How to Invest in Bitcoin Stock – What I’ve Learned

bitcoinIf you’ve read many of my articles, you know that I am a huge proponent of diversifying your investments. I believe in never putting all of your eggs in the same basket. When I heard about Bitcoin, there was a huge appetite for cryptocurrency among investors and Bitcoin was leading the charge.

One thing I decided was that I was going to learn how to invest in Bitcoin stock. Well after doing some digging on the internet, it became clear: “There is no such thing as Bitcoin Stock!” The reason is because Bitcoin isn’t a company. When you buy stock, you are buying shares of a company. This means that when you buy shares, you own a percentage of the company that is proportional to the amount of shares you purchased! Bitcoin; meanwhile, is a form of digital currency or for the computer savvy, a protocol.

That being said, if you want to buy bitcoin on the stock market, there is a way!

You can buy shares of GBTC which is the Bitcoin Investment Trust. GBTC is known as an ETF or Exchange Traded Fund. So, what is the trust and how does it work? The trust is a company that owns bitcoin on its investors behalf. In this case that company is called Grayscale (hence the G in GBTC). Grayscale owns many Bitcoins (currently over 230,000) and sell shares to investors that equate to a percentage of the Bitcoin that they possess. You then get to own Bitcoin without actually buying the actual Bitcoin and keeping them in a digital wallet.

Why Invest in GBTC?

The short answer is that if you want to invest in Bitcoin using an online brokerage, this is the only way to do it. Investing and taking possession of actual Bitcoin requires a little additional work and for some, its not worth the hassle when they already know how to buy and sell stocks and invest in ETFs.

Investing in a trust gives you exposure to Bitcoin so you can diversify your portfolio and take advantage of how the price changes over time.

Another benefit is that it can be bought at just about any brokerage. If you wanted to trade it on TDAmeritrade or any other large broker, you can. If you want to trade it on a free discount brokerage, you can do that as well.

There are a few things to consider in terms of caution however.

The Downside to Investing in GBTC

There is a management fee of 2% annually that you will need to pay. Typical ETFs have a management fee in the range of 0.25% and this is what makes them enticing to many investors. Often people prefer to trade ETFs over Mutual Funds for this same reason. However, 2% may not be a lot depending on how well the trust performs over the time that you hold shares of it.

Another downside to investing with GBTC is that the price fluctuates a lot due to high swings in demand. When investors plow into the trust, they tend to over inflate the value of the shares and when they all flee for greener pastures, they deflate the price.

Is it Worth Investing in GBTC?

That really depends on you! I would say that no single investment should make up a large percentage of your portfolio. I personally try to keep all of my individual investments between 1-3% of overall account value and occasionally let that number drift up to 5%.

Can you get rich off GBTC? Of course anything is possible, As you’ll see in the performance chart below, if you invested a large amount of money at the beginning of this year (2019) you would have done rather well for yourself. That being said, no one can predict with 100% certainly how well an investment will perform and a poorly executed trade could also derail your entire account if you do not practice risk management properly.

Here’s how GBTC performed in 2019 up to now (middle of July). [Graph screenshot from ThinkorSwim by TDAmeritrade]:

GBTC performance chart

And here is how BTC performed if you owned actual Bitcoins [Chart screenshot from cryptocurrencychart.com]:

Bitcoin Performance 2019

So, as you can see, it does track fairly well. So where can you trade GBTC?

Where to Trade GBTC

GBTC can be traded from any standard brokerage. You can use a large brokerage like TDAmeritrade or one of the free trade brokerages like Webull or Robinhood.

Personally, I do not actually have any position in GBTC currently because I have actual Bitcoin and other cryptocurrency in another account. The main reason is because I started buying cryptocurrency before I heard about GBTC and didn’t know this option existed to me. Had I known, what I do now, I may have considered buying shares of GBTC because of how simple the process is and I’ve very comfortable using a stock brokerage.

If you are interested in trading or buying shares of GBTC, I would like to encourage you to check out my full Webull Review and Robinhood Review which are free to sign up for and you won’t pay fees to buy shares. (You will still get charged the 2% fee every year for GBTC’s trust management. There’s no way to avoid that.)

