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Why Stocks in the Bitcoin Universe Skyrocketed in March 2024

Motley Fool - Fri Apr 5, 2:53AM CDT

The Bitcoin cryptocurrency rose 11.4% in March 2024, according to data from S&P Global Market Intelligence. Many related stocks rode Bitcoin's coattails higher -- though the related market effects weren't always crystal-clear. Just another normal month in the crypto sector, right?

For example, crypto-trading marketplace Coinbase Global(NASDAQ: COIN) saw share prices rise by 30.2% while leading Bitcoin owner MicroStrategy(NASDAQ: MSTR) posted a 66.7% gain. And of course, Bitcoin-tracking exchange-traded funds (ETFs) stuck close to the underlying cryptocurrency's chart squiggles. The iShares Bitcoin Trust ETF(NASDAQ: IBIT) and Fidelity Wise Origin Bitcoin ETF(NYSEMKT: FBTC) both gained 14.2% last month.

Why these alternative Bitcoin vehicles saw different gains in March

Why did the Bitcoin-related stock returns differ from the cryptocurrency's 11% price increase? Well, each one of these alternative gateways to the crypto market comes with a set of unique qualities and challenges.

  • The ETFs didn't match Bitcoin's moves exactly, because they're measured in a different way. Cryptocurrency prices can change at any time of the day, night, weekend, or national holiday. ETFs operate strictly on Wall Street time, so the prices freeze when the stock market is inactive. Therefore, the day-to-day price changes don't always match up exactly -- but the charts will look extremely similar in the long run.
  • MicroStrategy is more than an empty vessel holding a fixed amount of Bitcoin. The company also runs a data analytics business while pulling every possible lever to acquire more Bitcoin over time. In March, the company raised $604 million in new debt, promptly investing the net proceeds to buy 9,245 Bitcoins. The constantly growing crypto collection amplifies Bitcoin's price moves, adding both financial risk and potential long-term gains to the underlying digital asset.
  • Coinbase's fortunes are tightly connected to crypto trades, but it's not all about Bitcoin prices. The company makes most of its money from trading fees and the bid/ask spread in the trades it manages for its customers. That's very different from the Bitcoin-owning methods of ETF managers and MicroStrategy's "maximalist" Bitcoin ownership. So it's no surprise to see Coinbase's price having a looser statistical correlation to Bitcoin than the other names on this list.

How investors can use these Bitcoin on-ramps

These diverse moves illustrate how indirect investment avenues can serve a broad spectrum of beginning Bitcoin investors. Investors looking to dip their first toe into the cryptocurrency market have a range of options beyond buying Bitcoin directly. Each option fits a different set of financial strategies and risk appetites.

For investors with years of experience trading traditional securities under their belts but keen on tapping into Bitcoin's growth, semi-traditional assets like the iShares Bitcoin Trust ETF offer a blend of familiarity and innovation. The spot-price Bitcoin ETFs provide a direct link to the cryptocurrency's price movements without the complexities of cryptocurrency ownership, such as digital wallet security or learning how to manage yet another trading system exchange. At the same time, ETFs are wrapped in a regulatory framework and trading procedure familiar to stock investors. It's an appealing choice for those seeking to dip their toes into crypto waters without straying too far from the regulatory safety and operational ease of traditional markets.

On a more adventurous note, companies like MicroStrategy and Coinbase present nuanced pathways to cryptocurrency market exposure. MicroStrategy, with its aggressive Bitcoin acquisition strategy, acts as a leveraged bet on the cryptocurrency's future, braiding its corporate fortunes with the ebbs and flows of Bitcoin's valuation. This approach not only amplifies the potential returns in a bullish crypto market but also exposes investors to a higher level of risk in extended crypto winters.

Conversely, Coinbase offers a gateway to the broader dynamics of the crypto trading world, capitalizing on the market's volatility through trading fees across a diverse range of cryptocurrencies. Its performance is a barometer for the crypto market's overall health and trading volume, providing investors with an opportunity to profit from the ecosystem's growth beyond the fortunes of any single digital currency.

In essence, these alternatives to direct Bitcoin investment offer a broader range of strategies for tackling the crypto market. Digital assets are still fairly new to Wall Street's culture, and the regulatory rulebook is a work in progress. As last month's diverging price moves showed, investors can choose alternative Bitcoin investment vehicles to suit their personal style, long-term expectations for the crypto market, and risk tolerance. The young cryptocurrency sector is growing up before your eyes and finding its place in the investing world.

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Anders Bylund has positions in Bitcoin and Coinbase Global. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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