There are various ways to invest in cryptocurrencies. Below, we look at four ways that any trader can use to invest in crypto.
Spot trading in cryptocurrency is the continuous process of buying and selling coins such as Bitcoin or Ethereum at real-time prices for immediate delivery.
The spot price is the current price of a coin or token that can be bought or sold in the marketplace for a quick settlement. Crypto spot traders typically buy and sell a range of cryptocurrencies throughout the day to make daily trading profits.
Similar to spot trading, crypto traders like to trade cryptocurrency CFDs. With crypto CFDs, traders and investors don’t need to worry about secure digital asset storage as they are not buying or selling the actual cryptocurrency.
Instead, they are trading contracts for difference, so only the difference between the buy and sell (or sell and buy) price is settled in cash with the broker.
Cryptocurrency exchange-traded funds (ETFs) and other exchange-traded financial products are another way to invest in crypto. For traditional investors who are not comfortable dealing in actual cryptocurrency, crypto ETFs, ETNs, and ETPs offer familiar investment vehicles that track the price of underlying cryptocurrencies.
Crypto ETF holders also don’t need to worry about crypto storage or wallet management, as the ETF provider handles that on behalf of the investor.
Investing directly in crypto requires a steep learning curve for first-time investors. However, there are other ways to invest in crypto without actually purchasing crypto. In addition to buying crypto CFDs or investing in a crypto ETF, investors can purchase shares in publicly-traded crypto companies.
Several dozen cryptocurrency and blockchain companies are trading on global securities exchanges. However, when investing in shares of a crypto company, the value of the “crypto” investment will also be affected by the performance of the company itself and the stock market.
While investing in cryptocurrencies is a high risk, crypto can be a great investment opportunity.
Cryptocurrencies like Bitcoin have been incredibly successful, outperforming all major asset classes in the last five to ten years.
Secondly, some cryptocurrencies, such as Bitcoin, have additional utility. Besides investing in them, people can also use them to pay for goods and services. Other crypto tokens may also grant access to projects or services and discounts linked to that project.
Thirdly, cryptocurrencies can be an excellent asset class for diversification as they are mainly uncorrelated to stocks and bonds.
While crypto offers excellent investment opportunities, there are also disadvantages when investing in this new digital asset class.
Firstly, cryptocurrencies are very volatile and can be considered high-risk investments. While some cryptocurrencies will likely succeed, most crypto projects will probably fail, leading to losses for investors. Moreover, sharp price swings can affect portfolio value substantially, which may be difficult for new investors.
Secondly, some regulatory uncertainty remains surrounding crypto assets. The classification of digital assets keeps changing across the globe, adding regulatory risk to the crypto markets.