Back in December, it seemed that bitcoin was headed for oblivion. But the death of the cryptocurrency has been greatly exaggerated.
During the past six months or so, bitcoin has surged from $3,100 to $8,700. In fact, there was a doubling in just the past two months. Yes, bitcoin seems like a red-hot IPO, such as Beyond Meat (NASDAQ:BYND) or Zoom Video Communications (NASDAQ:ZM).
OK then, so why all the bullishness with bitcoin investing?
Well, for the most part, volatility is natural with this asset. Because there is a limited supply of coins, it does not take too much demand to drive up the price.
A Closer Look at Bitcoin
There are signs that institutions are starting to get more exposure to bitcoin. Part of this appears to be the case with the popularity of the Bitcoin Trust, which is generally for accredited investors. There has also been a surge of interest on bitcoin futures on the CME Group (NASDAQ:CME), and the New York Stock Exchange is testing its own futures product.
But there is also validation from major financial institutions, such as Fidelity, as well as mega Internet companies like Facebook (NASDAQ:FB). It looks like the social media giant is exploring the use of its own cryptocurrency, say for next year.
Even the trade tensions between the US and China may be having an impact. This is because investors in China may see cryptocurrencies as a way to avoid a weakening currency and capital controls.
So yes, there have been lots of catalysts for bitcoin. But then again, how long can the rally last? It’s certainly tough to tell. But the momentum appears to be fairly solid. So this bull move may be more than temporary.
For investors, there is an interesting way to play this – that is, by focusing on cryptocurrency stocks. To this end, you could look at companies like IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) that have blockchain applications. Although, it’s important to keep in mind that the technology is a small part of the overall business.
Instead, when it comes to cryptocurrency stocks, I think a better approach is to look at those companies that develop chips that help with the mining of bitcoin. So let’s take a look at two:
Cryptocurrency Stocks: Advanced Micro Devices
A few years ago, Advanced Micro Devices (NASDAQ:AMD) was considered an afterthought. The company was undercapitalized and was not innovating.
When Lisa Su came on board, she made critical changes that transformed AMD. She aggressively cut costs and outsourced manufacturing. She also was smart to double down on creating chips for advanced gaming, the data center and PCs.
But these technologies were also well-suited for mining of cryptocurrencies. The GPUs (Graphics Processing Units) can process huge amounts of data cost-effectively. But the technology is not just for bitcoin. It can also be useful for blockchain, which is likely to a secular growth market.
Even when the bitcoin business soared, Su did not give up. She has continued to focus on the market. In other words, as things start to heat up again, AMD should be poised to benefit.
Cryptocurrency Stocks: Nvidia
Although, when it comes to cryptocurrency stocks, Nvidia (NASDAQ:NVDA) may actually be a better option. The stock price has gotten hammered. Since September, the shares have gone from $281 to $160.
The company is the dominant player for GPUs, having pioneered the technology in the 1990s. For example, during the first quarter of 2018, Nvidia’s sales due to cryptocurrency mining was a hefty $289 million – which was a nice driver for growth.
Nvidia has other advantages to consider. NVDA is positioned nicely to benefit from the megatrend of AI. The company estimates that the market is about $30 billion.
But NVDA has also agreed to pay nearly $7 billion for Mellanox Technologies (NASDAQ:MLNX). The company is a leader in internet connections for high-speed computers. No doubt, this is another key piece of technology for the data center and AI.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
