The surge in the value of Bitcoin has dragged other cryptocurrencies higher, which in turn attracted many investors looking for some quick and easy ways to make a lot of money. Unfortunately, the popularity of cryptocurrencies have attracted a lot of what is commonly known as “dumb money” people who don’t really have the expertise to invest and who commit their own capital, often registering huge losses. Earlier this year, several big banks and credit card companies have halted purchases of Bitcoin and other cryptocurrencies on their cards because they don’t want to deal with the credit risk associated with these transactions.
The risks associated with investing in cryptocurrencies are known, yet it doesn’t stop people from speculating on them, despite many warnings from experts that the cryptocurrency market is a bubble. However, there still is a pretty sizable crowd that argues that cryptocurrencies are, if not an alternative to fiat currencies, then at least an emerging asset class. We should see who is right in the end.
However, the reality is that many companies nowadays are trying to ride the cryptocurrency wave. Some companies announce changes in their business models that would focus them on cryptocurrencies and the underlying blockchain technology, which is the case of Eastman Kodak, or Long Blockchain Corp, which changed its name from Long Island Iced Tea. Both companies saw their stock prices soar following the announcement that they would focus on cryptocurrencies. Other companies launch their own blockchain-based projects and release their own cryptocurrencies, which they sell to the public via Initial Coin Offerings.
The availability of platforms like Ethereum allow to easier launch new applications based on blockchain technology and create tokens using a template that generate their value based on their usage within a ecosystem. The interest in cryptocurrencies has led to creation of over a thousand various tokens, which collectively gathered hundreds of millions of dollars through ICOs, but the sustainability of many of them is questionable at best. Because cryptocurrencies are unregulated, investors are acting at their own risk and should conduct due diligence before investing in an unknown cryptocurrency. It’s better to purchase cryptocurrencies that have some underlying value, such as Ethereum or Ripple (take a look at five easiest ways to buy Ripple), which at least enjoy some level of support from big corporations due to the benefits provided by their respective blockchain ecosystems.
There is a less risky way to get some returns from the popularity of cryptocurrencies, which is to invest in big companies that have some indirect exposure to cryptocurrencies or blockchain technologies. Because these are well-established companies, they offer little downside risk in case the cryptocurrency market tumbles.
With this in mind, we have selected five companies that have exposure to cryptocurrencies and blockchain technologies and took into account the hedge fund sentiment towards them. We assess the hedge fund sentiment based on the number of funds we track at Insider Monkey as part of our small-cap strategy that are holding shares of a company. On the next page, we will take a look at the companies we have selected and see how the hedge fund sentiment towards them changed during the fourth quarter, taking into account that one of the reasons for the changes in sentiment is these companies’ exposure to cryptocurrencies.