Invest in Companies that Utilize Cryptos and Blockchain

Rather than investing directly in a trust for bitcoin, why not invest in companies that are at the forefront of the Cryptocurrency sector. Here are a few examples I pulled up using Matador. Matador is another free stock trading app.

You don’t need to download it if you don’t want to, but it had a convenient list under the label “Blockchain.”

So some names that are on the list are Cisco (CSCO) and Nividia (NVDA). These are pretty big companies that use block chain and interact with crypto-currencies.

Some companies like AMD and Nividia are well-known for Bitcoin mining and other companies have implemented cryptocurrency as a currency to purchase goods through their website.

If you were curious about which companies actually allow Bitcoin to be used for purchases, there are a few big names. Microsoft allows Bitcoin to be used to buy credits for their online marketplace.

Overstock and New Egg which are very popular online stores which accept Bitcoin.

You can even buy a flight with Expedia using Bitcoin.

FB is currently one of many companies that is trying to launch a new cryptocurrency known as Libra. If you want to invest in the future of Libra, I would look at some other companies involved in it as well and decide which one is a good fit for you.

If you don’t want to commit to investing in specific companies or specific coins, there are also ETFs that you purchase that make up 80% of their portfolios or more on blockchain technology related businesses.

A few of the ETFs I found under Matador’s blockchain category were: BLOK, KOIN, BLCN, and LEGR.

So that’s a few ways you can invest in Bitcoin or other cryptocurrencies using the stock market.

Can I Just Buy Bitcoin?

Now that you know that you can’t buy Bitcoin stock but that there is a Trust that you can invest in, maybe you’ve decided to just cut out the middle man, (Grayscale) and buy the Bitcoin yourself! Well, you can absolutely do that. One of the easiest places to do this is by opening a free account at Coinbase which is a cryptocurrency wallet.\

Once you have an account with Coinbase or another digital cryptocurrency wallet, you can buy and sell Bitcoins and other types of Cryptocurrency with whatever currency you have access to. For me, I buy cryptocurrency with USD (US Dollars). I just hooked up Coinbase to my Bank and I can transfer money into my digital USD Wallet and convert it to Bitcoin (BTC).

If you want more information about Coinbase to see if it is a good fit for your investment needs, read our full Coinbase Review.

Currently 1 BTC is worth $9700 and this price changes all the time. Don’t have $10k to spend on a bitcoin? That’s alright. What makes cryptocurrency so interesting is that you can buy any fractional amount of a coin. For example, I have in my account right now 0.017 BTC which equates to about $165. Then I have about 0.26 ETH (Etherium) which equates to $55 and a few other coins as well. You can literally get started with any amount that you are comfortable with.

My Cautionary Tale

I mentioned earlier that you can get rich with bitcoin but that like all investing, you should practice risk management. I learned the hard way how important this is and I learned that lesson with Bitcoin. I decided to invest $1000 in Bitcoin and other coins. I decided to split that money into Bitcoin, Etherium, Ripple and Litecoin. After all, diversification is key.

Here’s when I bought Bitcoin:bitcoin 2017 bubble chart

You can make a lot of money but you can also lose a lot of money too. That was the Bitcoin bubble burst of December 2017. It was not fun watching my investment tank. Out of the $1000 I started out with, a month later it was worth half of that value and in less than one year, it was valued at less than $200.

At that point I decided to leave the money in the currency and not even think about it for several years. Well I have cheated and I looked at it to write this article, It’s now worth a little over $300.

Not all investments turn out to be winners. Now though, may be a better time to get into it since the hype is gone and investors are a little more cautious with cryptocurrency now. I’ll leave that up to you!

In Summary

Bitcoin doesn’t offer its own stock ticker for those that want to purchase it on the stock market.

You have 3 options for investing in this field. First, you can invest in it directly by using a cryptocurrency wallet like Coinbase. You can invest in one of the various ETFs or stocks that use and contribute to blockchain of cryptocurrencies. Lastly, you can purchase shares of the largest Trust associated with Bitcoin which is Grayscale’s GBTC.

I hope you found this interesting and if you have any comments or questions, I’d love to hear from you!

Thanks for reading and let’s start investing!

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