The world’s most popular cryptocurrency, bitcoin, has been dominating the headlines since yesterday. It climbed around 20% on Feb 8 after the world’s largest electric-car maker, Tesla
TSLA
, announced in a Securities and Exchange Commission (SEC) filing that it has purchased $1.5 billion worth of bitcoins, per a Reuters article. Elon Musk’s Tesla stated that it bought the bitcoin for “more flexibility to further diversify and maximize returns on our cash,” per a CNBC article. Tesla ended 2020 with more than $19 billion in cash on hand.
Going on, Tesla plans to eventually start accepting cryptocurrency as payment for its cars. In this regard, the company said it purchased the bitcoin for “more flexibility to further diversify and maximize returns on our cash,” as mentioned in a CNBC article. Tesla’s bitcoin investment is expected to provide the company with liquidity in the cryptocurrency once it starts accepting it as payment, per a Reuters article. Notably, the news is believed to have sparked the largest daily rise in bitcoins in more than three years, with the price of one bitcoin surging to a peak of $48,216, according to a Reuters article.
Is Tesla Going to be the New Trendsetter for Bitcoins?
There is no doubt that bitcoins are gaining popularity among institutional investors. Millions of funds coming from institutional investors like big corporations and hedge fund managers are piling into bitcoins. It is worth noting here that bitcoins surged 1,150% from March 2020 lows as it saw increasing money coming in from institutional investors, per a Reuters article.
PayPal Holdings
PYPL
has reportedly purchased about 70% of new bitcoins in circulation after recently introducing a crypto trading service on its platform that allows customers to trade up to $20,000 a week, according to a Cointelegraph article.
Square
SQ
has also bought $50 million in bitcoin as part of a larger investment in cryptocurrency. In fact, according to Pantera, all of the newly-issued bitcoin are being purchased by PayPal and Cash App (per the Cointelegraph article). MicroStrategy, another public company, recently revealed that it has invested the entire $650 million of its debt issuance into 29,646 more bitcoin, per the sources. It now has 70,470 bitcoins worth more than $1.596 billion in its treasury reserve, per a YahooFinance article.
Several central banks are considering the rollout of the Central Bank Digital Currency (CBDC) concept lately. According to a Reuters article, Beijing will be issuing 10 million yuan ($1.55 million) worth of digital currency to residents for usage during the Lunar New Year holiday.
The foray of these large players into the crypto market has created a belief that these currencies might soon become the mainstream payment method. In such a scenario, Tesla’s adoption of bitcoin as a transactional currency is likely to present a more favorable case for cryptocurrencies as a legitimate medium of exchange, as per the sources.
Notably, Mike Novogratz, founder of Galaxy Digital, has said that “every company should be looking at how to accept digital currencies, digital payments as part of their business scheme. It’s not that difficult. It’s what customers want, it’s where the world is moving. And so that I think he’s getting ahead of the curve, and I think you’re going to see every company look to figure out how they could, from McDonald’s to Bojangles, you name it,” in a CNBC article.
However, bitcoin’s high-volatility levels might make it difficult to use it as a transactional currency. In fact, realised volatility or daily price swings measured in terms of closing prices for bitcoin over the past 90 days came in at 72% in comparison to 16% for the broader S&P 500 index and 6% for the euro currency, according to a Reuters article. In this regard, Marija Vertimane, senior strategist at State Street Global Markets, stated that “from a practical point of view, using bitcoin to buy anything – Tesla cars – would be still extremely difficult given its excessive volatility,” as stated in a Reuters article.
ETFs to Ride the Rally
The growing participation of traditional investment banks and fintech firms with an aim to add cryptocurrency to their products is opening up investment opportunities. Thus, we are highlighting three fintech ETFs that are likely to gain from the impressive bitcoin rally as bitcoin ETFs are not available to investors:
ARK Fintech Innovation ETF
ARKF
It is an actively-managed ETF that seeks long-term growth of capital. The fund provides exposure to fintech innovations like mobile payments, digital wallets, peer-to-peer lending, blockchain technology, and risk transformation. With AUM of $3.06 billion, it charges an expense ratio of 75 basis points (bps) (read:
Space ETFs Soar on ARK Investment Management’s Filing
).
Global X FinTech ETF
FINX
The fund seeks to invest in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. It has AUM of $1.16 billion and charges 68 bps in fees (read:
3 Fintech Stocks & ETFs to Shine as Bitcoin Crosses $35,000
).
ETFMG Prime Mobile Payments ETF
IPAY
The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Prime Mobile Payments Index. The index provides a benchmark for investors interested in tracking the mobile and electronic payments industry, particularly focusing on credit card networks, payment infrastructure and software services, payment processing services, and payment solutions (such as smartcards, prepaid cards, virtual wallets). With AUM of $1.09 billion, it charges an expense ratio of 75 bps.
Investors can also consider blockchain ETF like
Amplify Transformational Data Sharing ETF
BLOK
. Meanwhile, ETFs offering exposure to the blockchain ecosystem via semiconductor companies that make chips for bitcoin mining (or could make for some potential CBDCs) can be considered. The most-popular funds include
iShares PHLX Semiconductor ETF
SOXX
and
VanEck Vectors Semiconductor ETF
SMH
.
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