Crypto investment: what’s the best option for you?
Blockchain technology along with cryptocurrency has steered a revolution in the financial markets. In a rather quick time frame, they have emerged as some of the most promising assets in the market that can offer exponential gains. The solid fluctuation of prices in the crypto market has also resulted in growing interest around them as their popularity continues to rise. Try reading here at MultiBank.io
It is a rather common perception that cryptocurrencies tend to be much more volatile than stocks. However, it would be wrong to assume this to be a negative aspect of digital currencies. Soon, it would soon be almost two decades since the crypto market came into existence and most investors would agree that price swings are only natural for assets that are new and still establishing their grounds.
Of course, market volatility may put off many investors but that shouldn’t be a reason to stay away from the crypto market altogether. You cannot curtail the curiosity that has peaked around cryptocurrencies especially after Australia’s first crypto ETF drew investments worth over 3 million on the very first day of its launch.
Crypto economy so far
In the last two years, there has been monumental growth in the cryptocurrency market. From $300 billion in 2020 to $2 trillion by February 2022, the market has expanded dramatically. It reached the highest ever point in October 2021 when the total market capitalization was well above $3 trillion. Even though today there are thousands of options for cryptocurrency investing, Bitcoin and Ethereum continue to take the lead holding a 40% and an 18% stake in the market respectively.
Why is crypto a good investment opportunity?
With the coming of cryptocurrency investments, a new set of financial instruments have entered the market. These are unique because they operate on a decentralized, peer-to-peer network rather than relying on a central server which is typically the case with traditional financial instruments. Each time there’s a trade, whether a crypto token is bought or sold, the transaction gets noted in the blockchain and is distributed on the shared digital ledger. This ledger can be private or public and its key feature is that it keeps a record of all the data using a process known as ‘mining’.
If you’re into cryptocurrency investing, you would already know that crypto and high liquidity go hand-in-hand. Multiple exchanges are allowed to carry out transactions and thus, the seemingly small trades could have the power to swing market prices depending upon their volume.
For traders, liquidity is a boon because it implies improved pricing, quicker transactions and accurate technical analysis inputs. But, do keep in mind that liquidity is also what makes the market so incredibly volatile. To make the waters murkier, the cryptocurrency market remains largely unregulated across various geographies and thus, it is a difficult task to have a proper financial system that backs this market. Consequently, the investors in the crypto market are exposed to more risks because there is no government backing.
If you are under the impression that the only way of cryptocurrency investing is to buy a digital token or asset, you must explore the various options the market offers. Read on to know more about the three major choices that a crypto investor has.
- Correlated share
You can easily gain crypto market exposure without having to actually own a crypto token if you purchase stocks of a company that has a considerable stake in the cryptocurrency or blockchain technology’s future. This is an advantage because you get to invest in the organizations that demonstrate potential while diversifying your investment portfolio. Don’t know where to start? Check out some of these companies listed below that use Bitcoin or blockchain technology:
Besides offering a host of cloud services and business intelligence options, MicroStrategy also invests in Bitcoin.
Marathon Digital Holdings (MARA)
North America-based Marathon Digital Holdings, has set its agenda of becoming the largest bitcoin mining operation in the entire area.
RIOT Blockchain (RIOT)
Riot Blockchain is yet another Bitcoin mining company that you can check out.
Bitfarms is known for running several blockchain computing centers.
Galaxy Digital (BRPHF)
Crypto investment management, trading, custody as well as mining, Galaxy Digital is a one-of-a-kind broker-dealer that checks most if not all cryptocurrency investing-related boxes.
Elon Musk’s Tesla owns Bitcoin worth billions of dollars. Musk has been an important advocate of cryptocurrency even though Tesla had discontinued accepting Bitcoin payments in 2021. However, the billionaire founder has indicated that the company will soon start taking Bitcoin payments.
PayPal is a popular payment portal for traditional/fiat currencies where people can also buy cryptocurrency.
The decentralized financial sector will soon witness the entry of a new player with Square.
Coinbase enjoys a special status for being the first-ever public cryptocurrency exchange that has also debuted on the Nasdaq.
Cryptocurrency investing and stock market investments can be similar especially if one sees the risks involved in both cases. Experts would often advise against hand-picking individual stocks to put your money on. Instead, most financial pundits would suggest investing in diversified index funds or ETFs that are known for bringing big returns in the long run.
Several top index funds like S&P 500 also have many publicly traded companies under their umbrella. Most of them have in one way or another been a part of the crypto industry–while some have been into crypto mining, others have either invested in furthering the blockchain technology or have simply bought a mammoth’s share of cryptocurrencies.
Several investors who remain doubtful about cryptocurrencies and yet feel that blockchain technology can be groundbreaking are also the ones who see blockchain ETFs as good investments. ETFs may have been created by numerous companies but you have the option to choose the ones you like from your go-to broker. It is just as easy as looking for your stocks. Here are some ETFs that you can check out:
- BLOK (Amplify Transformational Data Sharing ETF)
- BLCN (Siren Nasdaq NexGen Economy ETF)
- LEGR (First Trust Indxx Innovative Transaction & Process ETF)
- LEGR’s top holdings are NVIDIA, Oracle, and Fujitsu.
If you want to get into cryptocurrency investing but are apprehensive about the exchanges or the idea of buying and holding onto crypto tokens, ETFs are your best bets. However, it is unfortunate that these have remained largely inaccessible to investors hitherto.
There was a lot of excitement and anticipation around the BITO, i.e, Bitcoin’s ETF that debuted in October last year. It is interesting to note that it is the first-ever Bitcoin-linked investment product.
Despite being a Bitcoin-linked product, BITO is not a fund that directly has any currency in its possession. Rather, it also keeps a host of Bitcoin-futures contracts and though it is a huge step forward, investors would still be more excited at the prospect of having an ETF that can directly hold on to cryptocurrencies.
For U.S-based investors, BITO is not the only alternative. Several similar options are opened by private players like Grayscale Bitcoin Trust or Osprey Bitcoin Trust that enable accredited investors to purchase shares at market value. However, anyone with a brokerage account can purchase secondary market shares.
A CFD is basically a binding contract through which you give your consent to exchange the difference in the price of a cryptocurrency from the point when you open your trading position versus when you close the same. However, in this case, you do not actually buy the cryptocurrency but you simply speculate on its future value in the market. If you see a price rise, you may want to go long so you can earn a profit but if you want to open a short position, it would be wise to do so when you expect a dip in prices.
When you engage in CFD trading, you do not directly deal with the underlying market. Instead, in this form of derivative trading, you bet on the prices that have been derived from the very same underlying market. It gets its popularity from the fact that it allows traders to:
- Boost their capital using leverage
- Open short or long positions
- Copy the way trading takes place in the underlying market
- Mitigate risks in a share portfolio through hedging
You would come across many options to add cryptocurrency to your portfolio without breaking the bank to buy a token. But, you must remember to step ahead carefully and research the market well to be aware of all the risks involved.
Not one of the stocks or the ETFs you trade come with a sure-shot guarantee that they will grow exponentially. Market factors such as volatility will remain in play here and bring their own set of risks that a wise investor should always take into account. If you do not arm your trading strategies with adequate research and market knowledge, you could end up losing more than what you actually invest.