Strategies For Investing In Crypto Without Direct Purchase

Investing in crypto can be daunting due to its volatile nature and the complexity of buying and storing individual coins. However, there are several ways to gain exposure to the crypto market without directly purchasing cryptocurrencies. Here are some options to consider:

- Crypto Futures ETFs: These are exchange-traded funds that allow you to trade futures contracts on cryptocurrencies without owning the underlying asset. You can bet on the future price of crypto assets like Bitcoin or Ethereum without being affected by their volatility.

- Blockchain Stocks: You can invest in companies that are involved in blockchain technology, crypto mining, or crypto transactions. Examples include Coinbase, Riot Blockchain, and Bitfarms. By investing in these companies, you indirectly benefit from the growth of the crypto industry.

- Crypto IRAs and 401(k)s: You can incorporate crypto into your retirement savings if your employer allows it. Companies like Fidelity offer this option, where they buy and hold crypto assets on your behalf.

- Credit Card Rewards: Certain credit cards offer crypto cashback rewards or allow you to redeem your rewards for cryptocurrencies. This way, you can earn crypto while making everyday purchases.

- Crypto Industry Stocks and ETFs: You can invest in companies that stand to profit from the crypto industry's growth, such as crypto exchanges or mining companies. You can also consider crypto ETFs that target the overall crypto ecosystem.

- Grayscale and Osprey Over-the-Counter Trusts: These trusts allow you to bet on crypto without the hassles of buying and storing coins. They trade throughout the day and are overseen by the SEC, providing an extra layer of security.

Bitcoin futures ETFs

A bitcoin futures exchange-traded fund (ETF) is a publicly traded security that offers investors exposure to bitcoin's price movements without needing to buy the cryptocurrency directly. These ETFs are regulated investment companies that create subsidiaries acting as commodity pools to trade bitcoin futures contracts. The goal is to mimic the spot price of bitcoin, but there are costs like "roll premiums" and management fees. Returns may not always be as high or in sync with spot market prices due to the nature of futures contracts.

Here's how it works:

• An investment company creates a subsidiary that acts as a commodity pool.
• The pool trades bitcoin futures contracts, typically aiming to match the spot price of bitcoin.
• There are costs like "roll premiums" and management fees.
• Returns may not be as high or in sync with spot market prices due to the nature of futures contracts.
• ProShares Bitcoin Strategy ETF (BITO)
• Valkyrie Bitcoin Strategy ETF (BTF)
• VanEck Bitcoin Strategy ETF (XBTF)
• Global X Blockchain & Bitcoin Strategy ETF (BITS)

How to Invest in Bitcoin Futures ETFs

Investing in bitcoin futures ETFs is a relatively straightforward process:

• Open a brokerage account with a platform that offers these ETFs.
• Search for the ticker symbol of the desired bitcoin futures ETF.
• Enter the number of shares you want to purchase and place a buy order.
• The ETFs will charge an annual expense ratio, which will be deducted from your account.

It's important to note that bitcoin and bitcoin futures can be highly volatile, and there are risks associated with investing in these products. It's always recommended to do your research and consult with a financial advisor before making any investment decisions.

Crypto industry stocks and ETFs

Benefits of Crypto Industry Stocks and ETFs:

• Diversification: By investing in a range of companies and technologies related to crypto, you can diversify your portfolio and reduce the risk associated with investing in a single cryptocurrency.
• Lower Volatility: Crypto industry stocks and ETFs can provide a more stable investment option compared to the often volatile cryptocurrency market.
• Familiar Investment Vehicle: ETFs are well-known and understood investment vehicles, making it easier for traditional investors to gain exposure to the crypto market without needing to understand the intricacies of buying and storing crypto.
• Exposure to Blockchain Technology: Many crypto industry stocks and ETFs focus on companies developing and utilizing blockchain technology, which has a wide range of applications beyond just cryptocurrencies.

Examples of Crypto Industry Stocks and ETFs:

• Amplify Transformational Data Sharing ETF (BLOK): This ETF focuses on companies involved with crypto and blockchain technology, including crypto exchanges, mining companies, and developers. It is one of the largest and most prominent blockchain ETFs on the market.
• Siren Nasdaq NexGen Economy ETF (BLCN): This ETF invests in companies supporting the development and research of blockchain technology. It offers a more diversified portfolio with exposure to well-known tech companies.
• First Trust Indxx Innovative Transaction & Process ETF (LEGR): This ETF provides exposure to a global portfolio of companies with varying degrees of involvement in blockchain technology. It is diversified across different industries and includes large-cap stocks.
• Bitwise Crypto Industry Innovators ETF (BITQ): This ETF holds a portfolio of 30 crypto-focused companies, including miners, financial services firms, and hardware suppliers. It offers a more direct investment in the crypto economy.
• Global X Blockchain ETF (BKCH): The BKCH ETF invests in global companies participating in blockchain activities, such as digital asset mining and integration. It provides exposure to a mix of crypto mining firms and tech companies.

