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How to Invest in Blockchain Without Buying Cryptocurrency?

When people first hear the word “cryptocurrency,” they usually think about bitcoin or Ethereum. But blockchain technology is much more than just cryptocurrency and has been revolutionizing everything from our economy to how businesses work. Especially since cryptocurrencies experienced explosive growth between 2020 and 2021, then quickly dropped in value before skyrocketing again, the uncontrollable nature of crypto is a glaring truth that investors cannot ignore.

Bitcoin, which is an alternative form of currency, was created by Satoshi Nakamoto in 2009. Essentially, Bitcoin operates outside of the traditional financial system so there’s no involvement from banks or any governments.

Bitcoins are risky investments because they are worth more as a product of scarcity and speculation than they are as a stable form of currency. Even though blockchain technology is in its infancy, you can see the potential and invest in it without actually going down the crypto lane. In this article, we walk you through how to do this.

What’s the other way around?

You don’t need to open an account on a cryptocurrency exchange and buy cryptocurrencies. You can make an indirect investment in cryptocurrencies by using traditional methods like stocks, mutual funds, and exchange-traded funds (ETFs).

Cryptocurrency is still in an early stage, and to invest in this new form of currency, you’ll need to consider the pros and cons. One trade-off within cryptocurrency is security: Third-party sites that allow you to buy cryptocurrencies or exchange one type of cryptocurrency for another will make money off of your purchase.

  1. Crypto ETFs and Mutual Funds

One of the most popular ways to invest in Bitcoin is through Grayscale Bitcoin Trust, which works similarly to an ETF.1 You can buy GBTC on your brokerage account or you can buy it on the open market. Investing in GBTC will have a similar effect as buying a Bitcoin fund, like GBTC’s share price increases and falls when the market price of Bitcoin changes.

The downside of Grayscale is its expense fee. You’ll lose 2% on every purchase from Bitcoins. However, you can do this yourself without the ongoing fee of 2%.

Funds that invest in Bitcoin include the ProShares Bitcoin Strategy ETF (BTO), Valkyrie Bitcoin Strategy ETF (BATF), VanEck Bitcoin Strategy ETF (XBT), MVIS Bitcoin Index Fund Constituents (MCOFF), and the Bitwise 10 Crypto Index Fund (BCI). Read the fund’s prospectus carefully to know what you’re investing in.

Blockchain investment through ETFs
  1. Grayscale and Osprey over-the-counter trusts

One of the most successful investment vehicles out there is the fund, and bitcoin may soon have one. You can trade digital tokens or coins through these crypto funds in a similar way to that of funds traded on the stock market.

The SEC oversees these investment vehicles, which can be purchased in most accounts. These funds have high fees, but they offer an extra layer of security. For example, Grayscale’s Bitcoin Trust’s expense ratio is 2%, twice as much as that of many popular futures ETFs.

One problem with these over-the-counter trust instruments is that the prices do not always represent the price of the crypto holdings. For crypto futures funds, which also suffer from this problem, it’s usually more severe. Trey Barnes, a financial advisor in Overland Park, Kan., says he’s seen one popular fund – the Grayscale Bitcoin Trust – trade for prices as much as 33% below the value of bitcoin that it holds. (Grayscale explains this as part of the fund’s design and due to market forces.)

Where to get started

Popular over-the-counter crypto trusts include:

• Grayscale Bitcoin Trust

• Grayscale Ethereum Trust

• Grayscale Litecoin Trust

• Osprey Bitcoin Trust

• Osprey Solana Trust

  1. Crypto Industry Stocks & ETFs

Investors who find the stock market more appealing than the world of crypto may want to take a different approach: investing in companies that can benefit from the growing cryptocurrency industry. You could buy stocks at a publically-traded company like Coinbase, or invest in a handful of publicly-traded bitcoin miners such as Riot Blockchain or Marathon Holdings. There are also a growing number of crypto ETFs that target the entire cryptocurrency ecosystem—companies that develop new applications for blockchain technology, which underlies cryptos like bitcoin.

Even though bitcoin mining companies are improving the efficiency of creating new bitcoin, these data farms still require lots of electricity to operate, and they can only continue to be profitable if the price of bitcoin rises above its current level.

ETFs have their disadvantages as well. Like mutual funds, ETFs come with their own management fee. Some stocks in these portfolios may be only thinly related to the crypto market, like when Invesco’s popular Invesco CoinShares Global Blockchain UCITS ETF holds a position in Coinbase and several crypto mining companies, yet other top holdings include Shell and Walmart.

Where to get started

Popular crypto industry stocks include:

• Coinbase Global Inc.

• Riot Blockchain Inc.

• Marathon Digital Holdings Inc.

Popular crypto industry ETFs:

• First Trust SkyBridge Crypto Industry and Digital Economy ETF

• Fidelity Crypto Industry & Digital Payments ETF

Disclaimer: The purpose of this article is to provide an idea of organizations that are listed on stock exchanges that have made an investment in the blockchain space. It does not represent our views on the stock market or any of the stocks of companies that are mentioned in this article. Please research your options carefully before investing.

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