The Growing Relationship Between Bitcoin and Public Markets
What moves the price of Bitcoin? Today, it is mostly news and geo-political events but what else is there? That’s something we are still trying to understand. Intuitively, many experts believe there is a not-so-obvious and growing relationship between Bitcoin and public markets. I tend to subscribe to that thesis as well. After all, how many $100 billion markets do you know that have no impact in public equities?
The relationship between Bitcoin and public markets is almost imperceptible today but growing really fast. as Bitcoin and digital currencies in general become a bigger presence in our lives, that relationship is likely to increase. From that perspective, we should differentiate the impact of Bitcoin in public markets today from its potential growth tomorrow.
Today: Stocks Influenced by Bitcoin
There are not many publicly traded stocks with a meaningful exposure to Bitcoin or digital currencies. By meaningful, I am referring to somewhere in the 3–5% of their revenue. Currently, Bitcoin mining is the segment of the cryptocurrency space that has permeated the most into public markets. Chipmakers such as Nvidia and Advanced Micro Devices(AMD) are two stocks that have become vulnerable to the price of Bitcoin and vice versa.
The link between Nvidia, AMD and Bitcoin comes from the fact that both companies re involved in the manufacturing of GPUs which are actively used in the mining of cryptocurrencies. Bitcoin mining has recently experienced a renaissance drive, among other things, by the crackdown against Bitcoin in China which opened the doors to markets for Bitcoin mining. At the same time, the mining of other digital currencies remains a very competitive field.
In addition to direct investments in Nvidia and AMD, investors are indirectly exposed to Bitcoin through exchange traded funds(ETFs) with positions in those two stocks.
In my opinion, there is also an indirect relationship between Bitcoin and FOREX markets. We’ve seen it before when the Chinese Yuan has become unstable causing many investors to look refugee in Bitcoin which has triggering an spike on the price of the cryptocoin.
Tomorrow: Tech, Chips and Financial Stocks
While Bitcoin’s impact in public markets is certainly limited, we should not ignore its future influence based on its astonishing growth trajectory. Again, no $100 billion market goes unnoticed. In the near future, Bitcoin impact in public markets is likely to expand into several areas including a bigger footprint within chip manufacturers such as Intel, ARM or QUALCOMM.
Big enterprise tech stocks are also a candidate to get exposure to Bitcoin and digital currencies. Specifically, companies such as IBM and Microsoft are getting more involved in block chain solutions and if you think there is no relationship between health of currencies like Either and the blockchain market you are only kidding yourself.
Financial markets is another area that is likely to receive certain level of influence from Bitcoin in the next few years. Financial powerhouses such as Fidelity already announced that they are actively mining Bitcoin and Ether. Goldman Sachs also announced that they are starting to study trading models for the digital currency. Other publicly traded investment funds might increase their footprint on Bitcoin in the very near future.