Here’s How Billionaire Jeff Yass Invests In Crypto (Hint: It’s Not Bitcoin)

Cryptocurrency is an emerging asset class that has grown in popularity over the past few years. I see some valid reasons to consider investing in crypto.

First, I think some investors are intrigued by the idea of ​​replacing digital currencies fiat money in the future — therefore, buying crypto becomes an attractive decision. Second, I think crypto represents a alternative investments similar to art or collectibles. Allocating a small percentage of your portfolio to assets in addition to stocks, bonds and cash can make sense for the right investor.

But choosing which cryptocurrency to buy can be like throwing a dart at a wall. while Bitcoin and Ethereum are two of the most popular options, it could Dogecoin or Shiba Inu does it actually create real-world utility down the road?

Rather than trying to predict which digital currencies will be the most valuable, I would encourage investors to think about ways to gain exposure to cryptocurrencies without actually buying specific tokens or coins.

Below, I’ll explore how billionaire investor Jeff Yass of hedge fund Susquehanna International Group (SIG) invests in crypto.

1. Coinbase

According to the latest SIG filing 13Fsteadily built a position in Coinbase Global (CURRENCY 2.02%). Over the past year, the fund has increased its stake in Coinbase 17-fold, from about 51,330 shares to 877,400.

At its core, Coinbase is an exchange where investors buy and sell cryptocurrencies. In some respects, it is similar to brokerage firms such as robinhood or Charles Schwabbut with a heavy focus on crypto. In the same vein as a traditional brokerage house, Coinbase generates most of its revenue from transaction fees.

While buying and selling trends in the crypto world can ebb and flow just like stocks, I like the idea of ​​investing in Coinbase for a few reasons.

While crypto is still somewhat of a niche industry, I believe the Coinbase brand is a valuable intangible that is hard to compete with from the perspective of today’s brokers.

Moreover, investing in Coinbase provides exposure to the crypto industry in a broad way. Rather than speculating on which individual cryptocurrencies will rise in value, Coinbase presents a diversified platform that includes many different digital currencies.

To me, this is a subtle benefit, as Coinbase stock likely won’t experience the same level of volatility as a particular cryptocurrency on any given day. Additionally, since Coinbase makes money from transaction fees, the company will benefit when cryptos experience heavy buying or selling activity.

2. MicroStrategy

Another way SIG invests in crypto is through MicroStrategy (MSTR -6.05%). Over the past year, SIG’s position in MicroStrategy has grown from about 2.2 million shares to 3.8 million shares.

MicroStrategy is a very unique way to invest in crypto. The company is actually an enterprise software business specializing in artificial intelligence (AI)-based data analytics. However, MicroStrategy’s balance sheet contains a really important row element in particular.

In the quarter ended June 30, MicroStrategy boasted $5.7 billion in digital assets on its balance sheet. This is by far the company’s largest line item on the asset side of the balance sheet. According to footnotes in its quarterly filings, MicroStrategy’s digital assets “consist exclusively of bitcoin.”

While holding Bitcoin on your balance sheet may seem out of left field, this type of diversification across assets is not as uncommon as you might think.

Many times, large public companies will actually invest in other businesses when they are still private. However, the corporation may choose to hold onto its stock even after the investee pursues a liquidity event, such as an initial public offering (IPO).

In the end, companies may choose to sell their shares or reduce positions in companies in which they have invested — hopefully for a profit. This style of portfolio management can help companies strengthen their cash and solidify liquidity in ways beyond increasing revenue and expanding cash flow.

Crypto and Elections

New 13F filings for the third quarter should be available in the next two weeks. I’m curious to see how Yass and his billionaire hedge fund cohorts have invested in crypto in recent months.

In particular, Bitcoin and other mainstream cryptocurrencies have seen tremendous activity following a series of bullish remarks on the industry from presidential candidates Kamala Harris and Donald Trump and from Robert F. Kennedy Jr. before ending his campaign.

Even though the rhetoric at the intersection of politics and crypto has likely influenced the price of various coins over the past few months, I see opportunities like Coinbase or MicroStrategy as solid options right now.

Coinbase is more of an agnostic and siled approach to crypto investing, and I think the company is a compelling option for those interested in digital currency.

Bitcoin price given by YCharts.

Furthermore, if you believe that the long-term notion of the cryptocurrency will become more widely adopted in the future, then MicroStrategy’s choice to keep Bitcoin on the balance sheet makes a lot of sense, as the company will benefit from the gains from its position.

The main difference I think investors should be aware of is that the price of Bitcoin is quite volatile — certainly more so than many stocks or short-term investment vehicles such as bonds or money market instruments.

For these reasons, MicroStrategy’s financial flexibility can be seen as riskier compared to other companies that primarily hold more liquid assets on their balance sheets.