There is a steep learning curve when it comes to investing in cryptocurrencies. It’s understandable that many investors are wary of such a volatile and speculative investment. So even if you don’t want to acquire and hold any actual cryptocurrencies yourself, you may still invest in the crypto market by doing so through other means. Furthermore, you may already be exposed to cryptocurrency without even realizing it.
Investing in the stock of a company with a financial stake in the future of cryptocurrency or blockchain technology is the simplest method to gain exposure to crypto without purchasing crypto itself.
Investing in individual equities, on the other hand, carries dangers that are quite comparable to those associated with cryptocurrencies. Index funds and ETFs, which have a track record of long-term value growth, are recommended by experts as an alternative to picking and investing in individual equities.
Any fund that tracks the S&P 500 includes Tesla, which has more than a billion dollars in Bitcoin and has accepted Bitcoin payments in the past. As a result of its inclusion in the 2020 index, it has grown in value and therefore influences. The ARK Fintech Innovation ETF includes only one publicly traded cryptocurrency exchange, Coinbase.
These risky investments, whether they are a single company’s stock, specialist index funds or even cryptocurrency itself — should be kept to less than 5% of your whole investment portfolio, according to experts.
Equivalent to a cross between mutual funds and equities, exchange-traded funds (ETFs) operate in a similar manner. As the name suggests, an ETF is a collection of various financial instruments. When you buy shares of an exchange-traded fund (ETF), you take ownership of a portion of the underlying company’s stock portfolio.
The expense ratio of many ETFs, such as total market ETFs, is quite low, but the expense ratio of specialty ETFs can be as high as 1%. This will have less of an effect if your total portfolio contains fewer pricey ETFs, so keep that in mind while weighing your selections.
As a result, you can indirectly invest in cryptocurrencies by purchasing an ETF that focuses on blockchain, the underlying technology. A blockchain ETF will include companies who are either using or developing blockchain technology in their portfolios..
The “transformative” blockchain technology behind cryptocurrencies has led many bitcoin skeptics to regard ETFs tracking the underlying cryptocurrency market as a much better investment.
ETFs are manufactured by a variety of companies, but you may be able to purchase them through your regular stockbroker. Symbols for mutual funds can be found in the same way that individual equities can be found in your brokerage.
Until recently, crypto or Bitcoin ETFs were out of the reach of investors who were put off by the exchanges or buying and keeping actual coins.
The BITCO Bitcoin ETF, the first financial product related to Bitcoin, became operational in October after much fanfare. Bitcoin ETFs have been explored by numerous organizations, including crypto exchange Gemini and long-standing financial institution Fidelity. On the other hand, the Securities and Exchange Commission has either disapproved of all other U.S. plans or is still mulling over them.
BITO is tied to Bitcoin, but it is not a fund that stores the money itself; instead, it holds contracts for the purchase of Bitcoin in the future. The Bitcoin Financial Trust (BITO) is an important step toward integrating cryptocurrency into traditional U.S. investment portfolios, but many cryptocurrency fans would prefer to see an ETF that owns actual bitcoins.
Grayscale Bitcoin Trust and Osprey Bitcoin Trust are the two other options for U.S. investors. Accredited investors can buy shares in these funds at market value, but anyone can buy secondary market shares through a typical business like Fidelity. The trusts have management fees (2 percent for Grayscale and 0.49 percent for Osprey), which might make Bitcoin investment more expensive than a commission-free blockchain ETF or buying crypto straight from an exchange.
Without acquiring any cryptocurrency, you can have a piece of the action, but you should proceed with caution and due diligence as you would with any other speculative investment.
All of these equities and specialty ETFs are not certain to go higher, and may actually see an increase in volatility, much like the crypto markets themselves. Be prepared for the hazards, as you would for any other type of investment in the cryptocurrency space. Keep your investments in mutual or index funds if you can’t.
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