Cryptocurrencies are all the rage these days, especially as traders see stories circulating about people making tremendous profits from the tokens. The Winklevoss twins, famous for their involvement in Facebook, made $3 billion each by investing in Bitcoin (CRYPTO:BTC). Michael Saylor and Matthew Rosak, two other early investors in the cryptocurrency, made $2.3 billion and $1.5 billion, respectively. Tales like that make it hard to resist the urge to invest a little money in the trend.
Now, on the one hand, most people don’t fill their retirement portfolios with highly volatile investments unless they’re both ambitious and have a long time to ride out the crazy swings. On the other hand, even investors in their senior years need to have some exposure to growth assets, and cryptocurrencies have lots of potential to deliver big gains.
To that end, we asked three Motley Fool contributors to share one investment each in the cryptocurrency space that they’d be willing to add to their retirement portfolios. Their picks: Coinbase Global (NASDAQ:COIN), Hut 8 Mining (NASDAQ:HUT), and the Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN).
Buy a broker
Eric Volkman (Coinbase Global): One efficient way to play the cryptocurrency trend is by purchasing stock in a company that earns transaction fees from trades of all the major tokens. Say hello to Coinbase Global, operator of one of the most prominent cryptocurrency exchange platforms in the world.
Coinbase’s results have been rising along with cryptocurrencies’ popularity. Fueled almost entirely by trading revenue, its top line has ballooned from $178 million in Q2 2020 to nearly $500 million in Q4, and then to $2.03 billion in Q2 2021. Its tally of monthly transacting users also rose dramatically across that stretch, from 1.5 million to 8.8 million.
And like other middleman securities-exchange businesses — which take on little investment risk of their own, if any — Coinbase has been highly profitable. It keeps posting impressive bottom-line results, and its net margin continues to rise. It earned net income of over $1.6 billion for Q2, its most recently reported period.
Granted, cryptocurrencies are the scorching-hot asset in finance these days, so much of this growth is trend-driven. Additionally, Coinbase remains first and foremost a broker. Since nearly all of its revenue derives from fees, it is heavily dependent on trading volume.
But it’s early days for cryptocurrencies and blockchains, and the coming years will bring still more new products and services. Already, Coinbase is looking to capitalize on next-generation offerings related to such assets: It’s launching an NFT service called, not all that creatively, Coinbase NFT.
The company describes it as “a peer-to-peer marketplace that will make minting, purchasing, showcasing, and discovering NFTs easier than ever.” As such activities aren’t necessarily convenient or easy yet, this is sure to attract customers eager to push into that mushrooming aspect of blockchain technology.
In hunting for new ways to earn coin from Bitcoin and the like, the company is forging important partnerships with top-of-the-line businesses. Earlier this month, it announced that it’s partnering with Facebook to provide custodial services for the social media behemoth’s Novi digital wallet, which is currently in its pilot phase.
Coinbase clearly has a future, but some investors and analysts are wary about the stock. The average analyst forecast is for dips in both revenue and profitability in 2022; many clearly believe the temperature will drop in the currently hot market for cryptocurrencies. This view has helped keep Coinbase’s stock price down from the level of its initial public offering earlier this year.
But savvy investors pounce when sentiment is low. We can expect that cryptocurrencies and blockchains will become increasingly vital parts of the world’s financial fabric. As they do, this company will benefit handsomely… and likely for a very long time.
An environmentally conscious miner
Barbara Eisner Bayer (Hut 8 Mining): About eight years ago, I was visiting a 20-something friend who was gushing about Bitcoin and the future of cryptocurrency. He said now was the time to buy and insisted it was going to be the next big thing. I walked away from that conversation rolling my eyes, laughing at his naivete, and believing that this was going to be the next Tulip Mania. I couldn’t wait until the day I’d be able to say, “I told you so!”
Fast-forward to today, and guess who’s laughing now? In October 2013, one Bitcoin was valued at $196.02; as of Oct. 27, 2021, one Bitcoin was selling for approximately $60,400. My friend has gotten married, had a baby, and — thanks to his early bets on the trend — has a healthy savings account.
