Nov 11, 2022
Apparently, crypto isn’t just for risk-seeking speculators.
On Thursday, Ontario Teachers’ Pension Plan — which administers defined benefit pensions for school teachers in the Canadian province of Ontario — revealed that they had invested $95 million into troubled cryptocurrency exchange FTX.
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The pension giant said that the FTX investment was made through its Teachers’ Venture Growth platform, which was established in 2019 to “invest in emerging technology companies raising late-stage venture and growth capital.”
While the speculative bet didn’t pay off — venture capital firm Sequoia Capital recently marked its investment in FTX down to $0 — it’s not the end of the world for the pension plan.
“While there is uncertainty about the future of FTX, any financial loss on this investment will have limited impact on the Plan, given this investment represents less than 0.05% of our total net assets,” OTPP said in a statement.
On Friday morning, FTX posted on Twitter that the company had filed for Chapter 11 bankruptcy.
It’s a tough time for investors. But if you still believe in the future of crypto, here are three ways to gain exposure.
Buy bitcoin
The liquidity crunch at FTX has triggered a sell-off in the crypto world. Bitcoin, for instance, has plunged 19% over the last five days, bringing its year-to-date loss to a painful 65%.
But as the world’s largest cryptocurrency, bitcoin still has a huge following and an increasing number of companies worldwide are using it.
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MicroStrategy CEO Michael Saylor recently said that bitcoin is “100x better than gold.” If bitcoin reaches the size of gold as an asset class, Saylor predicts that it could go to $500,000 a coin.
Considering where bitcoin is trading right now, $500,000 implies a potential upside of over 2,800%.
If you share this view, you can buy bitcoin directly.
These days, many platforms allow individual investors to buy and sell crypto. Just be aware that some exchanges charge up to 4% commission fees for each transaction. So look for investment apps that charge low or even no commissions.
While bitcoin commands a five-figure price tag today, there’s no need to buy a whole coin. Most exchanges allow you to start with as much money as you are willing to spend.
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Crypto funds
People have long been using funds to gain diversified exposure to a market or a specific segment of that market. As it turns out, you can do that with cryptocurrencies as well.
For instance, the Bitwise 10 Crypto Index Fund (BITW) tracks an index made up of the 10 largest crypto assets weighted by market capitalization. Because cryptocurrencies are often highly volatile, the index is rebalanced monthly to stay up to date with the rapidly changing market prices.
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BITW’s five largest holdings are Bitcoin (61.8%), Ethereum (28.7%), Cardano (2.3%), Polygon (1.8%) and Polkadot (1.3%).
Of course, if you just want exposure to bitcoin, there are funds for that too: the ProShares Bitcoin Strategy ETF (BITO) started trading on NYSE Arca in October 2021, marking the first U.S. bitcoin-linked ETF on the market. The fund holds bitcoin futures contracts that trade on the Chicago Mercantile Exchange.
Crypto stocks
What happened at FTX serves as a reminder that crypto companies can be risky, but there are more entrenched players in the business.
Case in point, Coinbase Global (COIN) runs the largest cryptocurrency exchange in the U.S. It makes money whenever people buy and sell crypto on its platform, so it could be a pick-and-shovel play.
While Coinbase shares have experienced plenty of volatility — they’re down 78% year to date — some analysts see a rebound on the horizon. Citi analyst Peter Christiansen has a ‘buy’ rating on Coinbase and a price target of $80, implying a potential upside of 48%.
There’s also PayPal (PYPL), which is not a crypto pure-play. The company is deeply entrenched in the digital payment industry. But because PayPal also allows users to buy, sell, and hold crypto on its platform, it’s a name worth considering if you are looking for diversification.
PayPal shares have plunged by 54% in 2022. BMO Capital Markets analyst James Fotheringham has an ‘outperform’ rating on PayPal and a price target of $109 — roughly 22% above where the stock sits today.
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Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
