It's the equity investor's conundrum: how to get access to the skyrocketing returns of bitcoin and blockchain without actually owning the tokens.
To Thomas Lee, a major bitcoin bull who heads research for Fundstrat Global Advisors, a dozen stocks should do the trick.
"We believe investors should have exposure to blockchain, particularly given bitcoin has essentially zero correlation to equities, bonds and commodities - - hence, as a portfolio strategy, bitcoin is a good diversification tool," Lee wrote in a note to clients Friday. "But this is impractical for many equity managers, given the parameters of their mandate or because of practical issues (custody of tokens, etc.)."
Investors recently have sought ways to participate in the eye-popping bitcoin rally without having to purchase the cryptocurrency on the unregulated exchanges that have proven susceptible to hacks. Absent from Lee's list are bitcoin futures, regulated derivative products that will debut on Cboe Global Markets Sunday and CME Group Dec. 18.
Lee has long been one of Wall Street's biggest advocates of the cryptocurrency. Two weeks ago he doubled his price target on bitcoin to $11,500 by the middle of 2018. It went for $15,552 as of 10:31 a.m. in New York on Friday, according to Bloomberg composite pricing.
He suggests equity managers look to these ideas to leverage blockchain in their portfolios:
* Bitcoin Investment Trust (GBTC)
* MGT Capital Investments Inc. (MGTI)
* HIVE Blockchain Technologies Ltd. (HIVE)
* U.S. Global Investors Inc. (GROW)
* DigitalX Ltd. (DCC)
* NVIDIA Corp. (NVDA)
* Advanced Micro Devices Inc. (AMD)
* CME Group Inc. (CME)
* Cboe Global Markets Inc. (CBOE)
* Overstock.com Inc. (OSTK)
* Goldman Sachs Group Inc. (GS)
* Square Inc. (SQ)
The looming availability of futures weighed on these equity proxies this week, as speculators may be shifting away from stocks of companies that have benefited as bitcoin's price rose more than 15-fold this year. Both HIVE Blockchain Technologies and U.S. Global Investors are down near 10 per cent this week. Nvidia and Advanced Micro Devices have also suffered losses in the five days ending Dec. 8.
As for the totality of Mr. Lee's picks, an equal weighted basket of these stocks is up 136 per cent this year, according to the note. But as impressive as that may seem, he points out that it still lags bitcoin's 1,685 rise in 2017.