Last week's events clearly demonstrated why some people are concerned about investing in Bitcoin. With a single tweet—possibly just one word by Elon Musk at the weekend—the cryptocurrency fluctuated by thousands of dollars in both directions without warning. Fortunately for some investors, there are other ways to bet on the future of cryptocurrency without directly investing in it.
You might not know much about Bitcoin but are interested in the rising cryptocurrency market, or perhaps you know a lot about Bitcoin but prefer not to touch it, wary of its erratic price drops, or maybe you already own Bitcoin but want to invest more broadly in the future of cryptocurrencies. In any case, it's important to know that there are increasing ways to get exposure to it.
### Growing Acceptance of Cryptocurrencies
The U.S. Securities and Exchange Commission is expected to make a decision this year regarding the approval of Bitcoin-tracking exchange-traded funds (ETFs). Meanwhile, many companies linked to the crypto world have gone public, and several have acquired large amounts of Bitcoin, with their stock prices affected by fluctuations in the cryptocurrency’s value. The expansion of the cryptocurrency financial system coincides with the growing popularity of the currency itself and its supporting technology.
Here is an overview of investment alternatives in Bitcoin:
#### Buying Stock in a Bitcoin-Related Company
Companies that have more familiar structures for an ordinary investor, including executive teams making decisions and disclosing financial results, are why some individuals prefer this route for indirect Bitcoin exposure. Sweta Bhargava, a financial advisor at Advizo Wealth in Philadelphia, said, "It can be easier for people to invest in sectors they already understand, which are adopting these technologies to become more efficient... and those sectors can be a better place to start investing in cryptocurrencies for investors."
The recent direct listing of Coinbase Global on Nasdaq serves as a test for this strategy. Since most of its revenue comes from fees charged to users for deposits and trading funds, the valuation of the crypto exchange closely fluctuates in relation to Bitcoin's price. In a statement to the SEC, the company clearly stated, "Our net revenue is significantly dependent on the prices of crypto assets and the volume of transactions on our platform."
#### Companies Investing in Bitcoin
Alternatively, investors can focus on companies that are optimistic about Bitcoin and hold substantial amounts of it, such as Tesla, which purchased over $1.5 billion worth. Other public companies with large holdings include MicroStrategy, a software company that has bought billions in Bitcoin, and Galaxy Digital Holdings, which has acquired hundreds of millions.
For companies that do other things beyond holding Bitcoin, it is also essential to evaluate their sectors and the performance of their individual products. Michael Kelly of Switchback Financial in Madison, Connecticut, noted, "The risk-return profile isn't exactly the same since you are investing in the companies themselves, so you are exposed to their unique risks."
#### Investing in Technology
Bitcoin is a cryptocurrency; each unit serves as an encrypted record stored in a public ledger known as blockchain, which you probably already know. By solving complex mathematical problems to verify currency transactions, individuals can be rewarded with new Bitcoin, opening the door for companies that mine Bitcoin using powerful computers to create units of the cryptocurrency out of nothing.
Julius de Kempenaere, chief technical analyst at StockCharts.com, said, "You no longer need to be computer-savvy to mine Bitcoin; there are companies that can do it for you." Marathon Digital Holdings and Riot Blockchain Inc. are among the largest firms in the sector. On the Marathon website, the Las Vegas-based company states that owning a stake helps expose your portfolio to Bitcoin without the need to deal with the complexities of directly holding the asset.
Riot, based in Castle Rock, Colorado, specializes in acquiring companies related to cryptocurrencies, and in April, the firm revealed it was acquiring the largest Bitcoin mining facility in North America, Winston US, in a deal worth $651 million, involving both equities and cash.
#### The Most Common Tool So Far: Investment Funds
The Grayscale Bitcoin Trust is where investors turn for indirect exposure to Bitcoin, launched in 2013 by Grayscale Investments, a U.S. cryptocurrency investment firm. The fund allows investors to hold the currency without needing to create a digital wallet to store records of cryptocurrency transactions.
The only downside is that Grayscale charges a 2% management fee. Ryan Cole, a private wealth advisor at Citrine Capital, a wealth management firm based in San Francisco, stated, "There are much larger fees associated with these funds, and if you hold Bitcoin directly, you aren’t paying any fees to hold it or trading fees for people." Moreover, at times, the fund is traded at a value lower than the Bitcoin it holds.
#### What's Next: Index Funds?
The Bitcoin boom has led ETF issuers to bet that we will soon see a fund tracking the currency. Grayscale Investments, the issuer of the Grayscale Bitcoin Trust, has stated it will convert its fund into an ETF as soon as American regulators permit it. The SEC has not yet approved this structure.
In recent weeks, many ETF issuers have submitted applications after the first Bitcoin ETF began trading in Canada last February. Investors argue that a Bitcoin index fund will make it easier to buy and sell the cryptocurrency and eliminates the complications associated with storage and wallet integration. Until U.S. regulators approve it, investors can look at the Amplify Transformational Data Sharing ETF, which tracks companies involved in cryptocurrencies and blockchain technology, according to Luke Sudards, an analyst at Pepperstone Group Limited.
Sudards said, "Through this product, you will have invested in names like PayPal, Square, Visa, publicly listed mining companies, and chip makers like Nvidia that produce the chips used in cryptocurrency mining."
#### There Are Always Alternative Coins
There’s also the option of purchasing one of the many alternative cryptocurrencies that have emerged since Bitcoin’s launch. Research from the trading platform Binance found that the prices of different cryptocurrencies tend to be strongly correlated, rising and falling together. Litecoin, launched in 2011, outperformed its older competitor this year, gaining 178% compared to Bitcoin’s 87%, while Ethereum, the second-largest cryptocurrency, soared by 440% during the same period.
#### Or Simply Buy Bitcoin
Owning a piece of Bitcoin has been extremely complicated, whether it's a full coin or a fraction of one. One has to open wallets and keep track of keys, and sometimes deal with entirely new companies that lack records or headquarters to contact.
Currently, many companies—including exchanges like Coinbase, and money transfer apps such as Cash App, Venmo, Paypal, and brokerage firms like Robinhood—have made buying Bitcoin or other cryptocurrencies easier, though fees and policies vary.
