There’s no denying that bitcoin and other digital assets draw interest from an array of investors across the risk tolerance spectrum, even those who typically favor conservative assets.
However, financial advisors know that direct exposure to bitcoin and other cryptocurrencies isn’t appropriate for every client. Fortunately for advisors and their crypto-interested clients, a growing number of individual stocks can credibly be considered “crypto-correlated.”
Additionally, a rising number of exchange traded funds provide exposure to those stocks, easing the stock-picking burden in the process. That group includes the newly minted Grayscale Future of Finance ETF (GFOF).
“There are, indeed, potentially valuable companies to own here. The trick is to be picky in stock selection, and the way to go about it is to divide the universe of these companies into roughly two baskets, markets, and technologies,” reports Tiernan Ray for Barron’s.
GFOF, which hails from the same stable as the Grayscale Bitcoin Trust (GBTC) — the largest bitcoin index fund — accomplishes the goal of separating the crypto equity landscape. In fact, it goes beyond just sleeves. Rather, GFOF focuses on companies that fit into one of the following arenas: digital asset infrastructure, financial foundations, and technology solutions.
GFOF follows the Bloomberg Grayscale Future of Finance Index. To be eligible for inclusion, companies need to do more than just meet one of the three aforementioned industry parameters. They must also score at least one or two based on regulatory, revenue, and theme scores. Translation: GFOF’s methodology provides investors with a credible entry to crypto without having to embrace digital ownership of potentially volatile digital assets.
Some crypto-correlated stocks “are really technology companies. Their stocks are likely the ones that have the greatest support for valuation over many years, and therefore they may be less risky equity investments,” according to Barron’s.
Indeed, some crypto-correlated stocks, including some mining companies, are speculative because they’re small firms that aren’t yet profitable. However, GFOF does an admirable job of providing exposure to that growth potential and balancing it out with higher quality large-caps, such as Coinbase (NASDAQ:COIN), Block (NYSE:SQ), and PayPal (NASDAQ:PYPL), among others. Some of those names are now trading at decent (though not cheap) valuations following declines in the current quarter.
“After declines in Block and PayPal stock of 33% and 38% this year, respectively, both are reasonable on a price to sales basis. Block trades for less than four times projected revenue this year of roughly $24 billion, and PayPal, five times projected revenue of $30 billion,” adds Barron’s.
For more news, information, and strategy, visit the Crypto Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.