While I still think cryptocurrencies, in general, are too risky to hold in a retirement portfolio, I have recently been on the lookout for a way to invest in the crypto space. After all, even retirees need to hold assets that can keep growing in value, at least enough to keep up with inflation. And I do like to be forward-looking when it comes to my investments.
Finally, I’ve found one that I think is a perfect fit for me: Hut 8 Mining.
I like Hut 8 because it’s involved with mining Bitcoin, the big daddy of tokens. One of the huge problems with mining most cryptocurrencies is that the process uses a boatload of electricity, which leaves a huge carbon footprint and is bad for the environment. That means that getting involved with it financially doesn’t fit well with where I stand philosophically — in contrast to the many alternative energy stocks I currently own.
But Hut 8, which operates out of Alberta, Canada, spares me the ethical dilemma. Its mining rigs are powered by a combination of natural gas, wind power, and solar energy. It costs the company just $0.022 per kilowatt-hour to do their mining — one of the least expensive rates among its competitors.
If you’re not sure how all that digital business impacts the real world, consider this: A single Bitcoin transaction consumes as much electricity as 1.2 million Visa transactions!
In any event, Hut 8 is an indirect play on Bitcoin itself, as the company mines between eight and 12 tokens a day, which are worth a total of between $500,000 and $800,000 at current token prices. And it also considers the interests of its shareholders. As my colleague Zhiyuan Sun wrote earlier this month:
Right now, it [HUT] owns about 4,450 BTC, valued at about $219.5 million, but unlike other miners, it doesn’t plan on simply selling them as soon as possible. To maximize shareholder returns, Hut 8 lends out the BTC it mines. Coin owners can receive as much as 6.20% interest per year from Bitcoin lending, based on current rates.
Finally, Hut 8 is investing in its future by upgrading its systems and adding more power-generating capacity, which will ultimately allow it to operate additional mining rigs, boosting revenue and earnings.
For me, this was the right stock at the right time to add to my retirement portfolio. But if you want to add it to yours, consider that, like all cryptocurrency investments, it’s extremely volatile. If you’re not comfortable watching your investments rise 5% one day and drop 4% the next, this might not be the choice for you. But if you can stomach some wild price swings, it may be the perfect crypto stock to add to your retirement portfolio.
When you can’t pick one winner — consider an ETF
Chuck Saletta: (Siren Nasdaq NexGen Economy ETF): I will be the first to admit that I really don’t “get” cryptocurrency. The tokens are too volatile — and as their massive proliferation demonstrates, they’re apparently too easy to create to be a serious currency alternative.
For something to serve as a legitimate currency, it needs to hold its value at least reasonably well vs. a basket of goods. Cryptocurrencies’ manic-depressive surges and plummets make it difficult to call them stores of value, even when compared to the gradually diminishing purchasing power of the dollar over time due to inflation.
In addition, while for some individual cryptocurrencies, there are firm limits on the total amount of tokens that can ever be mined, there are more than 6,800 different token types now, and the number keeps increasing. That makes it more challenging to believe that there will really be sufficient scarcity in the concept to enable any given token to hold its value over the long haul.
That’s where the Siren Nasdaq NexGen Economy ETF comes in handy. It styles itself as an index fund that invests in companies that use blockchain technologies in their operations. Blockchain is the underlying technology behind cryptocurrencies. If nothing else, the current popularity of cryptocurrencies makes blockchain-focused businesses something of a modern equivalent to buying a “picks and shovels” play during the gold rush.
As an index-focused fund, the Siren Nasdaq NexGen Economy ETF doesn’t have to sort out the winners from the losers. Given the uncertainty involved in the space, that’s a good thing. It’s also what makes it the one cryptocurrency investment I’d consider buying for my portfolio. If I want to invest in something and don’t understand it well enough, an index-based investment is my preferred way to get financial exposure without necessarily having to build expertise.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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