How To Invest In Bitcoin Without Actually Buying It

Investing in Bitcoin can be a daunting prospect due to its high volatility and complex nature. However, there are alternative ways to gain exposure to Bitcoin's potential growth without directly purchasing the cryptocurrency. Here are some options to consider:

- Bitcoin Stocks and Funds: Several publicly traded companies, such as MicroStrategy, Square, and Tesla, have heavily invested in Bitcoin. By buying stocks or funds associated with these companies, you can indirectly invest in Bitcoin.

- Bitcoin Mining Companies: Mining companies play a crucial role in validating transactions and adding them to the blockchain. Investing in these companies allows you to benefit from Bitcoin's increasing value without directly purchasing the cryptocurrency.

- Bitcoin Futures: Bitcoin futures allow investors to bet on Bitcoin's future value without owning any BTC. Futures contracts enable investors to buy or sell BTC at a predetermined price at a future date, making it a hedging tool or a speculative investment.

- Blockchain Technology Companies: Blockchain technology is the foundation of Bitcoin and other cryptocurrencies. Investing in companies that specialize in blockchain technology is an indirect way to invest in Bitcoin, as they are involved in developing and implementing this technology for various applications.

- Bitcoin Derivatives: Bitcoin derivatives, such as options, futures, and swaps, allow investors to speculate on Bitcoin's future price without owning any BTC. These instruments can be used for hedging or speculative purposes but come with significant risks.

- Bitcoin-Related Businesses: Investing in businesses that accept Bitcoin as a form of payment is another way to gain exposure to Bitcoin. These businesses include online retailers, restaurants, and even real estate companies. However, the volatile nature of Bitcoin can impact the profitability of these businesses.

These options provide ways to invest in Bitcoin without directly purchasing BTC, but it's important to remember that all investment options carry risks. Investors should conduct thorough research and carefully consider their financial goals and risk tolerance before making any investment decisions.

Bitcoin stocks and funds

Bitcoin Exchange-Traded Funds (ETFs)

Bitcoin ETFs are investment funds that trade on stock exchanges and aim to track the performance of Bitcoin. These ETFs either invest directly in Bitcoin or attempt to mimic its price movements. Here are some popular Bitcoin ETFs:

• IShares Bitcoin Trust (IBIT): Waived half of its 0.25% management fee until the fund reaches $5 billion in assets under management.
• Grayscale Bitcoin Trust ETF (GBTC): One of the largest ETFs tracking Bitcoin's performance, with a 1.5% annual fee.
• Fidelity Wise Origin Bitcoin Fund (FBTC): An ETF from Fidelity, a global investment giant, with an annual expense ratio of 0.25%.
• ARK 21Shares Bitcoin ETF (ARKB): Launched by Cathie Wood's Ark Invest, with a low expense ratio of 0.21% per year.
• Invesco Galaxy Bitcoin ETF (BTCO): Invesco's Bitcoin ETF is waiving its 0.39% annual fee for the first six months up to $5 billion in assets.

Bitcoin Futures ETFs

Before the approval of spot Bitcoin ETFs, investors could gain exposure to Bitcoin through futures contracts. These ETFs invest in Bitcoin futures, which derive their value from the potential future price of Bitcoin. Here are some Bitcoin futures ETFs:

• ProShares Bitcoin Strategy ETF (BITO): The first Bitcoin futures ETF, launched in 2021, with an actively managed fund linked to Bitcoin futures contracts.
• Volatility Shares 2x Bitcoin ETF (BITX): A leveraged Bitcoin futures ETF that aims to provide two times the daily price movement of Bitcoin.
• Bitwise Bitcoin ETF (BITB): Listed on the New York Stock Exchange's NYSE Arca platform, with a baseline fee of 0.20% after the fee waiver period.

Bitcoin Mining Stocks

Another way to invest in Bitcoin is through companies that are involved in Bitcoin mining. These companies contribute to the Bitcoin network by validating transactions and are rewarded with Bitcoin. Here are some popular Bitcoin mining stocks:

• Marathon Digital (MARA): One of the largest and most valuable pure-play Bitcoin mining companies, with a fleet of over 105,000 Bitcoin miners.
• CME Group: One of the first international stock exchanges to offer trading in Bitcoin futures, providing regulated futures trading for investors.

Bitcoin-Related Companies

Additionally, you can invest in companies that have significant exposure to the cryptocurrency market or blockchain technology. These companies may include crypto exchanges, blockchain specialists, or companies with large cryptocurrency holdings. Here are some examples:

• Block (SQ): The parent company of Square and Cash App, founded by Jack Dorsey, an early Bitcoin bull. Cash App users can buy, sell, send, and receive Bitcoin.
• PayPal Holdings, Inc. (PYPL): A leading technology platform that facilitates digital and mobile payments, allowing users to buy, transfer, and sell cryptocurrencies, including Bitcoin.
• SoFi Technologies Inc (SOFI): A financial services company offering a secure platform for trading cryptocurrencies, along with other financial offerings such as private loans, mortgages, and insurance.

Things to Consider

When choosing a Bitcoin investment option, it is essential to consider your financial goals, investment timeline, and risk tolerance. Here are some factors to keep in mind:

• Assets under management: Consider the size and liquidity of the fund.
• Investment strategy: Understand how the fund invests in Bitcoin, whether directly through spot prices or indirectly through futures or mining.
• Fees and expense ratios: Compare the fees charged by different ETFs, as they can impact your returns over time.
• Diversification: Look for companies with diversified business models and exposure beyond just the cryptocurrency market.

Bitcoin mining companies

Investing in Bitcoin mining companies is another way to invest in Bitcoin without buying it. Bitcoin mining is the process by which transactions are officially entered on the blockchain, and new bitcoins are launched into circulation. Mining companies are responsible for validating transactions and adding them to the blockchain.

