Cryptocurrency can be a profitable investment, but it is also high risk, especially when you are trying to invest for the first time. Imagine, even experienced investors are somewhat cautious when dealing with crypto. But for those interested in crypto but not buying or holding it, there are still several ways to invest, albeit indirectly.
The following article will help you find the right strategy, minimize risks and make a lot of profit, so read on.
What’s on the Agenda?
Cryptocurrencies like Bitcoin, Ethereum, and Dogecoin have taken the world by storm in recent years, and some investors are diving into the cryptocurrency business in hopes of making a fortune.
With perpetual forecasting and market analysis, there is still a great chance of failure. The future is not clear at the moment because things are changing rapidly. Under the pressure of the COVID-19 pandemic, it is equally possible that the cryptocurrency will one day lose its value. However, today, it is hard to ignore the temptation of cryptocurrency as it is on the rise.
Let us consider three main ways investors can go about investing in cryptocurrencies without actually owning them.
Invest in cryptocurrency holding companies
When most people decide to buy cryptocurrencies, they usually mean to get the coins directly, like Bitcoin tokens. But actually, there is no need to buy the tokens themselves, as it is better to invest in crypto stocks.
A cryptocurrency exchange is an organization that is somehow linked to the movement of cryptocurrencies. An investor gains indirect access to Bitcoin, for example by investing in companies that hold them on their balance sheets or operate services related to the digital currency. People can pick from a significant number of publicly traded companies that meet this criteria. MicroStrategy and Tesla are two well-known giants that have invested heavily in this field.
Tesla spent $1.5 billion on Bitcoin and initially agreed to accept it as payment for its products. However, the company recently abandoned the idea of accepting Bitcoin and even sold most of its Bitcoin supply. Later, Elon Musk also hinted that Tesla may have sold all of his Bitcoin holdings. He explained his decision to no longer support Bitcoin because Bitcoin mining is not green. Musk has endorsed Dogecoin, and people assume that Dogecoin might be his coin of choice, as he constantly welcomes it on his Twitter.
Virginia-based business intelligence firm MicroStrategy is recognized for its significant investment in Bitcoin. In August 2020, MicroStrategy invested $250 million in Bitcoin, explaining this decision with declining cash returns, a weakening dollar, and other important economic factors. In total, the company has invested more than $2 billion in Bitcoin ($24,311 per unit), and its share price is now heavily dependent on rebounds in the price of Bitcoin.
base of coins
Coinbase is the first American company to operate a cryptocurrency exchange listed on the US Nasdaq exchange. In April, the company announced a raise to $1.8 billion, up from $190.6 million a year earlier. . The jump was triggered by the rising price of Bitcoin during that time.
Incidentally, Nasdaq set a benchmark price of $250.00 per share, giving the company an estimated value of $47 billion. At the end of its first trading day, Coinbase closed at $328.28 per share.
In early June 2021, Coinbase also started making Dogecoin available to Coinbase Pro users.
The digital payments company has also put about 1% of its total assets ($50 million) into Bitcoin as of October 2020, which is now worth around $220 million. In February 2021, the company purchased an additional $170 million worth of Bitcoin, bringing Square’s total holdings to nearly $500 million in cryptocurrency. In addition, Square allows its sellers to accept various types of cryptocurrencies as a form of payment.
Although none of these companies are completely focused on cryptocurrencies, it is an important part of their business. If cryptocurrency ever takes off and becomes widely accepted as a form of payment, these companies stand to benefit greatly from it. By putting money into these types of stocks, you can also enjoy the success of cryptocurrencies without facing the risks of buying crypto tokens directly.
What else to expect from crypto stocks?
While this type of investment can be a great way to minimize your risks, there are a few things to consider before getting into it.
First, it is crucial to avoid buying a stock just because it is related to cryptocurrency. If a company has weak potential and crypto is unsuccessful for an extended period, that stock will have a hard time recovering. On the other hand, strong companies are more likely to make it through the crisis despite any movement in the crypto market.
When considering stocks, be sure to do extensive research. Is the company financially healthy? Do you have an authorized team of professionals? Do you have a competitive advantage in your field? With all these parameters, it will be easier to have an overview. For any company, it is essential to see the long-term potential. If a business ends up going bankrupt, it won’t make any difference whether it was linked to cryptocurrency or not.
Also, don’t forget the old saying, “Don’t put all your eggs in one basket.” It means that if you intend to invest in crypto stocks, make sure you have a wide mix of investments, not focus on just one. Building your diversified portfolio can further limit your risk should your cryptocurrency investments prove unsuccessful.
Cryptocurrency is definitely one of the hottest trends in the investment world, but it can be risky. Even within the crypto field, there are several options to choose from. You can go for Bitcoin, Ethereum, Dogecoin, or all together – these various assets work together to reduce an investor’s risk in the event of unexpected losses.
Invest in companies dealing with sectors related to cryptocurrencies
An investor can also make a profit from cryptocurrencies by investing in companies that deal in blockchain technology.
PayPal is perhaps the most recognized company (200 million users) that allows investors to have indirect exposure to Bitcoin. Additionally, Galaxy Digital and Riot Blockchain represent a diversified and innovative financial service in managing investments in the digital asset, cryptocurrency and blockchain technology sectors.
Additionally, giants like Microsoft, Google, IBM, Amazon, and SAP are involved to some extent or trying to use blockchain technology in multiple aspects of their business.
Another way is to put your money into companies that design the specialized hardware used by cryptocurrency miners, such as those that produce GPUs (graphics processing units) installed in computers for blockchain technology.
This company produces GPUs for computers that are widely involved in cryptocurrency mining. They can’t power a computer monitor, but they can generate valuable digital currencies. In February, when cryptocurrency prices rose, Nvidia released new processors specifically for cryptocurrency mining.
By the way, Nvidia offers a professional-grade cryptocurrency mining GPU that allows miners to get the most out of it.
Invest in mutual funds linked to cryptocurrencies
Grayscale Bitcoin Trust
Grayscale Bitcoin Trust, a fund created by Grayscale Investments, allows investors to gain indirect exposure to the price movement of Bitcoin through a traditional investment vehicle. Furthermore, the escrow allows investors to purchase cryptocurrencies without the need for digital wallets. The fund charges a 2% management fee, which investors would not pay if they bought it outright.
The growing interest in cryptocurrencies has led issuers of exchange-traded funds (ETFs) to promote the creation of funds that monitor the performance of Bitcoin. It is believed that ETFs can simplify trading and lessen the difficulties of merging and storing portfolios. Following the creation of cryptocurrency ETFs in Canada, several US companies have also submitted applications to establish Bitcoin ETFs. Grayscale Investments intends to convert its trust to an exchange-traded fund as soon as it is approved by the US government.
Osprey Funds’ approach centers 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 all US-listed Bitcoin funds.
The trust can be held in an individual retirement account or in other tax-advantaged accounts. Furthermore, Osprey Bitcoin Trust allows you to interact with Bitcoin without worrying about wallets, keys, or storage.
There are many ways you can expose your portfolio to cryptocurrency without buying coins, but invest wisely and use all your diligence as you would with any other risky investment.
None of these specialized stocks or ETFs are guaranteed to succeed. At any time, they can begin to experience unforeseen stress due to market volatility and rapidly changing processes in the global economy. Like any crypto and non-crypto investment, be prepared to accept the risks associated with it.