understood, trying to avoid companies with any exposure to them might be a futile activity.

“Bitcoin shows that institutions are becoming more comfortable with cryptocurrencies and blockchain,” said Shawn Cruz, senior market strategist at TD Ameritrade. “You could find yourself leapfrogging from company to company.”

The growing acceptance of cryptocurrencies among large companies might not necessarily be a bad thing from a volatility standpoint. For example, a company that accepts bitcoin as payment but whose core business is in something completely different may not be as much of a risk—from a cryptocurrency point of view—as one that invests primarily in cryptocurrency. Plus, companies with large exposure to bitcoin price fluctuations may be using financial strategies to attempt to hedge themselves.

Again, sometimes volatility can be a good thing.

“Many have viewed the volatility in bitcoin as a feature more than a flaw and have been able to navigate the volatility for good entry points and exit points as the asset class has grown,” Pierce pointed out.

Bottom Line on Crypto Exposure

If you’re looking to the corporate world for crypto exposure, it’s important to keep a level head, do your homework, and keep your crypto investments consistent with your objectives, risk tolerance, and investing horizon.

For example, Cruz suggested long-term investors might want to avoid trading off the latest headlines.

“Just like jumping from company to company to avoid crypto exposure may not serve you well as an investor, chasing companies that are the latest to mention bitcoin, blockchain, and crypto may drive unnecessary churn in your portfolio,” he said.

Please note that virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Virtual currencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional fiat currencies.