Explore Bitcoin Investment Options Without Owning Any

Bitcoin has seen blockbuster growth in the last decade, skyrocketing in price and gaining the support of big banks. However, for many retail investors, it can be a complicated investment – it's historically expensive, volatile, can't be purchased through a brokerage account and isn't backed by a financial institution. Here are some ways to invest in Bitcoin without buying it.

Invest in Bitcoin stocks and funds

There are several ways to gain exposure to Bitcoin's performance without actually buying the cryptocurrency. Here are some options:

Bitcoin Exchange-Traded Funds (ETFs)

Bitcoin ETFs are funds that trade on a stock exchange and attempt to track the performance of Bitcoin. These ETFs either invest in or attempt to mimic the performance of Bitcoin.

Some popular Bitcoin ETFs include:

• IShares Bitcoin Trust (IBIT)
• Grayscale Bitcoin Trust ETF (GBTC)
• Fidelity Wise Origin Bitcoin Fund (FBTC)
• ARK 21Shares Bitcoin ETF (ARKB)
• Invesco Galaxy Bitcoin ETF (BTCO)

Bitcoin Investment Trusts

Bitcoin investment trusts hold Bitcoin for investors, track the prices of Bitcoin and other cryptocurrencies, trade in over-the-counter (OTC) markets, and offer exposure to cryptocurrencies for investors willing to take on the risk.

One example of a Bitcoin investment trust is the Grayscale Bitcoin Trust (GBTC), which aims to track the underlying value of Bitcoin.

Bitcoin Strategy ETFs

Bitcoin strategy ETFs do not invest directly in Bitcoin or other cryptocurrencies. Instead, they typically invest in Bitcoin futures contracts on exchanges like the Chicago Mercantile Exchange.

An example of a Bitcoin strategy ETF is the VanEck Bitcoin Strategy ETF (XBTF), which invests in Bitcoin futures and U.S. Treasuries.

Bitcoin Mining Companies

Another way to gain exposure to Bitcoin is to invest in companies that are involved in the Bitcoin mining industry. These companies contribute to the Bitcoin blockchain by validating transactions and are rewarded with Bitcoin.

Some Bitcoin mining companies include:

• Marathon Digital Holdings Inc.
• Riot Platforms
• Cipher Mining Inc.
• Hive Blockchain Technologies
• Bit Digital, Inc.

Blockchain and Crypto-Related Stocks

You can also invest in bigger, more established companies that benefit from the increased popularity and adoption of blockchain and crypto assets. These companies may be involved in crypto trading, blockchain analytics, or developing blockchain technology.

Some blockchain and crypto-related stocks include:

• Coinbase Global (COIN)
• Block (SQ) and PayPal Holdings (PYPL)
• Canaan (CAN) and Hut 8 Mining (HUT)
• Meta Platforms (META) and Shopify (SHOP)
• Robinhood Markets (HOOD)

Invest in Bitcoin mining companies

Investing in Bitcoin mining companies is another way to gain exposure to Bitcoin without buying the cryptocurrency directly. This method involves investing in companies that are responsible for validating transactions and adding them to the blockchain. By investing in these mining companies, you can benefit from Bitcoin's increasing value without purchasing it outright.

When considering investing in Bitcoin mining companies, it is important to keep in mind the risks involved. The value of Bitcoin is highly volatile, and mining is a complex and energy-intensive process. Regulatory changes could also impact the profitability of mining companies. Due diligence is crucial before investing in this sector.

• Marathon Digital Holdings (NASDAQ: MARA): With a market cap of US$5.47 billion, Marathon Digital Holdings is focused on building North America's largest and lowest-cost mining operation. The company has seen impressive revenue growth due to a combination of increased hash rate, higher Bitcoin production, and favourable Bitcoin price movements.
• Riot Platforms (NASDAQ: RIOT): Riot Platforms is another prominent Bitcoin mining company listed on the NASDAQ. They have multiple subsidiaries working in different aspects of the business, including hosting Bitcoin mining equipment for clients. While they experienced a reduction in Bitcoin production due to network difficulties, their revenues increased because of robust gains in Bitcoin's price.
• Cipher Mining (NASDAQ: CIFR): Cipher Mining operates industrial-scale Bitcoin mining data centres, offering their services to customers worldwide. As of early May 2024, their total self-mining capacity was 7.7 EH/s, and they plan to expand further by the end of 2025.
• Hut 8 Mining (TSX: HUT): Hut 8 Mining is one of the largest Bitcoin and Ethereum mining companies globally, with over 884 megawatts of existing power capacity. They have a significant presence in both mining and hosting services, and their Bitcoin holdings have been increasing.
• Bitfarms (TSX: BITF): Bitfarms is one of the largest cryptocurrency mining operators in the Americas, with 12 mining facilities across Canada, the US, Paraguay, and Argentina. They have seen strong revenue growth, and their hashrate is expected to increase further in 2024.
• Hive Digital Technologies (TSXV: HIVE): Hive Digital Technologies is a crypto mining company that operates mining facilities in Sweden, Canada, and Iceland. They were the first publicly traded cryptocurrency miner, listing on the TSX Venture Exchange in 2017. As of early May 2024, their Bitcoin holdings stood at 2,400 BTC, and they continue to increase their mining capacity.

These companies provide an opportunity to invest in the Bitcoin ecosystem without directly purchasing Bitcoin. However, it is important to carefully evaluate each company's financials, operations, and risks before making any investment decisions.

