There’s no denying Bitcoin has created a lot of wealth for some people over the past five years. Unfortunately, as the crypto market has boomed, so has fraud.
Hundreds of millions of dollars worth of Bitcoin have been stolen or lost and, due to the nature of the asset, it’s almost impossible to trace where they’ve gone. At the same time, it’s not got any easier to make transactions using cryptocurrency. Fees are still relatively high and can take days to transact.
So while Bitcoin might have gained mainstream attention, owning the asset is just as difficult and risky as ever. With this being the case, if you do want exposure to the asset, I would recommend buying a stock with exposure to Bitcoins instead.
There are three primary ways I’d play the Bitcoin price right now. Firstly, Nvidia is one of the world’s largest chipmakers and has carved out a specific niche in the graphics processing unit (GPU) market.
GPUs, which are more powerful than the traditional central processing units (CPU), are popular with miners. The company has seen a significant spike in demand for its products over the past few years as miners have rushed to take advantage of the Bitcoin price.
My second option is US market provider CME Group. This exchanged was the first significant exchange to launch Bitcoin futures and is planning to expand its offering later this year due to booming demand.
Thirdly, there’s London-listed CFD provider Plus500. This company registered a spike in profitability in 2017 and 2018 as traders rushed to try and bet on the Bitcoin price. It has since seen profits come under pressure due to a regulatory crackdown, but a price recovery could send profits skyrocketing again.
A sector play
I think the three options are a great way to play the Bitcoin price although, from a longer-term perspective, I think it would make more sense to invest in the tech sector in general, rather than limit your options to just cryptocurrency. The world is in the midst of a tech revolution, and this is almost certain to continue. However, picking tech stocks can be tricky, and I think it is best left to the experts.
There’s a whole selection of tech-focused investment trusts and funds out there you can buy to profit not just from Bitcoin, but from cloud computing, hardware and artificial intelligence.
The Scottish Mortgage Trust is a great example. Over the past five years, this investment trust has returned 136%, outperforming its benchmark by 52% by betting on some of the markets hottest tech stocks. Meanwhile, the Polar Capital Technology Trust has returned 182% over the same time frame. The one downside of this investment trust is that it is quite expensive with an ongoing charges figure of 1%.
A cheaper alternative is the Allianz Technology Trust. This investment trust has a fairly similar investment portfolio to Polar, but its main difference is the fact that it charges just 0.48% per year. It has also outperformed its peer over the past five years, returning to 106% since the end of 2014.
Considering the track record of these managers, I’d rather invest my money with them over Bitcoin any day.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.