Cryptocurrencies are staging a major come-back. For example, cryptocurrency Bitcoin bottomed out at around $3,360 at the start of the year and traded recently at $5,700. Now, with reports that Fidelity will roll out a crypto trading service within a few weeks, bet on prices firming up.
Fidelity is reportedly set to launch cryptocurrency trading service soon. A spokeswoman said that “We currently have a select set of clients we’re supporting on our platform.”
Fidelity will focus on the Bitcoin cryptocurrency and will target institutional, not retail, customers. This is unfortunate for the crypto market because it would exclude two other major cryptocurrencies: Ethereum and Litecoin.
Similar to Bitcoin, Ethereum bottomed at around $154 and closed recently at $173. Litecoin traded as low as $31 in January and topped out at almost $92 on April 6. It settled at around $75 on May 6.
Bitcoin Gains Legitimacy
The cryptocurrency market still struggles from getting taken seriously for a good reason. Fraud and theft are the chief problems the currency faces. Still, those caught stealing the currency are getting charged and indicted. For example, the man who stole $9 million was indicted in Israel.
The bad news is that crypto theft is still growing at an alarming rate. Losses grew 70% from 2018 to $1.2 billion. This suggests that Fidelity will have to limit the growth of its service and tread carefully. It must prioritize security and threat detection first and foremost over everything else.
Investing in Bitcoin Rebound
Although investors will not have a chance to participate in Fidelity’s entry in the crypto market, they could buy Grayscale Bitcoin Trust (OTC:GBTC) instead. Investors could buy the stock on the open market but should be aware of two things.
First, the holding has a 2% annual fee. And second, it trades at a premium to the underlying Bitcoin. Investors could do more research to learn how to buy Bitcoin directly from exchanges. That would remove the unnecessary costs associated with gaining exposure in the cryptocurrency.
Despite my concerns for GBTC, the stock is still a good trading vehicle for speculative investors. If Bitcoin rises, GBTC will go up, too. Likewise, if Bitcoin falls, GBTC falls. The stock has sufficient liquidity to allow for quick trades.
Holding shares of Overstock.com (NASDAQ:OSTK) is another way to indirectly play the Bitcoin boom. Per Overstock’s website:
“We partnered with Coinbase, a Bitcoin platform, to enable Bitcoin as a form of payment on Overstock.com…Unfortunately, Bitcoin payments are not yet accepted through our Mobile website. However, the Pay with Bitcoin option is now available for Overstock international customers.”
Unfortunately, Overstock failed to secure $100 million in a fund raise in April. GSR Capital, a Chinese firm, does not have a definitive deal as the firm carries out its due diligence first.
If Overstock succeeds in getting the investment it needs for the Bitcoin subsidiary, its stock could attract crypto investors. The stock is in a downtrend, trading recently below $13 and down 27% in the last quarter.
Although its underlying business lost money last year, management is now aiming to generate $10 million in operating cash flow in 2019. Having Bitcoin prices perk up and getting its subsidiary funded will help the stock move higher.
On Wall Street, only one analyst covering OSTK stock has a $51 price target. Shares trade at three times below that level. So, even with the surging Bitcoin prices, Overstock shares are unlikely to trade at that level.
Bitcoin is a volatile asset class that is no different from other commodities. Oil, gas, and gold (NYSE:GLD) are also commodities whose prices fluctuate. Investors with the appetite to trade the price movements in Bitcoin could make plenty of profits.
Timing the entry price on the drop and the exit when the cryptocurrency surges are the harder aspects of the trade.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.