Equity-Based Crypto Investment: A Smart Way To Invest

Investing in crypto through equity is one of the many ways to enter the cryptocurrency market. This method involves investing in companies with a partial or total focus on cryptocurrency. Examples of such companies include cryptocurrency mining companies, mining hardware makers, and companies that support cryptocurrency, such as Robinhood Markets Inc. and PayPal Holdings Inc. Investing in crypto through equity can be a more indirect approach to gaining exposure to the cryptocurrency market, as you are investing in companies that are involved in the industry rather than purchasing the digital assets directly. It is important to note that investing in cryptocurrency carries risks, and it is crucial to carefully consider these risks and do your own research before making any investment decisions.

Invest in crypto mining companies through equity investments or stock purchases

Investing in crypto mining companies through equity investments or stock purchases is a way to gain exposure to the crypto market without directly purchasing cryptocurrencies. Here are the key things to know about this investment strategy:

Equity Investments in Crypto Mining Companies

Equity investment in crypto mining companies typically refers to purchasing shares or ownership stakes in these companies. This type of investment usually has significant entry barriers and may require a substantial amount of capital. It is important to thoroughly research and understand the business model and financial reports of the crypto mining company before making any equity investments.

Stock Purchases of Crypto Mining Companies

Purchasing stocks of crypto mining companies is often a more accessible option for investors. Popular stocks in this sector include Canaan, Riot Blockchain, Hive, Bitfarm, Marathon, and others recommended by Nasdaq. When considering stock purchases, it is crucial to examine the stock options available at exchanges in your area and conduct your due diligence due to the volatile nature of the stock market.

Factors Affecting Crypto Mining Companies' Profitability

There are several key factors that determine the profitability of crypto mining companies:

• Hardware Costs: Crypto mining requires significant investment in high-end semiconductors and processing power.
• Energy Prices: Crypto mining consumes a large amount of energy, so the price of energy is a critical factor. Companies may seek renewable energy sources to reduce costs and address environmental concerns.
• Cryptocurrency Prices: The value of cryptocurrencies directly impacts the revenue and profitability of mining companies. When crypto prices rise, mining companies' stock prices may also increase.

Benefits of Investing in Crypto Mining Companies

By investing in crypto mining companies through equity or stock purchases, investors can gain exposure to the high-potential crypto market without the same level of volatility as direct cryptocurrency investments. It provides a way to invest in the infrastructure supporting cryptocurrencies. Additionally, investing in miners can offer diversification benefits and reduce the risk associated with picking individual crypto coins.

Considerations and Risks

It is important to remember that investing in crypto mining companies carries inherent risks. The profitability of these companies can be significantly impacted by hardware costs, energy prices, and cryptocurrency price volatility. Additionally, the competitive nature of the industry and the potential for regulatory changes can affect their performance. As with any investment, conducting thorough research and understanding the risks is essential before making any decisions.

Invest in companies with partial or total focus on cryptocurrency

Investing in companies with a partial or total focus on cryptocurrency is another way to gain exposure to the crypto market without directly buying coins. Here are some options for investing in such companies:

• Cryptocurrency mining companies: These companies are dedicated to mining cryptocurrencies, which involves solving complex mathematical problems to validate transactions on a blockchain network. Examples include Riot Blockchain (RIOT) and Marathon Digital Holdings (MARA).
• Mining hardware makers: Companies that produce hardware specifically designed for crypto mining, such as advanced graphics processing units (GPUs) and application-specific integrated circuits (ASICs). An example is Nvidia (NVDA), which produces GPUs used in crypto mining.
• Companies supporting cryptocurrency: These are companies that facilitate cryptocurrency transactions or provide crypto-related services. For instance, Robinhood Markets Inc. (HOOD) and PayPal Holdings Inc. (PYPL) allow users to buy, sell, and store cryptocurrencies on their platforms.
• Companies holding large amounts of cryptocurrency: Some companies have chosen to allocate a significant portion of their treasury reserves in cryptocurrencies like Bitcoin. For example, MicroStrategy Inc. (MSTR) has been a prominent advocate of this strategy, holding thousands of Bitcoins on its balance sheet.

By investing in these types of companies, you can gain exposure to the cryptocurrency ecosystem without directly purchasing coins. This approach can provide diversification and potentially reduce some of the risks associated with the highly volatile crypto market. However, it's important to note that investing in these companies still carries risks, and the performance of these companies may not always directly correlate with the performance of the broader crypto market.

Invest in a cryptocurrency-focused fund

Crypto investment funds are a way to gain exposure to digital assets without needing to purchase or trade them directly. Crypto funds are similar to traditional investment funds, but they invest mostly or exclusively in blockchain companies or digital assets. Crypto funds are an increasingly important bridge between the worlds of conventional and digital finance.

There are several types of crypto investment funds:

• Crypto Hedge Funds: Actively managed funds that seek to generate returns by trading cryptocurrencies.
• Crypto Venture Capital Funds: Invest in early-stage blockchain and crypto projects.
• Crypto Index Funds: Passively track cryptocurrency indices, providing diversified exposure to the market.
• Crypto Exchange-Traded Funds (ETFs): Tradeable on stock exchanges, they hold crypto assets.

Crypto funds have been available to investors since the first bitcoin fund was launched in 2013. As of 2024, over 840 cryptocurrency funds have been established. Crypto funds experienced unprecedented investor interest in 2021, with a total AUM of $62.5 billion. However, in 2022, the total value of assets held by crypto funds declined to $20 billion. There are signs of a resurgence in 2023, with major crypto funds rallying by up to 50%.