Things to Consider:

When investing in crypto industry stocks and ETFs, it's important to keep the following in mind:

• Volatility: While these investments may be less volatile than direct crypto investments, the crypto and blockchain industries are still relatively new and prone to market sentiment and regulatory changes.
• Risk Assessment: Some ETFs, like the Bitwise Crypto Industry Innovators ETF, closely follow the price of Bitcoin and are therefore subject to the same market risks as direct crypto investments.
• Diversification: While diversification is a benefit, ensure that the ETF you choose aligns with your investment goals and risk tolerance. Some ETFs are more diversified than others, offering exposure to a wider range of industries.
• Fees: As with any investment, pay attention to the expense ratios and management fees associated with the ETF. These fees can eat into your returns over time.

Crypto separately managed accounts (SMAs)

SMAs are often favoured by investors for the control, transparency, and tax efficiency they offer. The value of your investments in an SMA is also not dependent on the actions of other investors, as it is in a mutual fund.

SMAs are managed by professional money managers and are therefore a more expensive option than mutual funds. They also usually require a large initial investment, often between $50,000 and $100,000, though some providers offer a minimum threshold of $5,000.

SMAs are an excellent option for those who want more control and transparency over their investment portfolio, and who have a significant amount of money to invest.

Bitcoin options and futures

Bitcoin Options

Bitcoin options are financial derivatives contracts that give holders the right but not the obligation to buy or sell a predetermined amount of Bitcoin at a specified price and date in the future. The predetermined amount, or underlying asset, in the case of Bitcoin options, is the cryptocurrency Bitcoin (BTC).

There are two main types of options contracts: European and American. The key difference is that European-style options can only be exercised at expiration, while American-style options can be exercised at any time up until the expiry date.

An options position can either be in the money, at the money, or out of the money. An in-the-money (ITM) option has intrinsic value, and exercising it would result in profit. For call options, this is when the market price is higher than the strike price. Put options are in-the-money when the market price is below the strike price. An out-of-the-money (OTM) option would result in a loss if exercised, as it has no intrinsic value. For call options, this is when the market price is lower than the strike price. An at-the-money (ATM) option is currently trading at the strike price.

You can either buy a call or a put option. A call option gives the holder the right to buy the underlying asset, while a put option gives the holder the right to sell it.

Bitcoin Futures

Bitcoin futures are also derivative products, meaning their value is derived from another source, which, in this case, is Bitcoin itself. Some futures products are "deliverable futures", meaning they are settled via an actual exchange of the underlying product. However, Bitcoin futures are "cash-settled", meaning a trader's account is credited or debited a cash amount based on the difference between the initial position and the settlement price.

Bitcoin futures are offered by the CME Futures Exchange, also known as CME Group. tastytrade's trading platform also gives investors access to both standard and micro-CME bitcoin futures.

Crypto mining stocks

Marathon Digital Holdings (MARA)

Marathon Digital is one of the largest Bitcoin miners in America. In 2023, the company produced 12,852 Bitcoin, a 210% increase from the previous year. The company's revenue and net income also saw significant jumps in 2023, with revenue up 229% to $387.5 million and net income turning positive at $261.2 million. Marathon Digital's hash rate, fleet efficiency, and Bitcoin mining portfolio have all seen substantial improvements.

Riot Platforms (RIOT)

Riot Platforms is another major player in the crypto mining space. The company recently posted record net income of $211 million for the first quarter, with total revenue of $79.3 million. Riot produced 1,364 BTC in the quarter, a 36% decrease year-over-year, but saw a significant increase in Bitcoin mining revenue to $74.6 million.

Hut 8 Mining (HUT)

Hut 8 Mining is a crypto mining company that has attracted the interest of institutional investors such as BlackRock and Millennium Management. The company has a new CEO, Asher Genoot, who is working to rebuild shareholder trust after legal issues and allegations surrounding the merger with U.S. Bitcoin Corp.

CleanSpark (CLSK)

CleanSpark is another crypto mining stock that has been performing well. In its most recent quarter, CleanSpark reported a 165% jump in quarterly revenue to $73.8 million and a net income of $25.9 million. The company's adjusted EBITDA also saw a significant improvement, turning positive at $69.1 million.

Valkyrie Bitcoin Miners ETF (WGMI)

For investors looking to diversify their crypto mining stock holdings, the Valkyrie Bitcoin Miners ETF offers exposure to multiple top crypto mining companies, including Marathon Digital, CleanSpark, Riot Platforms, and Bitfarms. The ETF has an expense ratio of 0.75%.

It is important to remember that investing in crypto mining stocks comes with risks, as the stock prices are often highly correlated with the value of the underlying cryptocurrencies. Due diligence and a careful assessment of your risk tolerance are crucial before investing in this volatile sector.

Frequently asked questions