Bitcoin, the world’s most popular cryptocurrency, has had an incredible run this year. The price of a single unit has more than doubled over the past six months. With $10,000 now within range for the first time since 2017, it may be time for investors to ask how far this latest bull run will go and whether it’s a good time to invest.
In the cryptocurrency world, uncertainty is the only constant. Prices rise and fortunes are created seemingly overnight, while the crashes are sudden and severe. Bitcoin, for example, went from $1,000 to $20,000 over the course of 2017 only to plummet to just over $3,000 by the end of 2018.
Much of the market is still deeply speculative and tethered on vague assumptions. Even after the recent rally, it seems barely anyone is using Bitcoin as a currency. Research from New York-based blockchain research firm Chainalysis suggests that only 1.3% of the activity on the Bitcoin platform result from direct merchant transactions.
Ten years and numerous bull markets after its creation, it may therefore be time to admit that Bitcoin isn’t a medium of payment, but it could still serve as a store of value. Use of Bitcoin as a long-term buy-and-hold investment may make it akin to the digital version of gold.
Using gold as a benchmark could help investors judge bitcoin’s potential. The global market for gold as a financial instrument is worth an estimated $3 trillion, which makes it larger than Canada’s economy and the British stock market. Bitcoin, meanwhile, trades at just under 4.7% of the market value of gold. In other words, BTC still has plenty of room for growth.
Similar to gold, Bitcoin has its own cottage industry of independent miners spread across the world. One of them, HIVE Blockchain Technologies Ltd. (TSXV:HIVE), is a company listed in Canada.
HIVE operates two server farms in Sweden and Iceland that power the blockchain network underlying Bitcoin. The servers solve complex mathematical puzzles to verify each transaction that flows through the network and are rewarded with freshly minted Bitcoins.
The company sells a portion of these newly created Bitcoins to invest the proceeds in server expansion, keeping the rest in a diversified portfolio of cryptocurrencies. This business model is intrinsically tied to the market value of Bitcoin, making HIVE the perfect proxy for retail investors.
According to the company’s latest filings, cryptocurrency reserves were worth $3.75 million when marked to market and were mostly held in the second largest cryptocurrency Ethereum (ETH). The value of ETH has also doubled since that publication, so it may be fair to say HIVE has $7.5 million in liquid assets.
HIVE’s mining and reserve model may be a better way for investors to get rich off Bitcoin-mania. If the market crumbles and the tokens are worthless, at least HIVE would be worth something more than $0 in liquidation. But if the market value of the cryptocurrency ecosystem explodes, HIVE could be the ultimate millionaire-maker.
If you consider Bitcoin the digital equivalent of gold, it still has plenty of room to grow and create value. As a listed and regulated stock, HIVE might be the best proxy for investors who don’t want to deal with the hassle of a direct investment in cryptocurrencies.
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Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.