Bitcoin-HODLing companies keep up with S&P 500, but not Bitcoin

[NEW YORK] Companies that bought and held Bitcoin did well for investors in 2021 - though not as well as the digital coin itself.

A market cap-weighted index of corporations including MicroStrategy, Tesla and Coinbase Global that have Bitcoin on their balance sheets or are exposed to the crypto ecosystem returned about 25 per cent this year. (The custom index is modelled on the Valkyrie Balance Sheet Opportunities exchange-traded fund (ETF), ticker VBB, which launched in mid-December.)

That is in line with the gains of the benchmark S&P 500 stock index but lags behind those of Bitcoin itself, which surged nearly 60 per cent for the year.

The Bloomberg Galaxy Crypto Index, which tracks some of the largest digital coins, bested them all, handing crypto stalwarts - or "HODLers", as they are known - returns of more than 150 per cent in the period.

"This year, even as Bitcoin's volatility persisted, its controversy started fading," said Max Gokhman, chief investment officer at AlphaTrAI.

With "the broader asset class growing exponentially, there is an understanding among investors that firms willing to experiment with onboarding Bitcoin onto balance sheets now could be cementing a necessary first-mover advantage".

Tesla-founder Elon Musk made a splash when he revealed in February that the electric-vehicle maker had bought Bitcoin. He was not the first to come up with the idea, but his eye-catching announcement helped propel the world's largest cryptocurrency to then-record highs.

Many experts warned against Tesla's tactic given Bitcoin's well-known price swings. The reality is, almost everything connected to crypto was red-hot at some point in 2021.

Many digital coins large and small posted stellar rallies, becoming household names in the process as the crypto economy and market exploded.

Now, investors looking for exposure to the world of digital assets have a lot of options to choose from, including via ETFs that track Bitcoin futures.

Bitcoin remains as volatile as ever: The largest cryptocurrency posted nearly as many outsize up or down moves in 2021 as it did in 2017 or 2018, years typically remembered as very volatile ones for the token.

And it's ending the year on a down note, on pace for its worst month since May after retreating from the record US$69,000 it reached in November.

Still, with Bitcoin and other digital currencies moving further into the mainstream, firms that adapt to the increasing demand for crypto may have an advantage, according to Gokhman.

"As there's greater consumer adoption, figuring out how to actually transact in crypto at scale will be a necessary skill to learn, and companies that are moving in that direction prudently may be therefore rewarded," he said.

BLOOMBERG