Cryptocurrency investing has a steep learning curve. Even personal finance expert Suze Orman found it “aggravating” when she first attempted to invest using a cryptocurrency exchange.
“It was just too complicated for me,” she recently told NextAdvisor.
And as a volatile, highly speculative investment, many investors are appropriately cautious. But for those who are interested in crypto but not in buying and holding actual cryptocurrencies, there are still ways to invest, albeit indirectly. And you might already have exposure to cryptocurrency without even knowing it.
The easiest way to get investment exposure to crypto without buying crypto itself is to purchase stock in a company with a financial stake in the future of cryptocurrency or blockchain technology.
But investing in individual stocks can bear similar risks as investing in cryptocurrency. Rather than choosing and investing in individual stocks, experts recommend investors put their money in diversified index funds or ETFs instead, with their proven record of long-term growth in value.
“Believe it or not, most individuals with a retirement plan or an investment portfolio allocated in an index fund already have some exposure to crypto,” says Daniel Johnson, a CFP with ReFocus Financial Planning.
Many of the best index funds — like S&P 500 or total market funds — include publicly traded companies that have some involvement with the industry by either mining crypto, being involved in the development of blockchain technology, or holding significant amounts of crypto on their balance sheets, says Johnson.
For example, Tesla— which holds over a billion dollars in Bitcoin and accepted Bitcoin payments in the past— is included in any funds that track the S&P 500. Since its 2020 inclusion, it’s become one of the most valuable, and therefore influential companies in the index. And Coinbase, the only publicly traded cryptocurrency exchange, is in the ARK Fintech Innovation ETF.
However, if you have some extra cash (and you’re tolerant of the risk), you can choose to allocate a small amount of your portfolio to specific companies or more specialized index funds or mutual funds. “An investor bullish on the future of cryptocurrency could invest in the stocks of companies working on that technology,” says Jeremy Schneider, the personal finance expert behind Personal Finance Club.
Experts generally recommend keeping these speculative investments — whether a single company’s stock, specialized index funds, or cryptocurrency itself — to less than 5% of your total investing portfolio.
Investing in Companies with Crypto Interests
That’s how personal finance expert Suze Orman initially did it. She recently told NextAdvisor about how she invested in MicroStrategy, a cloud computing firm that holds billions in Bitcoin, because its CEO was putting all of the company’s working capital into Bitcoin. She figured if Bitcoin increased in value, so would the value of Microstrategy’s stock.
But as anyone who follows Orman’s advice knows, she recommends index funds as a much better investment strategy than picking individual stocks.
Rather than buying shares in any single crypto-forward company, it’s better to maintain a balanced portfolio by identifying companies with crypto interests, and making sure their shares are included in any index or mutual funds you put money into. Not only does that allow you to invest in the companies where you see potential, but it also helps you keep your investments diversified within a broader fund.
If you invest with Vanguard, for example, you can use the site’s holding search to find all the Vanguard funds that include a specific company. Just enter the company’s ticker symbol (like TSLA for Tesla) and the tool will offer a list of all the Vanguard products that have holdings of its shares. Other investing platforms offer similar ways to search by company within index and mutual funds.
But specialized ETFs or mutual funds can also come with higher fees than total market indexes, so pay attention to how much you’re going to be charged for buying shares. Schneider considers an expense ratio (what you pay in fees) under 0.2% to be very low, and anything over 1% to be very expensive. For an already speculative investment, high fees can hinder your growth even more.
Here are a few more examples of publicly-traded companies that are adding Bitcoin or blockchain technology to their business. These are definitely not the only companies involved, and more are joining the list every day. (Circle, a digital payment platform specializing in crypto payments, for example, just announced its intended IPO):
MicroStrategy offers business intelligence and cloud services, and invests its assets into Bitcoin.
Marathon Digital Holdings (MARA)
Marathon Digital Holdings aims to be the largest bitcoin mining operation in North America.
