Investing in the crypto market through stocks offers a range of options, catering to various investment preferences and risk tolerances. These options can be broadly categorised into cxchange-traded funds (ETFs), crypto industry stocks, and crypto-adjacent stocks.
Exchange-traded funds (ETFs)
Crypto ETFs have become a focal point for investors seeking exposure to digital currencies without the complexities of direct ownership. The Securities and Exchange Commission (SEC) recently approved 11 spot cryptocurrency ETFs for trading on US exchanges, including one managed by the world’s largest asset manager, BlackRock, marking a significant milestone for the digital asset space. These spot ETFs directly reflect the current market price of cryptocurrencies, offering a straightforward approach to investing in the digital currency market.
There are also futures ETFs, which have been available in the US and Australia for some time, and are based on futures contracts for cryptocurrencies. These contracts speculate on future prices rather than providing direct exposure to the current market price in real time. The key difference lies in the directness of the exposure to cryptocurrencies: spot ETFs offer a more immediate reflection of market movements, whereas futures ETFs involve a level of speculation on future prices. This distinction is crucial for investors to understand before choosing which type of ETF to invest in.
Some examples of crypto ETFs include:
- Global X 21Shares Bitcoin ETF (EBTC, CXA): Tracks the price of Bitcoin in Australian dollars, with Bitcoin holdings secured in cold storage by Coinbase. Global X also has a similar spot Ethereum ETF under the ticker EETH.
- iSHARES BITCOIN TRUST (IBIT, NASDAQ): The most prominent spot Bitcoin ETF, managed by Blackrock.
Crypto Industry Stocks
Companies that fall into the crypto industry stocks category are those whose primary business operations are linked to the cryptocurrency world. This includes listed crypto exchanges, platforms where users can buy, sell, and trade cryptocurrencies. These exchanges are central to the liquidity and accessibility of the crypto market.
Another significant part of this category are crypto mining companies. Mining is essential for maintaining the blockchain, and in return for their service, miners receive payments in crypto. These companies provide the computational power required to process transactions and secure the network, playing a pivotal role in the ecosystem’s functionality and growth.
Some examples of crypto industry stocks include:
- Coinbase (COIN, NASDAQ): One of the largest crypto exchanges globally, serving millions of retail and institutional clients worldwide. It is listed on the tech-heavy Nasdaq.
- Marathon Digital (MARA, NASDAQ): A leading company in Bitcoin mining, also listed on the Nasdaq.
Crypto-adjacent Stocks
Crypto-adjacent stocks represent companies that, while not primarily focused on cryptocurrencies, have significant engagements or investments in the sector.
This includes firms in the technology sector, like Graphics Processing Unit (GPU) manufacturers, whose products are crucial for mining cryptocurrencies and for the infrastructure of the blockchain technology itself. Additionally, there are companies that, despite having a broader business focus, choose to hold large amounts of cryptocurrencies on their balance sheets or integrate crypto-related services into their product offerings. These investments or services link them to the cryptocurrency market’s movements, with their stock performance often rising and falling alongside broader crypto trends.
Some examples of crypto-adjacent stocks include:
- MicroStrategy Inc. (MSTR, NASDAQ): Holds significant Bitcoin on its balance sheet, offering indirect exposure to Bitcoin’s price movements.
- Nvidia (NVDA, NASDAQ): Supplies GPUs and chips essential for crypto mining, benefitting from the cryptocurrency adoption wave.
- PayPal (PYPL, NASDAQ): Integrates crypto transactions into its payment platform and Venmo, linking traditional finance with the crypto market.
Each category of cryptocurrency stocks offers a different point of entry to the digital currency space, with varying degrees of exposure to the market’s volatility and growth potential. Understanding these distinctions is critical for investors aiming to align their portfolios with their investment objectives and risk appetite in the rapidly evolving cryptocurrency sector.