• Grayscale: The world's largest digital currency asset manager, with a total AUM of over $20 billion as of 2023.
• Pantera Capital: The first US-based institutional asset manager to focus exclusively on blockchain, Pantera has been a pioneer in crypto funds since 2013.
• Andreessen Horowitz (a16z): A well-known name in the crypto space, a16z launched its dedicated crypto fund in 2018, which quickly grew to become one of the largest crypto funds.
• CoinShares: Europe's first and largest bitcoin investment fund, providing diversified exposure to digital assets through various investment vehicles.
• Galaxy Digital Capital Management: A New York-based investment firm focused on digital assets and blockchain technology, with a hybrid hedge fund/VC fund model.

When considering investing in a cryptocurrency-focused fund, it is important to remember that the crypto market is still in its early stages and can be extremely volatile. It is crucial to carefully research any fund before investing and to remember that investing in cryptocurrency is risky, so one should not invest more money than they can afford to lose.

Invest in a cryptocurrency Roth IRA

Investing in a cryptocurrency Roth IRA can be a great way to gain exposure to the crypto industry while also reaping the tax advantages of an individual retirement account (IRA). However, it's important to note that this option may not be suitable for everyone, especially those approaching retirement, due to the high volatility and risks associated with crypto investments. Here's what you need to know about investing in a cryptocurrency Roth IRA:

Understanding Crypto Roth IRAs:

Crypto Roth IRAs are retirement accounts that allow you to invest in cryptocurrencies while offering tax advantages. According to the Internal Revenue Service (IRS), you cannot directly contribute cryptocurrency to a Roth IRA. However, there is no explicit rule prohibiting the addition of crypto to your Roth IRA via purchase.

Benefits of Crypto Roth IRAs:

The main advantage of investing in a Crypto Roth IRA is the potential for tax-free gains. With a Roth IRA, you pay taxes on your contributions upfront, and any investment gains are typically tax-free upon withdrawal during retirement. This can be especially beneficial if the value of your crypto investments increases significantly over time.

Risks and Considerations:

Investing in cryptocurrencies through a Roth IRA comes with several risks and considerations. Firstly, crypto assets are highly volatile, and their prices can fluctuate wildly. This volatility may not be suitable for individuals approaching retirement who cannot afford to weather downturns in the market. Additionally, crypto IRAs often come with higher fees than traditional IRAs, including setup fees, custody fees, and transaction fees for each purchase and sale. These fees could potentially negate the tax advantages of the account.

Finding a Crypto IRA Provider:

It's important to note that not all traditional IRA providers allow you to hold cryptocurrency in your Roth IRA. You may need to explore self-directed IRAs (SDIRAs) or specialised crypto IRA providers, such as Bitcoin IRA, Bit IRA, or iTrustCapital. These providers focus specifically on cryptocurrency investing and may offer more flexibility in this regard.

Diversification and Traditional Investments:

When considering a Crypto Roth IRA, it's essential to maintain a diversified portfolio. Crypto assets should ideally be one component of your overall retirement strategy, alongside more traditional investments. You may need to open multiple Roth IRAs with different providers or roll over a portion of your existing IRA to a new account dedicated to crypto investments.

In conclusion, investing in a cryptocurrency Roth IRA can provide tax advantages and exposure to the crypto market. However, it's crucial to carefully evaluate your financial situation, risk tolerance, and investment goals before proceeding. The volatility and fees associated with crypto IRAs may outweigh the benefits for some individuals, especially those closer to retirement.

Invest in companies developing blockchain uses

Blockchain technology is still in its early stages, but it has already made its way into multiple industries, including finance, healthcare, government, insurance, banking, and real estate. As a result, there are numerous companies that investors can choose from when looking to invest in businesses developing blockchain uses.

Decentralized Finance

Decentralized finance (DeFi) is the concept of removing financial institutions from their role as third parties in transactions. Cryptocurrency, cryptocurrency exchanges, lenders, borrowers, and insurance companies are all part of this growing sector. Some companies in this sector include:

• PayPal
• Square
• Visa
• Mastercard
• CME Group

Financial Technology

Financial technology (Fintech) is the development and use of technology to improve existing financial services. Some companies in this sector include:

• PayPal
• Square
• Visa
• Mastercard
• American Express Company
• Banco Bilbao Vizcaya Argentaria
• Mizuho Financial Group
• Banco Santander
• Bank of China Ltd.
• Wells Fargo & Company
• Bank of America
• JPMorgan Chase & Co.
• Walmart

The Metaverse

The metaverse is a digital world where virtual reality, augmented reality, and the physical world meet. Blockchain will likely play a large part in the metaverse as it develops. Some companies that have expressed interest in the metaverse include:

• Meta (formerly Facebook)
• Advanced Microdevices (AMD)
• Nvidia
• Amazon
• Epic Games

Web 3

Web 3 companies are developing solutions that will change how the internet works, with a focus on privacy, ownership, and control. Some companies in this sector include:

• Alphabet (Google)
• Oracle
• Samsung

Other Companies

There are also many other companies across various industries that are investing in blockchain technology. These include:

• IBM
• Amazon
• Intel
• Microsoft
• Comcast Corporation
• Ford Motor Company
• Mitsubishi UFJ Financial Group
• Daimler AG
• Toyota Motor Corp.
• Abu Dhabi National Oil Company
• Chile’s National Energy Commission
• Pfizer
• AIA Group
• MetLife
• Prudential Financial
• American International Group (AIG)
• Aegon
• Shell
• Siemens
• TenneT
• Brookfield Asset Management
• JLL
• Westfield
• Coldwell Banker
• Government of Dubai
• Seoul Metropolitan Government
• Lantmäteriet
• Uganda National Drug Authority
• Monetary Authority of Singapore

Frequently asked questions