RIOT Blockchain (RIOT)
Riot Blockchain is a Bitcoin mining company.
Bitfarms operates blockchain computing centers.
Galaxy Digital (BRPHF)
Galaxy Digital is a broker-dealer involved in crypto investment management, trading, custody, and mining.
Tesla’s founder Elon Musk, is a proponent of cryptocurrency, and the company holds over a billion dollars worth of Bitcoin. It temporarily accepted Bitcoin payments in early 2021 before ending the program, but Musk recently said Tesla will “most likely” restart Bitcoin payments.
PayPal is a payment platform where people can purchase cryptocurrency.
Square recently announced that it would be entering the decentralized finance space.
Coinbase is the first public cryptocurrency exchange. It debuted on the Nasdaq in spring 2021.
ETFs — exchange traded funds — operate like a hybrid between mutual funds and stocks. An ETF is essentially a group of stocks, bonds or other assets. When you buy a share of an ETF, you have a stake in the basket of investments owned by the fund.
While many ETFs — such as total market ETFs — have very low expense ratios, specialized ETFs can be closer to the 1% ratio that Schneider would consider very expensive. This will make less of an impact if more expensive ETFs comprise a small portion of your overall portfolio, keep in mind the cost when considering options.
ETFs are often grouped by what sort of investments they hold, so one way you can indirectly invest in cryptocurrency is by putting money into an ETF focused on its underlying technology: blockchain. A blockchain ETF will include companies either using or developing blockchain technology.
Many people who are skeptical about cryptocurrency but believe in the “transformative” blockchain technology behind it see blockchain ETFs as a much more sound investment.
It’s like the California gold rush of the 1800s, says Chris Chen, CFP, of Insight Financial Strategists in Newton, Massachusetts, for a recent NextAdvisor story about blockchain technology: “Lots of people rushed in there to dig for gold, and most of them never made any money,” he said. “The folks who made the money are those who sold the shovels. The companies that are supporting the development of blockchain are the shovel sellers.”
ETFs are created by different companies, but you can often buy them through whichever brokerage you typically use to invest. Just like you can search your brokerage for individual stocks, you can also search for funds using the symbols associated with them. Here are a few blockchain ETFs currently available to investors (with listings on popular brokerages like Fidelity, Vanguard, and Charles Schwab):
BLOK (Amplify Transformational Data Sharing ETF)
BLOK is the largest blockchain ETF by total assets. It’s largest holdings are PayPal, MicroStrategy, and Square.
BLCN (Siren Nasdaq NexGen Economy ETF)
BLCN’s top holdings are Coinbase, Accenture, and Square.
LEGR (First Trust Indxx Innovative Transaction & Process ETF)
LEGR’s top holdings are NVIDIA, Oracle, and Fujitsu.
For would-be crypto investors who are deterred by exchanges or buying and holding actual coins, one simpler way to invest — via crypto or Bitcoin ETFs — has remained out of reach.
Plenty of companies — from crypto exchange Gemini to longstanding investment firm Fidelity — have attempted to offer Bitcoin ETFs. But so far, all such U.S. proposals have either been rejected by the Securities and Exchange Commission or remain under consideration, as the SEC continues to drag its feet through the approval process.
A crypto ETF would be a major step in bringing cryptocurrency to U.S. investment portfolios,
offering American investors the ability to invest in digital currencies like Bitcoin or Ethereum without having to learn to trade on a crypto exchange.
The only similar option for U.S. investors today are private trusts that hold cryptocurrency, such as Grayscale Bitcoin Trust or Osprey Bitcoin Trust. These funds allow accredited investors to buy shares directly at market value, but anyone can buy secondary market shares through a brokerage account with a traditional firm, like Fidelity. There are management fees associated with the trusts to keep in mind, though (2% for Greyscale and 0.49% for Osprey) which can make this method of Bitcoin investment more costly than a commission-free blockchain ETF or buying crypto directly from an exchange.
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