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Crypto’s Picks & Shovels Trade More Volatile than Underlying Asset Tracked

  • Investors betting on listed cryptocurrency firms have been more heavily exposed to volatility as business and commercial risk is lumped onto companies dealing in already volatile assets. 
  • Investors looking for exposure into crypto would have been better off just buying the tokens to begin with as corporations cottoning on to the rise and fall of the industry prove far more volatile and susceptible to downturns.

The “picks and shovels” trade was very attractive in the early days of cryptocurrency’s admission into the mainstream investor consciousness.

Part of the reason for this of course was that outside of Grayscale’s Bitcoin Trust vehicle, there were few (if any) institutional gateways to participation in the cryptocurrency sector.

And investors loathe to fumble with private keys and unregulated exchanges found themselves betting on the listed companies that serviced the cryptocurrency sector, from miners to exchanges.

But far from track the rise and fall of the cryptocurrency markets, these listed cryptocurrency firms have ended up tracking most of the decline, with just a hint of the rally.

Over the past week, underwhelming results from listed cryptocurrency firms have seen shares in their company fall, despite a recovery in broader indices.

Since December, some of the biggest names in the cryptocurrency sector are down mor than the cryptocurrencies that they facilitate the trading in or have on their books with Coinbase Global (-10.76%) down 75%, to MicroStrategy (-4.24%) which is down 62%, or more than the 60% fall in Bitcoin over the same period%.

Digital token mining giants like Marathon Digital (-7.68%) and Riot Blockchain (-5.78%) have also fallen faster than Bitcoin and that’s because contrary to popular belief, listed crypto companies aren’t “crypto lite” promising all of the flavor and none of the fat.

Whereas buying a cryptocurrency outright exposes an investors to one level of volatility, buying a company involved in the business also introduces new layers of risk, including management and business model.

If nothing else, betting on cryptocurrency companies is akin to taking leveraged bets on what is already one of the most volatile asset classes on earth.

Buying listed crypto companies is not for the fainthearted, nor for those unwilling to do the work – it requires a study not just of the cryptocurrency sector, but the business models, management teams and other factors required from typical equity investing.

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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