Bitcoin Chaos: Is it Finally Time to Get Into Cryptocurrency?

The price of Bitcoin has been plummeting this month and is now trading well below US$8,000. The price dropped over 15% in an hour on Tuesday and again by another 8% Thursday morning. 

Such volatile moves are nothing new for the world’s most popular cryptocurrency. In fact, I would argue that double-digit booms and busts are a regular occurrence for the cryptocurrency, which has doubled so far this year. 

However, long-term investors who are optimistic about the future of Bitcoin may want to consider this recent plunge an opportunity to add some exposure.

A major shift in 2020

A confluence of factors could push the value of Bitcoin much higher next year. Platforms for institutional investments, such as Bakkt, and the upcoming investment vehicle for retail investors supported by Grayscale Investments, will allow more investors to easily add exposure to the digital asset. 

However, the most important catalyst for Bitcoin’s price could be the so-called halving event on May 20, 2020. That means the rewards offered to operators who mint new Bitcoin by verifying transactions will be cut in half from 12.5 BTC to 6.25 BTC. This event happens every four years, and the last time the rewards were halved, the price of Bitcoin spiked by the end of the year. 

It seems likely that cutting the pace of supply of Bitcoin in half while the media attention and public recognition is at an all-time high could have a positive impact on the token’s market price. Remember, the overall supply of Bitcoin is capped at 21 million. 

The best way for Canadian investors to bet on Bitcoin

Canadian investors have access to not one, but two publicly listed Bitcoin mining companies that could benefit from any spike in the digital asset’s price. I’ve covered HIVE Blockchain Technologies before, but its larger rival, Hut 8 (TSXV:HUT), seems to be gaining more traction lately. 

Hut’s business model is similar to any other mining company. They invest heavily in server farms that relentlessly try to solve the mathematical puzzles built into the Bitcoin network and get rewarded with freshly minted Bitcoins for their efforts. 

Since it launched, Hut has managed to mint 10,800 new Bitcoin, which are collectively worth US$86.4 million (CAD$114.25 million). In its latest quarterly report, the company claims it has $7 million in digital asset reserves and $6 million in cash on its books. 

However, when the company readjusts the reserves for fair value based on market price, the value could be as high as $46 million. Along with the $6 million in cash, Hut’s assets represent 27% of its current market capitalization. 

Any growth in Bitcoin’s value will have a direct impact on Hut’s underlying book value, so investors can consider this stock a proxy for the wider crypto market. In fact, the company has already secured approval to graduate to the main Toronto Stock Exchange, which could make it the first blockchain company to be available on a major exchange. 

Bottom line

Investors who are bullish on Bitcoin may want to consider adding Hut 8 to their watch lists, as the company graduates to the main stock exchange and Bitcoin heads towards a pivotal event next year.