eToro BitcoinWorldWide Smart Portfolio: capturing the Bitcoin ecosystem

Since mid-October 2020, Bitcoin has soared from $11K to around $60K. Bitcoin’s impressive numbers notwithstanding, it is the adoption of Bitcoin in the mainstream economy which has provided additional validation for Bitcoin and buttressed its noteworthy gains.

An important aspect in Bitcoin’s growth and widespread acceptance has been the ecosystem of companies facilitating the crypto’s discovery and use. This ecosystem as a concept is not unique to Bitcoin, they also exist for other currencies. However, the Bitcoin ecosystem manifests itself in different ways than that of a fiat currency.

For example, the dollar needs to be designed, printed, cut, distributed and stored in locations until it reaches its users. While the government plays a large role in the dollar’s production, there is, however, a process from creation until it reaches the user during which many players can take part. In the Bitcoin ecosystem, these roles have been filled by private companies.

The Bitcoin creation process begins with companies that mine or produce coins by solving complicated math problems using high-powered computers. The mining process also verifies and secures transactions using algorithms and mathematical equations. For this mining and discovery stage, companies such as Riot Blockchain operate with the goal of making the process more efficient and low-cost.

The need for high-powered computers has drawn semiconductor companies into the Bitcoin ecosystem to support Bitcoin mining infrastructure. Two examples are Taiwan Semiconductors and Samsung.

Once produced, Bitcoin holders need platforms where crypto can be used as payments. Paypal is a major company which allows people to purchase items with crypto through its platform.

In addition to payments, storage and custody solutions are necessary for small and large amounts of crypto. Coinbase is an example of a company that stores crypto for both individual and institutional clients. Recent SEC regulations in the US require ‘qualified custodians’ to store large amounts of crypto. This is expected to draw large financial institutions to provide these services. One such example is Bank of NY Mellon, which plans to build a multi-asset digital custody and administration platform that will put traditional and digital assets on the same platform.

The Bitcoin ecosystem and its increased usage operate simultaneously and strengthen each other. As Bitcoin’s ecosystem strengthens, its attractiveness and value increases. This in turn draws in traditional companies to explore using the crypto, which creates more opportunities for the original ecosystem to grow.

Some milestones of Bitcoin’s acceptance in the mainstream economy were in 2014, when Microsoft began accepting Bitcoin; in 2016, when USAA became the first fortune 500 company in the financial services sector to integrate Bitcoin into the company;  in 2018, BMW in the UK tweeted that Bitcoin could be used to purchase vehicles; and in 2019, AT&T became the first mobile carrier to accept Bitcoin.

Some other major companies that accept Bitcoin include Visa, Starbucks, Paypal, Whole Foods, Restaurant International, and Etsy, to name a few. NBA franchises that accept Bitcoin include the Sacramento Kings and the Dallas Mavericks, where Bitcoin can be used for ticket purchases and other paraphernalia sold on their websites.

Invest in BitcoinWorldWide Smart Portfolio

81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Governments skeptical of Bitcoin

Despite more and more companies integrating crypto into their payment methods, governments are still skeptical.

In February 2021, US Treasury Secretary Janet Yellen expressed doubt that Bitcoin was actually widely used. She remarked: “To the extent it is used, I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”

A month prior, ECB President Christian Lagarde called for regulating Bitcoin. She said that Bitcoin is a “highly speculative asset” and one that “has conducted some funny business and some interesting and totally reprehensible money laundering activity.” In a February 2021 conference call, she reportedly said that she didn’t view Bitcoin as a currency and “it was out of the question” that Central Banks would hold Bitcoin as a currency.

However, skeptics are also warming to Bitcoin.

Inigo Fraser-Jenkins, co-head of portfolio strategy for Bernstein Research, recently changed his views on Bitcoin. In 2018, he declared that Bitcoin should not be included in investment portfolios. Amidst the pandemic, he recanted, citing three reasons: policy environment, debt level and diversification options for investors. These three things have changed in the year of the pandemic and in turn are making Bitcoin an attractive option.

