How Can You Profit from Bitcoin Price Rise?

The recent increase in the price of bitcoin has many investors looking into it

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The last quarter of 2015 is seeing a fair amount of positive news about bitcoin.

According to research firm, Magister Advisors, bitcoin is set to become the sixth largest reserve currency by 2030.  The research firm also reported that bitcoin has reached the milestone of one million transactions a day.

The value of bitcoin has also risen impressively over the last year.  This month, bitcoin has hit the $400 price, which it hasn’t seen since November of 2014.

 A recent article finds Bloomberg reporting on this price increase in positive terms rarely seen from leading mainstream financial publication by stating, "Bitcoin is on a roll. Earlier this week we pointed out that the virtual currency was on a massive winning streak. It's up nearly 40% in the last three days."

So with all of this positive news about bitcoin, is the celebration limited to those who are current holders of bitcoin or can anyone also benefit from the rise in price?

Included in the Bloomberg piece was a mention of an investment option that is available to all investors that may provide a way to benefit from the price increases of bitcoin (don't forget that you’ll also experience the declines as well). 

This investment is the Bitcoin Investment Trust which trades as GBTC.  In the article, it notes the report from analyst Gil Luria of Wedbush Securities, who wrote the following to clients earlier this year, “We believe bitcoin and its associated blockchain technology have the potential to disrupt the existing financial infrastructure over the next few years. We believe the value of the bitcoin currency (BTC) will benefit from this trend and therefore are initiating coverage of GBTC with an OUTPERFORM rating and $40 price target.

GBTC traded recently above $40, and with increased talk about the potential of blockchain technologies and its subsequent impact on the use and value of bitcoin, many analysts and those in the media believe that the value of bitcoin will continue to rise.

Paul Vigna of The Wall Street Journal wrote in his column that "The price of bitcoin is surging, crossing back over the $400 mark for the first time since last November, amid a burst of trading activity and a surge in interest in the technology underlying the cryptocurrency.” 

So as the value of bitcoin increases, how can an investor get involved?

Please note that before anyone gets involved with any type of investment around bitcoin, I caution that you consider it as an alternative investment only using it for asset allocation purposes and invest accordingly in small amounts. Its recent surge shows that it has the potential for high rewards but for those of us who have been involved in watching bitcoin, we recognize that it also has high risk as evidenced by the drastic price swings in its history.  This comes from someone who bought bitcoin when it was over $600.

Currently, there are many ways to get involved with bitcoin as an investment.  The most straight forward method is simply to trade dollars for bitcoins through an exchange like Coinbase or Bitstamp.  There are numerous exchanges available and it pays to consider the wide variety that are available.  One thing to pay attention is the stability and backing of the exchange.  Those who invested in bitcoin through Mt. Gox can attest to the need of doing due diligence on the exchange that you buy your bitcoin from.

As mentioned, you can buy GBTC for any investment account through an online broker or through an investment adviser.

  Be prepared to educate your financial adviser on this investment as many are not aware of it and avoid any serious consideration of bitcoin for their clients’ accounts.

For those who are interested in dipping their feet into the water regarding bitcoin and still want to invest in known companies and entities, you may consider evaluating those companies who are considering blockchain technology.  This includes many Fortune 500 companies and banks, and any effective use of this technology may yield sizable gains for those companies.  Ric Edelman, who has been voted the top financial adviser in America, was involved in starting an investment called the iShares Exponential Technologies ETF (symbol: XT) that allows for just this.

 

However you decide to take the dive with bitcoin, remember that there are many risks of investing in a virtual currency.  You may lost much sleep riding the ups and downs of investing in a new technology that most people don't fully understand.  I can attest to this as an early investor in GBTC, which I still hold.