Cryptocurrency can be a profitable investment, but it’s also high-risk, especially when you attempt to invest for the first time. Imagine even experienced investors are somewhat cautious while dealing with crypto. But for those interested in cryptocurrency but not in purchasing or holding it, there are still several ways to invest, although indirectly.
The following article will help you find the right strategy, minimize the risks and get much profit, so continue reading.
What’s on the agenda?
Cryptocurrencies like Bitcoin, Ethereum, and Dogecoin have conquered the world over the past few years, and some investors are plunging into the crypto business, hoping to make a fortune.
With perpetual forecasts and market analysis, there is still a great chance to fail. The future is unclear right now because things are rapidly changing. Under the pressure of the COVID-19 pandemic, it’s equally possible that cryptocurrency could become worthless one day. Nevertheless, nowadays, it’s hard to ignore the temptation of cryptocurrency as it is on the rise.
Let’s consider three main ways investors can follow to invest in cryptocurrencies without actually owning them.
Invest in Cryptocurrency Holding Companies
When most people decide to buy cryptocurrency, they usually mean getting the currencies directly, such as Bitcoin tokens. But actually, there is no need to purchase the tokens themselves as it’s better to invest in crypto stocks.
A crypto stock is an organization that is somehow linked to the cryptocurrency movement. An investor gets indirect access to Bitcoin, for example, by investing in companies that have them on their balance sheets or operate digital currency-related services. People can pick up from a significant number of publicly traded enterprises that meet this criterion. MicroStrategy and Tesla are two widely-known giants that have invested a lot in this field.
Tesla spent $1.5 billion in Bitcoin and initially agreed to accept it as a payment for its products. However, the company recently gave up the idea of accepting Bitcoin and even sold the majority of its Bitcoin supply. Later, Elon Musk also implied that Tesla might have sold its entire Bitcoin holdings. He explained his decision not to back Bitcoin anymore because Bitcoin mining is not eco-friendly. Musk has endorsed Dogecoin, and people suppose that Dogecoin could be his currency of choice as he constantly welcomes it in his Tweeter.
Virginia-based business intelligence company MicroStrategy is renowned for its significant investment in Bitcoin. In August 2022, MicroStrategy invested $250 million in Bitcoin, explaining this decision with declining returns from cash, a weakening dollar, and other significant economic factors. In total, the company has invested more than $2 billion in Bitcoin ($24,311 per unit), and its stock price now highly depends on the bounces in Bitcoin’s price.
Coinbase is the first US company to operate a cryptocurrency exchange platform listed on the US Nasdaq exchange. In April, the company announced an increase to $1.8 billion, up from $190.6 million the previous year. The jump was provoked due to the price rise of Bitcoin over that time.
By the way, Nasdaq set a reference price of $250.00 per share, giving the company an estimated value of $47 billion. At the end of its first day of trading, Coinbase closed at $328.28 per share.
In early June 2021, Coinbase also began dealing with Dogecoin available for Coinbase Pro users.
The digital payments company has also put approximately 1% of their total assets ($50 million) in Bitcoin in October 2022, now worth around $220 million. In February 2021, the company bought an additional $170 million worth of Bitcoin, making Square’s total holdings almost $500 million in cryptocurrency. Besides, Square allows its sellers to accept various types of cryptocurrency as a form of payment.
Although none of these companies focus entirely on cryptocurrency, it is a significant part of their business. If cryptocurrency takes off one day and becomes far and widely accepted as a form of payment, these enterprises will tremendously yield from it. By putting money into these types of stocks, you may also enjoy cryptocurrency’s success without facing the risks of buying crypto tokens directly.
What Else to Expect from Crypto Stocks?
While this kind of investment can be a great way to minimize your risks, there are a few things you need to consider before getting it.
First, it’s crucial to avoid buying a stock just because it’s connected with cryptocurrency. If a company has weak potential and crypto does not succeed over a long time span, that stock will experience a hard time recovering. On the other hand, strong companies are more likely to overcome the crisis despite any movements in the crypto market.
While considering stocks, be sure to do thorough research. Is the company financially healthy? Does it have an authoritative team of professionals? Does it have a competitive advantage in its field? With all these parameters, it will be easier to have a big picture. For any company, it’s essential to see long-term potential. If a business ends up failing, it won’t make any difference whether it was linked to the cryptocurrency or not.
Also, don’t forget the old saying: “Don’t put all your eggs in one basket.” It means if you intend to invest in crypto stocks, make sure to have a broad mix of investments, not focusing on a single one. Creating your diversified portfolio can further limit your risk in case your crypto investments don’t succeed.
Cryptocurrency is definitely among the most popular trends in the investing world, but it can be risky. Even within the crypto field, there are several options to choose from. You may opt to Bitcoin, Ethereum, Dogecoin, or all together – these various assets work together to reduce an investor’s risk in case of unexpected losses.
Invest In Companies That Deal With Cryptocurrency-Related Sectors
An investor can also yield from cryptocurrencies by investing in companies that deal with blockchain technology.
PayPal is perhaps the most renowned company (200 million users) that lets investors have indirect exposure to Bitcoin. Moreover, Galaxy Digital and Riot Blockchain represent a diversified financial service and investment management innovator in the digital asset, cryptocurrency, and blockchain technology sectors.
Besides, such giants as Microsoft, Google, IBM, Amazon, and SAP are all involved to some extent or are trying to use blockchain technology in multiple sides of their business.
Another way is to put your money into companies that design the specialty hardware used by cryptocurrency miners, such as those that produce GPUs (graphic processing units) installed in computers for blockchain technology.
This company produces computer GPUs that are widely involved in cryptocurrency mining. They can’t power a computer monitor, but they can generate valuable digital coins. In February, as cryptocurrency prices went up, Nvidia released new processors specifically for mining crypto.
By the way, Nvidia offers a pro-level cryptocurrency mining GPU that allows miners to get maximum performance.
Invest In Cryptocurrency-Linked Investment Funds
Grayscale Bitcoin Trust
Grayscale Bitcoin Trust, a fund created by Grayscale Investments, enables investors to gain indirect exposure to the price movement of Bitcoin through a traditional investment vehicle. Moreover, the trust allows investors to buy cryptocurrencies with no need for digital wallets. The fund charges a 2% management fee, which investors would not pay if they purchased it directly.
The growing interest in cryptocurrencies has prompted exchange-traded funds (ETF) issuers to promote the creation of funds that keep an eye on the performance of Bitcoin. It is believed that ETFs can simplify trading and diminish the difficulties of portfolio merging and storage. Following the creation of cryptocurrency ETFs in Canada, several US companies have also filed applications to establish Bitcoin ETFs. Grayscale Investments intends to turn its trust into an exchange-traded fund as soon as the US government approves it.
The Osprey Funds’ approach focuses on secure, low-cost, and easy access to digital assets. It also provides a safe and effortless way to gain exposure to Bitcoin in an investment portfolio. The trust carries the lowest management fee of 0.49% among any publicly listed Bitcoin fund in the US.
The trust can be held in an individual retirement account or other tax-advantaged accounts. In addition, the Osprey Bitcoin Trust allows you to interact with Bitcoin with no worries about wallets, keys, or storage.
There are many ways you can expose your portfolio to cryptocurrency without actually buying coins, but approach investing with caution and use all of your diligence as you would deal with any other risky investment.
None of these stocks or specialized ETFs are guaranteed to succeed. Anytime they may actually start experiencing unpredicted stress because of market volatility and rapidly changing processes in global economics. Just like any crypto and non-crypto investment, be ready to accept the risks associated with it.