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The smart play on bitcoin: Don't mine the gold, sell the picks and shovels

  • On a bitcoin bet, it's the exchanges and the underlying technology that will come out ahead, Alpha One Capital Partners' Dan Niles says.
  • IBM and Walmart have already started using blockchain technology to improve on food safety.
  • Bitcoin futures started trading on official exchanges this weekend.

On a bitcoin bet, it's the exchanges that will come out ahead, according to Alpha One Capital Partners founder Dan Niles.

"You don't go out and mine for gold, you go ahead and you sell the picks and the shovels," Niles told CNBC's "Squawk Alley" on Monday.

"We don't think it's a real currency, but we think it's going to continue to grow especially the underlying blockchain technology."

IBM and Walmart have already started using blockchain technology to improve on food safety, Niles said, and bitcoin futures started trading on official exchanges this weekend.

Chip companies AMD and Nvidia saw a bitcoin bump, too, as the powerhouses GPUs behind the mining of digital currency. But Niles said there's already too much hype around those names to buy in.

The coins are fast approaching a bubble, he said, and the thing with bubbles is, "they can always go a lot higher than you anticipated, then you get a shakeout, and then things start to grow."

"We've got a shakeout coming at some point."