Back in the day when I was in my first year of studying business, we were told a story that has stuck with me. To me it epitomized what business is all about and today it is helping me in maximizing the returns of my investment portfolio. That story was about Levi’s jeans.
One of the most significant events to occur in America during the mid-1800’s was the gold rush. A carpenter, James Wilson Marshall, found gold nuggets in Sacramento Valley and soon the word spread and everyone was scrambling to get their scoop of the riches. By the end of that same year 20,000 wannabe Scrooge McDucks had arrived to the San Francisco area.
The masses arrived, bought the appropriate equipment and got to work. Sadly, many left empty handed and disappointed and the winners were the ones who were there first and had more resources at their disposal. The other type of winner was the one that did not run out to pan for gold with everybody else, but realized that all the miners needed shovels, sieves, a place to stay and appropriate work-ware. This realization was one that let Levi Strauss ride off into the sunset after the whole frenzy was over.
To be fair, I don’t know if this story is true (but excellent advertising at the least), as Levi’s did not start to manufacture denim overalls until some 20 years later. But the moral of the story applies today. Bitcoin has been proclaimed as the alternative to gold, only a lot better, and it has been suggested that gold and altcurrencies will be the safe-havens of the next financial crisis.
So if bitcoin is the 21st century gold, then we are once again in the age of the gold rush. When my mother told me she has bitcoins (she’s definitely not a techy and doesn’t invest), I knew that it’s too late to get in the game. As with the gold rush or any other risky investment, you need to be there early to reap the rewards. I could of course be wrong, some speculate that there will be a spectacular crash soon as bitcoin does not live up to the hype as quickly as expected, but others think it’s still only a fraction of its future value. Nevertheless, it’s highly volatile and my instincts on investor psychology are telling me not to go there.
So how do I get in on the action and capitalize on the change? What or who is the Levi Strauss of this gold rush? Well, cryptocurrencies are mined and miners need equipment. Luckily that equipment is developed and sold by few leading public companies: Nvidia and AMD.
The cryptocurrency-mania is driving the sales of graphics cards for these companies, and in fact Nvidia is one of the top performers in the entire S&P index over the past 12 months. Nvidia shares have more than doubled this year, with analyst expectations of increasing performance well into the 2020’s and a 55% consensus on a Buy recommendation. Not only are you getting less volatility, but you’re also not putting your eggs in one basket. You are essentially investing in the mining of all altcurrencies, as well as other industries like AI, automated cars, gaming and datacenters. All of these are rapidly growing industries and ones in which Nvidia is excelling, with growth across all of its business units. So even if the cryptobubble bursts, your assets will be diversified into other technologies that are very likely to be in high demand in the near future.
Another alternative is to keep an eye out for investment opportunities into service providers such as exchanges, wallet services and so on. The Finnish company Prasos Oy who hosts the most popular Bitcoin exchange in Finland, bittiraha.fi, currently has an ongoing IPO at 77€ per share with a goal of becoming the leading Bitcoin exchange platform in Europe within the next three years. As long as Bitcoins and other altcurrencies are around concurrently with traditional currencies, there is a need for exchange services. Coinbase is the most popular platform and has established legitimacy also through its popularity and private investors. As the need for developing these services grows to cater for a wider Bitcoin ecosystem, so too does the need to invest in building that ecosystem, which will eventually be very profitable for those who cease the opportunity.
Whatever you do though, I bet real winners will be those who do not look for quick short-term profits, but stick to the basic portfolio principles, that is give it time, diversify your assets and get in the game but limit your exposure by investing 10% of your portfolio to high-risk investments (which Bitcoin definitely is).
Sources
- https://www.marketwatch.com/investing/stock/nvda
- https://www.arvopaperi.fi/kaikki_uutiset/jyvaskylalainen-bitcoin-valittaja-prasos-aikoo-euroopan-suurimmaksi-6688817
- https://medium.com/r/?url=https%3A%2F%2Fwww.cnbc.com%2F2017%2F11%2F16%2Fnvidia-one-of-the-years-hottest-stocks-is-about-to-rip-even-higher.html
