How to Invest in Crypto Now
What You Need to Know
Cryptocurrency exchanges tend to have high transaction fees.
Individuals can invest in ETFs that own companies holding Bitcoin and in Bitcoin futures.
Venture capital crypto investing may be an option for high-net-worth clients.
Investors have shown growing interest in the cryptocurrency market and may find a few different ways to participate.
More than 90% of financial advisors reported that their clients asked about crypto last year — a significant increase over the previous year — according to the Bitwise/ETF Trends 2022 Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets.
Recent market turmoil undoubtedly has shaken the industry; leading crypto trading platform Coinbase announced on June 2 it was placing a pause on hiring “for the foreseeable future” and rescinding accepted job offers. Gemini, another crypto exchange, announced a 10% workforce reduction the same day, saying the crypto revolution is “well underway” but has entered a contraction phase, or “crypto winter.”
On the same day, however, Ric Edelman, founder of the Digital Assets Council of Financial Professionals, noted that crypto is projected to generate $5 billion in advisory fees in the next five years and cautioned financial advisors not to ignore what he called the first major new asset class in 150 years.
Here are a few ways individuals can own digital assets or invest indirectly in the cryptocurrency market.
Cryptocurrency Exchanges
As Morningstar noted in its 2022 Cryptocurrency Landscape report, several digital asset exchanges offer consumers the ability to directly trade cryptocurrencies. Purchasers can buy and sell cryptocurrencies on centralized exchanges dedicated to that purpose, like Coinbase, Gemini, Binance and crypto.com.
Other options, the firm noted, include retail brokerage platforms such as Robinhood and payment apps like PayPal, Venmo and Square. Newer, decentralized exchanges like Uniswap use “smart contracts” to algorithmically connect buyers and sellers, who must trade in cryptocurrencies rather than dollars or other fiat currencies.
“Despite their differences, cryptocurrency trading platforms all have one thing in common — high transaction fees,” according to Morningstar. “Unlike stocks or exchange-traded funds, which most brokerages will allow customers to buy and sell for free, cryptocurrencies still require a premium to trade.”
(Robinhood is an exception, offering free transactions and listing seven available cryptocurrencies, the firm noted. That platform announced a 9% job cut in April.)
Morningstar analysts have urged extreme caution in investing in cryptocurrency, noting the market is new, risky, quickly evolving and heavily concentrated in two players, Bitcoin and Ethereum. One Morningstar analyst recently noted that “mind-boggling losses are a fact of life” for crypto investors and a portfolio strategist suggested investors keep exposure minimal, carving out allocations from stocks rather than bonds.
Crypto ETFs, Trusts and Funds
Investors looking to participate in the crypto market without directly trading cryptocurrencies have other choices. Morningstar Direct lists more than two dozen products in its digital assets category, which had nearly $28.5 billion in total net assets as of May 31, just over half the level reached at the end of October.
These vehicles include the Grayscale Bitcoin Trust, the largest and oldest on the list with more than $20 billion in assets under management and the ability to be held in brokerage and certain IRA accounts. The private-placement trust, which requires a minimum $50,000 investment, invests in Bitcoin; its own shares trade publicly on the over-the-counter stock market under the GBTC symbol.
Grayscale says the fund allows investors to gain exposure to Bitcoin in the form of a security without “the challenges of buying, storing, and safekeeping BTC directly.”
Newer, Bitcoin-related ETFs also allow individuals to participate in the market without directly owning the currency. The Securities and Exchange Commission hasn’t yet allowed ETFs to directly own Bitcoin. The first Bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO), launched in October, and several others soon followed.