The process of Bitcoin mining is complex and energy-intensive. Miners need substantial hardware and software, such as a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC), to generate cryptographic numbers. The first miner to find the solution to the problem receives bitcoins as a reward, and the process begins again.

Investing in Bitcoin mining companies can be risky due to the fluctuating nature of Bitcoin's value, the complexity and energy intensity of the mining process, and the potential for regulatory changes to impact profitability. However, it provides an opportunity to indirectly benefit from Bitcoin's increasing value.

Some of the top-performing Bitcoin mining companies include Riot Platforms, Marathon Digital Holdings, and CleanSpark. These companies have seen significant gains, with Riot Platforms up 172% year-to-date as of September 2023.

An alternative way to gain exposure to the Bitcoin mining sector is through an exchange-traded fund (ETF) like the Valkyrie Bitcoin Miners ETF. This fund invests in companies that derive revenue from Bitcoin mining or provide specialized chips, hardware, software, and services to Bitcoin mining companies. By investing in an ETF, you can benefit from diversification and reduce the risk of overexposure to any particular stock.

Bitcoin futures

A futures contract lets you buy or sell Bitcoin in the future at a price decided today. It is essentially a bet on the future price of Bitcoin. If your prediction comes true, you could buy Bitcoin at a bargain or sell it for more than the market price. However, if you're wrong, you could end up paying far more for your Bitcoin or selling it at a loss.

Some Bitcoin futures contracts are settled in cash, like those on the Chicago Mercantile Exchange (CME), while others, like those on Deribit, are settled in Bitcoin.

The main advantage of trading Bitcoin futures contracts is that they offer regulated exposure to cryptocurrencies, which is significant given the volatility of the crypto market. Bitcoin futures contracts at CME are regulated by the Commodity Futures Trading Commission (CFTC). This regulation offers a measure of confidence and recourse to institutional investors, who make up the majority of traders in such contracts.

Another benefit of Bitcoin futures is their simplicity. You don't need to create a Bitcoin wallet or put money into custody solutions for storage and security while trading because there is no Bitcoin exchange. Additionally, cash-settled contracts eliminate the risk of physical ownership of a volatile asset.

However, investing in Bitcoin futures can be complicated and requires a good understanding of how futures markets work. It also involves significant risk, so investors should be prepared to lose money.

Popular crypto futures ETFs include:

• Global X Blockchain & Bitcoin Strategy ETF
• ProShares Bitcoin Strategy ETF
• Valkyrie Bitcoin Strategy ETF
• VanEck Bitcoin Strategy ETF

Blockchain technology companies

Blockchain technology is a global database that does not require a central administrator. Initially used to protect financial transactions, blockchain technology has become a new horizon for the IT business market. Here are some of the top blockchain technology companies:

• Tech Alchemy: An award-winning software design and development agency based in Shoreditch, London, United Kingdom. They have worked with a mix of large organizations, brands, and ambitious startups.
• Protonshub Technologies: A CMMI Level 5 mobile and web app development company, working towards building innovative and digital solutions for all types of businesses. The company is headquartered in Mountain View, California.
• OpenXcell: A top blockchain development company that builds innovative blockchain-based apps and services. Their diversified clientele includes John Hopkins University, Renault-Nissan-Mitsubishi Alliance, Cin 7, and Ajman Bank.
• SoluLab: A top-notch, experienced blockchain developer in the US for building blockchain games, Ethereum tokens, Web 3.0, and DeFi.
• Infograins: One of the top blockchain development companies, providing core, custom, and enterprise blockchain technology solutions. The company holds expertise in developing Web 3.0 applications, Metaverse, POC development, public and private blockchain, and smart contracts.
• IBM: The largest company in the world embracing blockchain. IBM has helped more than 220 businesses develop applications and data governance tools that run on blockchain.
• Coinbase: The world's largest cryptocurrency exchange, with more than 100 different digital assets available to trade on its platform. The company has roughly 98 million verified users in over 100 countries and has more than $1.2 trillion in annualized cryptocurrency trading volume.
• GlobalX Blockchain ETF: An exchange-traded fund (ETF) designed to allow investors to gain exposure to an entire basket of blockchain stocks with a single investment. The fund invests in 25 different companies, including Coinbase, which is the fund's top holding.

These companies are leading the way in the blockchain industry and are worth considering if you want to invest in this exciting technology without directly buying Bitcoin.

Bitcoin derivatives

Derivatives are essentially tradable contracts or shares that track the price of an underlying asset—in this case, Bitcoin. Instead of having to buy Bitcoin directly on an unregulated crypto exchange, investors can trade paper that represents it. Contracts or shares can be settled in cash (cash-settled) or actual Bitcoin (physically delivered).

• Futures contracts allow investors to buy or sell Bitcoin in the future at a predetermined price. It is a bet on the future price of Bitcoin. For example, if you bet that the price of Bitcoin will increase in the future and your prediction comes true, you could sell it for more than the market price. However, if your prediction is wrong, you may end up selling Bitcoin at a loss when the contract expires. Some Bitcoin futures contracts, such as those on the Chicago Mercantile Exchange (CME), are settled in cash, while others, like those on Deribit, are settled in Bitcoin.
• Options give investors the right, but not the obligation, to buy or sell Bitcoin at a predetermined price (strike price) within a specific time frame. To have this right, investors must pay an upfront cost known as a "premium."
• Swaps are contracts between two parties to exchange cash flows in the future. A Bitcoin swap would involve exchanging a fixed or floating interest rate or a particular currency for a Bitcoin-denominated interest rate or currency.

It is important to note that investing in derivatives can be complex and carries significant risks. Investors should thoroughly understand the financial markets and be prepared for potential losses.

Frequently asked questions