The dizzying rise of cryptocurrencies has redefined the way we think about finance and investing. As these digital currencies continue to capture the attention of investors and enthusiasts alike, an interesting trend has emerged: the possibility of investing in cryptocurrencies without the need to purchase them directly. Gone are the days when purchasing Bitcoin, Ethereum or other cryptocurrencies was the only way to enter the exciting world of investing in digital assets. In this article, we will explore the various strategies and approaches that allow investors to participate in the cryptocurrency market without purchasing the coins themselves.
What is indirect crypto investment?
If you don't want to open an account on a cryptocurrency exchange and buy cryptocurrencies, you're out of luck. You can make an indirect investment in cryptocurrencies, where you expose yourself to them without buying them yourself. Indirect investing is done using traditional methods such as stocks, mutual funds, and exchange-traded funds (ETFs). Again, there are pros and cons to consider, such as security, fees, and risk of loss. When you buy cryptocurrency through a third party, that third party is going to make money in some way, so you should take that into account when deciding if you should buy cryptocurrency using an indirect investment.
1. Crypto ETFs and investment funds
Investment funds are the first way to buy cryptocurrencies without buying them directly. One of the early notable participants in this offering is Grayscale Bitcoin Trust (GBTC). Although it works similarly to an ETF, legally it is a completely different type of entity. However, investing in GBTC through a brokerage account will achieve a similar result to buying a Bitcoin fund. The price of the investment will rise and fall with the market price of Bitcoin. The big drawback of Grayscale is the 2% expense ratio. They simply charge 2% to purchase Bitcoin and store it in a wallet in your name. We can do it ourselves quite easily without having to pay an ongoing 2% commission. Other funds include the ProShares Bitcoin Strategy ETF (BITO), Valkyrie Bitcoin Strategy ETF (BTF), VanEck Bitcoin Strategy ETF (XBTF), Global X Blockchain & Bitcoin Strategy ETF (BITS), and the Bitwise 10 Crypto Index Fund (BITW). Fees and underlying investments vary depending on the fund we choose, so make sure you read the prospectus carefully and know what you are getting.
Performance of the Grayscale Bitcoin Trust (GBTC). Source: Grayscale.
2. Cryptocurrency and blockchain stocks
If you want to buy a stock that exposes you to cryptocurrencies, you can choose between companies that work in the blockchain industry and companies that invest in cryptocurrencies or have them on their balance sheets. Companies in the cryptocurrency industry are engaged in cryptocurrency mining, software development, and other services. Actions include Riot Blockchain (RIOT), Canaan (CAN), HIVE Blockchain Technologies (HIVE) y Bitfarms (BITF). Coinbase (COIN) and Microstrategy (MSTR) are two of the largest and most recognized cryptocurrency stocks. Typically, when there is a downward trend in cryptocurrency prices, many cryptocurrency stocks also struggle. Keep these risks in mind when purchasing and consider working with a trusted financial professional if you have any questions about your decision or investment plans.
Microstrategy (MSTR) YTD Quote. Source: Google Finance.
3. Crypto Debit Card Rewards
A final method to fill your cryptocurrency wallet without opening your fiat wallet is with debit card rewards. Several cards allow you to earn cryptocurrency when you swipe, tap, dip, click, or do anything else to use a debit card as payment. Among the personal debit cards for cryptocurrencies, the BlockFi Rewards Visa Signature, the Gemini Credit Card and the Upgrade Bitcoin Rewards Visa stand out. The Crypto.com exchange, Nexo and Coinbase also offer a rewards card. Some cards, like the SoFi Personal Debit Card or the Venmo Debit Card, offer flexible redemption options, including cryptocurrency. When you earn crypto as a debit card reward, you invest in crypto without buying crypto. Even if it goes down in value, you don't pay for the crypto, so all you take away is profit.
Advantages of the Nexo debit card. Source: Nexo.