Building Wealth: HIVE and Other Bitcoin Proxy Companies
The crash in Bitcoin (BTC-USD) and other cryptocurrency prices in January 2022 is providing another extraordinary opportunity to take a position. not only directly in cryptos themselves, but also in companies that are essentially proxies for the price of Bitcoin.
I’ve provided some charts below to confirm that how the price of Bitcoin goes, so goes the share price of companies like HIVE Blockchain Technologies Ltd. (HIVE). Recently I wrote about a few companies that are proxies of Bitcoin and why and how to trade them. I highly recommend you read it and bookmark the article because whenever the price of Bitcoin crashes, the way to play it with these companies remains the same.
My major point is that Bitcoin is the only thing investors need to look at when the price drops and entry points for proxies like HIVE, Marathon Digital Holdings (MARA) and Hut 8 Mining Corp. (HUT) are very attractive. I include all three of those companies because they offer different share price to investors; there are a number of others to choose from.
While Ethereum (ETH-USD) gets a lot of media attention as well, it almost always moves in conjunction with Bitcoin, so there’s no reason to watch that in relationship to price movement. At this time, how Bitcoin goes is how the overall cryptocurrency market goes. This makes it very simple to make decisions because there’s only one catalyst that matters.
Keep in mind I’m referring to times when Bitcoin and cryptocurrencies crash in value. When they start to recover, they will consolidate. At that time investors start to look at perceived fundamentals. Even so, the share prices of these companies are determined by the price of Bitcoin and nothing else. Until Bitcoin reaches a point where there is price discovery, that will be how things are.
What about fundamentals of these companies? They literally don’t matter in times when the price of Bitcoin crashes. Look at the charts below to confirm that. All of them move in conjunction with the price of Bitcoin.
The only thing to consider in that regard is the balance sheet of these companies and how much cash on hand they have and their access to capital.
Chart source: Trading View
Two things to consider
When there is a crash in any asset class, there are a couple of things to take into consideration when investing: position sizing and dollar cost averaging.
What I mean by position sizing is this. If you have $20,000 in your investing account, you may decide to limit downside risk by investing $1,000 of that. As far as dollar cost averaging, you can take that $1,000 and break it down into smaller amounts to generate a good cost basis for your holding over a period of time.
Something that is different with Bitcoin proxy companies is they can be very volatile as well and can move up and down very quickly. What that means is while dollar cost averaging for slower moving companies can be done over a period of months, and sometimes even years, dollar cost averaging for HIVE and similar companies can be done in a few days, and in some cases, even one trading day if the price movement is steep.
For more insight into the specifics of when to take positions and how, go to this in-depth article I wrote on that topic. Keep in mind that this information isn’t going to be irrelevant in the future because of the volatility of Bitcoin. It will work now, and it’ll work several years from now.
There’s a lot of money to be made here. Once you’re in these companies at a good cost basis, don’t be tempted to sell if it drops further, or you start to make some gains.
There is no doubt Bitcoin is going to rebound big and. going forward. it’s going to continue to break records.
Many investors that take positions directly in Bitcoin are convinced they should HODL (hold on for dear life), i.e., never sell. I believe in general that makes sense for directly holding Bitcoin and Ethereum, but for proxy companies, once profits reach substantial levels, I would take some of that off the table.
One of the reasons is Bitcoin is going to drop again, and when those companies drop with them, it’ll provide yet another chance to generate some solid gains.