Fidelity's Crypto Offerings: Exploring Your Investment Options

Fidelity is a well-known name in the world of investments, and it has been an innovator in the field of cryptocurrency since 2014. The company offers its customers the opportunity to buy, sell, and secure cryptocurrencies like Bitcoin and Ethereum through its platform, Fidelity Crypto®. With a minimum investment of just $1, investors can access both traditional and crypto investments in one place. However, it's important to remember that cryptocurrencies are highly volatile and susceptible to market manipulation, so investing in them carries a high risk.

Buying crypto outright

The most straightforward way to gain exposure to cryptocurrency is by investing directly in the coins you're interested in. This is most commonly done via a traditional investment platform or crypto exchange. Buying crypto outright gives you exposure to the industry in as little as minutes. Entering an order on a traditional investment platform or an exchange can also provide hands-on experience with the buying process, which can be useful for better understanding how crypto works.

However, there are also risks to be aware of. It is recommended to learn the basics of crypto cybersecurity first before buying crypto outright. Like any digital asset, cryptocurrency is vulnerable to online theft. Transferring coins is also a multi-step process where even small errors could mean losing access to investments forever. And remember, crypto is highly volatile, and there's a possibility that the value of any cryptocurrency can drop to zero.

Fidelity offers the option to buy and sell crypto like Bitcoin and Ethereum, starting with as little as $1. Trade crypto 7 days a week, 23 hours a day on their website and mobile app. To get started, you can open a Fidelity Crypto® account and, at the same time, they will help you open an eligible Fidelity brokerage account if you don't already have one to fund your new crypto account.

Crypto ETPs and ETFs

Exchange-Traded Products (ETPs)

Exchange-traded products (ETPs) are 100% backed by the assets whose prices they track. Crypto ETPs are debt securities issued by special purpose vehicles (SPVs) that hold the underlying crypto assets. The SPV uses the crypto as collateral to issue the ETPs, which are traded on exchanges. Crypto ETPs fall under the Securities Act of 1933 and are less regulated than ETFs.

Spot Crypto ETPs are not investment companies registered under the Investment Company Act of 1940, so shareholders do not have the same protections as owners of ETF shares. They also have a fixed supply of shares that trade at market-based prices, which can deviate from the underlying crypto value.

Exchange-Traded Funds (ETFs)

Crypto ETFs trade on regular stock exchanges, and investors can hold them in their standard brokerage accounts. These funds track cryptocurrency prices by investing in futures contracts rather than the cryptocurrency itself.

Spot ETFs, which invest directly in cryptocurrency, face greater regulatory hurdles due to Securities and Exchange Commission (SEC) concerns about investor risk. The first spot crypto ETFs were approved in January 2024.

The first and largest U.S. cryptocurrency futures ETF, the ProShares Bitcoin Strategy ETF, started trading in October 2021. This ETF assigns about half of its portfolio to Chicago Mercantile Exchange (CME) bitcoin futures that expire at the end of the current month and another half to CME bitcoin futures expiring the following month. As the expiration of the contracts in the portfolio approaches, the fund rolls over its investments, selling the expiring contracts and buying contracts for the coming month.

Crypto ETFs generally have higher fees than other ETFs. For example, the ProShares Bitcoin Strategy ETF has an expense ratio of 0.95%, compared to 0.09% for the SPDR S&P 500 ETF.

Crypto stocks

Investing in crypto stocks allows investors to bet on which companies will lead the industry. Additionally, most major brokerages allow investors to trade crypto stocks without fees, although they may charge a spread.

However, crypto stocks come with risks, especially for inexperienced investors. The inherent volatility of crypto, poor earnings reports, negative industry trends, and other factors can cause a crypto stock's value to plummet. Therefore, less experienced investors may prefer to invest in crypto-related ETFs, which offer exposure to a diversified basket of crypto stocks.

It is important to note that the crypto industry may be more susceptible to market manipulation than securities, and the regulatory environment for crypto is uncertain. Direct investments in crypto are also not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, so investors should only allocate money they are willing to lose.

Crypto volatility

Cryptocurrency markets are highly volatile, with large and frequent price movements. This volatility is driven by various factors, including speculation, news events, regulatory uncertainty, supply and demand dynamics, and the influence of large investors. Crypto is also susceptible to market manipulation and does not have the same regulatory protections as registered securities.

Compared to traditional asset classes, crypto is considered riskier due to its high volatility. Stocks, for example, exhibit a range of volatility levels, from stable large-cap stocks to erratic penny stocks. Bonds are typically even less volatile, with less dramatic price movements.

To manage the risks associated with crypto volatility, investors can consider strategies such as dollar-cost averaging or investing in stablecoins, which are designed to have lower volatility. Diversification across different asset classes can also help reduce the overall risk of an investment portfolio.

Fidelity offers various crypto investment options, including buying cryptocurrencies directly, such as Bitcoin and Ethereum, as well as investing in crypto-related exchange-traded funds (ETFs) and stocks. However, it is important to note that crypto is a highly volatile asset class and may not be suitable for investors with a low-risk tolerance.

Crypto security

With the popularity of cryptocurrencies on the rise, it is important to understand the security risks associated with them. Cryptocurrency is a digital currency that uses blockchain technology to facilitate secure transactions through tokens. While the technology behind cryptocurrencies ensures security, there are still risks associated with their usage that users should be aware of.

Common Cryptocurrency Security Issues

Phishing, Ponzi schemes, fake initial coin offerings, pump-and-dump schemes, fake wallets and exchanges, social media giveaway scams, malware and ransomware attacks, and double-spend attacks are some of the common cryptocurrency security issues. In a phishing attack, for example, bad actors trick users into revealing sensitive information such as login credentials or private keys by posing as legitimate cryptocurrency exchanges or wallet providers. It is important to be vigilant and cautious when dealing with such sensitive information.

Protecting Your Cryptocurrencies

To protect your digital investments, it is recommended to use secure wallets, preferably hardware wallets that store your private keys offline. Implementing two-factor authentication (2FA) adds an extra layer of security, making it harder for potential intruders to access your crypto assets. Keeping software up-to-date is also crucial, as updates often include security enhancements that protect against newly discovered threats.

It is important to be cautious when using public Wi-Fi networks for crypto transactions, as they can be hotspots for cyber threats. Always verify the sender of a message and be wary of potential phishing attempts. Additionally, it is recommended to use strong and unique passwords for each service and to store them in a secure password manager.

Fidelity Crypto Security

Fidelity Crypto® is a platform offered by Fidelity Digital Assets℠ that allows users to trade cryptocurrencies like Bitcoin and Ethereum. Fidelity Crypto prioritizes security and reliable support, offering institution-level security services. They emphasize the importance of education, helping users gain clarity on crypto and make informed decisions. With their experience in the crypto space, Fidelity provides a trusted platform for users to explore the world of cryptocurrencies.

To open a Fidelity Crypto® account, users must also open an eligible Fidelity brokerage account to fund their crypto account. This process ensures that users have access to the necessary tools and resources to navigate the crypto market.

Frequently asked questions