BitcoinWorldWide Smart Portfolio

eToro’s BitcoinWorldWide Smart Portfolio aggregates leading companies participating in the Bitcoin ecosystem, which facilitates its further adoption in the mainstream economy.

As the saying goes “a high tide raises all boats”, so too increased usage of Bitcoin may raise the value of all the companies participating in its value chain. Simultaneously, the more these companies and technologies are used in facilitating Bitcoin’s usage, the more popular and valuable their technologies become in general. As we have seen, BlockChain technologies are no longer used solely for Bitcoin, but rather by numerous companies across many sectors. Its success in the crypto field fuelled its mainstream acceptance.

Check out BitcoinWorldWide Smart Portfolio 

81% of retail investor accounts lose money when trading CFDs with this provider.

You should consider whether you can afford to take the high risk of losing your money.

BitcoinWorldWide Smart Portfolio composition

The BitcoinWorldWide Smart Portfolio invests in companies that are part of the Bitcoin value chain and in Bitcoin itself.

We divide the Bitcoin ecosystem into three categories:

  1. Bitcoin Discovery: This category includes Bitcoin mining companies and semiconductor companies. Both of these sectors require high computer processing power in order to verify Bitcoin transactions and record them in the public ledger. The miners who perform these complicated processes are compensated in bitcoins.Two examples of these types of companies are Canaan Inc and Cleanspark. Based in China, Canaan manufactures supercomputers used for Bitcoin mining. The company also produced the first application-specific integrated circuit (ASIC)-powered Bitcoin mining machine. Cleanspark provides software and tech solutions for solving modern energy challenges. The company, which has its own operation of more than 3400 ASIC Bitcoin miners, looks to use its technologies to mine bitcoins at the lowest energy prices in the US.These types of companies will make up 30% of the portfolio’s assets.
  2. Bitcoin Trading: This category is composed of companies in the financial sector. These include payment technology companies facilitating Bitcoin transactions, exchange companies and Bitcoin OTC brokers.Paypal is a general fintech company facilitating financial transactions that also allows its US clients to buy, sell and store crypto and through its app allows use of crypto as a form of payment. Coinbase, which just recently went public, is a digital platform specifically focused on the cryptoeconomy where cryptoassets can be bought, sold or stored on the platform.These types of companies will make up 20% of the portfolio’s assets.
  3. Bitcoin Storage: This category comprises companies in the financial sector supplying crypto storage solutions and in the insurance sector providing risk transfer solutions for firms operating in the digital asset arena. A few examples of companies fitting into this category are Pyctor and Zodia Custody which provide custody services for digital assets. Marsh & Mclennan operate in the risk transfer sphere providing tailor-made insurance solutions for digital assets.These types of companies will make up 20% of the portfolio’s assets.

Another 25% of the portfolio is invested in bitcoins and the remaining 5% is invested in Bitcoin infrastructure opportunities as they come up.

Advantages of BitcoinWorldWide Smart Portfolio

People have seen the success of cryptocurrencies and would like to invest in the asset. However, they are often hesitant because of the volatility and risk involved.

eToro’s BitcoinWorldWide Smart Portfolio offers an added value of allowing investors to have a stake in cryptoassets, but simultaneously reducing the risk because of the diversified portfolio. Therefore, the portfolio can also suit the traditional investor seeking exposure to crypto through a diversified mechanism.

Another advantage is that the portfolio has diversification without relinquishing growth potential. The portfolio has assets which not only offset the crypto market, but also complement it. As such, the companies involved in the Bitcoin value chain can climb higher at a time when Bitcoin is doing well and even when Bitcoin might be on the downslide.

eToro’s BitcoinWorldWide Smart Portfolio is one of more than 40 Smart Portfolios offered on the eToro platform. You can read more about Smart Portfolios here.

Invest in BitcoinWorldWide Smart Portfolio

81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Your capital is at risk.

Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

Copy Trading does not amount to investment advice. Your investments value may go up or down. Your capital is at risk.