Invest in Bitcoin futures

Bitcoin futures are a way to bet on the future price of Bitcoin without actually buying any. They are a type of derivative, which is a financial instrument that derives its value from an underlying asset. In this case, the underlying asset is Bitcoin.

A futures contract is an agreement between a buyer and a seller to buy or sell an asset at a specified price on a future date. In the case of Bitcoin futures, the buyer agrees to purchase Bitcoin at a predetermined price on a specific date, and the seller agrees to sell Bitcoin at that price. This allows investors to speculate on the future price of Bitcoin without actually owning any.

For example, let's say you believe that the price of Bitcoin will increase in the future. You could enter into a futures contract to buy Bitcoin at a specified price on a future date. If the price of Bitcoin is higher than the specified price on that date, you will make a profit. On the other hand, if the price of Bitcoin is lower than the specified price, you will make a loss.

Benefits of Investing in Bitcoin Futures

There are several benefits to investing in Bitcoin futures:

• No need to own Bitcoin: With Bitcoin futures, you can invest in Bitcoin without actually owning any coins. This means you don't need to worry about the security and storage of Bitcoin.
• Regulatory safeguards: Bitcoin futures are regulated by financial authorities, providing investors with consumer protections and clearer tax guidance.
• Amplify gains: Bitcoin futures often offer leverage, which allows investors to amplify their gains. For example, with 100x leverage, a 2% increase in the price of Bitcoin would result in a 200% gain on your investment.
• Hedge against losses: Bitcoin futures can be used to hedge against potential losses in your Bitcoin portfolio. For example, if you own Bitcoin and are worried about a price drop, you can enter into a futures contract to sell Bitcoin at a specified price, limiting your potential losses.

Risks of Investing in Bitcoin Futures

While Bitcoin futures offer several benefits, they also come with significant risks:

• Complex and risky: Trading Bitcoin futures can be complicated and is not suitable for beginners. It requires a good understanding of how futures markets work.
• Volatility: The price of Bitcoin is highly volatile, and small price movements can result in significant losses, especially when using leverage.
• Liquidation risk: If you incorrectly predict the movement of the Bitcoin price, your futures contract may be liquidated, resulting in the loss of your entire investment.

How to Get Started with Bitcoin Futures

If you want to start investing in Bitcoin futures, you'll need to find a trading platform or exchange that offers them. Popular options include CME Group, Cboe Global Markets, and AAX. Once you've chosen a platform, you'll need to create an account, deposit funds, and start trading.

It's important to remember that investing in Bitcoin futures is a risky endeavour and you should never invest more than you can afford to lose. Make sure to do your own research and understand the risks involved before investing.

Invest in blockchain technology companies

Investing in blockchain technology companies is a way to gain exposure to Bitcoin without actually buying the cryptocurrency. Blockchain is the backbone of Bitcoin and other cryptocurrencies, and by investing in companies that specialize in blockchain technology, you can indirectly invest in Bitcoin. These companies are involved in developing and implementing blockchain technology, which has numerous potential applications beyond cryptocurrency.

There are several well-known companies that are developing blockchains for business use, and many more that are creating them for in-house use. Here are some options to consider:

• Decentralized Finance (DeFi): This involves removing financial institutions as third parties in transactions, allowing people to take control of their finances with digital wallets, peer-to-peer lending, and other financial services. Cryptocurrency is part of DeFi, but it only represents the tip of the iceberg. Other examples include cryptocurrency exchanges, lenders, borrowers, and insurance providers.
• Financial Technology (Fintech): Fintech companies develop and use technology to improve existing financial services. Blockchain technology is revolutionizing traditional services like lending, money transfers, and banking. Examples of Fintech companies include PayPal, Square's Cash App, Visa, Mastercard, and Coinbase.
• Web 3 Companies: These companies are developing solutions that are expected to change the way the internet works, with a focus on privacy, ownership, and control for users. Blockchain technology is being used to create an infrastructure that gives users more control over their personal information and online presence.

It is important to note that investing in blockchain technology companies comes with risks. The industry is subject to regulatory changes and technological advancements that could impact profitability. Additionally, the volatile nature of the cryptocurrency market can affect the performance of companies involved in this space.

Invest in Bitcoin derivatives

Crypto derivatives are financial instruments that derive their value from underlying crypto assets. They are complex financial contracts that take place between a buyer and a seller. Crypto derivatives allow traders to bet on the rise or fall of cryptocurrency prices without actually buying the currency.

There are three main types of crypto derivatives: futures, options, and perpetual swaps.

Crypto Futures Contracts

Crypto exchanges facilitate crypto futures contracts between two parties agreeing on the predetermined price for buying and selling crypto tokens, such as Bitcoin, and come with an expiration date for the contract to end. At the time of contract expiration, if the market price of the said cryptocurrency goes above the set price, the buyer makes a profit. Sellers will profit if the market price falls below the predetermined price.

Crypto Perpetual Contracts

Similar to futures contracts, crypto exchanges facilitate traders to bet their investment on perpetual contracts. The key difference is that perpetual contracts do not have an expiration date. This means that there is no expiration date, and traders can choose to speculate on the market price of the underlying crypto and hold their position (long or short) indefinitely.

Crypto Options

Options are another type of crypto derivative. They give traders the option to fulfill the contract but do not bind them to buy or sell the underlying crypto at a predetermined price on or before the expiration date. Crypto options have three main components: the premium, which is the price the buyer pays the seller to enter the contract; the strike price, which is the fixed price at which the buyer and seller agree to enter the contract; and the expiry date, which is the date on which the final settlement is carried out.

Frequently asked questions