Sounds counterintuitive, but it has its merits.
Most of you crypto enthusiasts reading this, who would also be more tech-savvy than the average person, would probably be wondering, why not just directly hold crypto in your wallet?
This is a good question and something I will address after going through the list of ways to “own” crypto indirectly.
Stocks – passive crypto exposure
Block, Inc. (SQ), beginning as Square, spearheaded by former Twitter CEO Jack Dorsey, is also involved in Bitcoin as Dorsey is one of, if not the biggest Bitcoin believers/enthusiasts out there.
One of Block’s projects is Spiral, aiming to make Bitcoin the preferred currency.
Stay up-to-date with the latest developments on their project through the Quarterly Update Q1 2023 and their blog.
Block, in my opinion, will remain a sensible choice for tech stocks moving forward as they:
– Are not solely focused on crypto — Square facilitates payroll, invoicing, POS payments for SMEs (you would have most likely seen their compact and trendy mobile payment systems) and more; Cash App lets you send money instantly around the world, buy stocks and Bitcoin; Tidal is Block’s foray into music streaming services.
– SQ’s share price is currently down by more than 65% from its peak (to date) of ~$275, which roughly coincided with all-time highs for assets across the crypto market. As I anticipate even greater adoption of digital payments in the future, particularly with cryptocurrencies, early movers such as Block (rather, its shareholders) will most likely benefit considerably from this in the coming years.
Coinbase (COIN) is the first (and still the only) crypto exchange that has gone public, and I would not be surprised if (or, in my opinion, when) Binance, Kraken, or another major one follows suit.
For some, this could be a way to gain exposure to the crypto space without directly holding Bitcoin or altcoins or prefer to engage in share trading.
Having said this, Coinbase is a centralised exchange and goes against the original intention of Bitcoin and other decentralised* cryptocurrencies: You control your money, there is no central point of failure, and governments, corporations, or otherwise cannot manipulate monetary policies (notably inflation).
As a result, I am featuring them last on this list. Nonetheless, I think they will do well in the medium-to-long term, as many (eventual) crypto adopters will still be inclined to invest in what is akin to a “crypto bank”.
Moreover, prospective investors should monitor the SEC’s rulings for XRP, Ethereum and other altcoins, that is to say, whether the regulatory body deems these assets to be securities or not. This decision will significantly impact altcoins and, thus, exchanges such as Coinbase.
*Several cryptocurrencies that claim to be decentralised are not, or are, at best, semi-centralised.
Image by Phongphan on Shutterstock
Stocks – Crypto mining companies
CleanSpark (CLSK) and Riot Platforms (RIOT) are notable examples of publicly-listed Bitcoin mining companies. Other Bitcoin miners exist, but I am just identifying those public companies.
As I firmly believe in Bitcoin remaining relevant for decades to come^, publicly-listed and private BTC mining companies will continue to build, expand their scope and, if well run, will benefit immensely from forecast BTC price increases — several-fold more than what we have now.
^ Provided that we, as a species overall, haven’t done anything nonsensical to destroy humanity, I believe in this. Otherwise, we’ll have bigger fish to fry…
Fidelity Investments, one of the largest financial services providers in the world ($3.9 trillion AUM, Dec 2022), allows its clients to invest up to 20% of its 401(k)’s total holdings in Bitcoin.
Seeing the opportunity presented to clients who want to gain exposure to the founding (and leading) crypto is excellent. Moreover, whilst some might disagree with a limit of 20%, I would say this is sensible — permitting crypto newbies to change their 401(k)’s investment strategy to be heavily reliant on crypto would be reckless.
On the contrary, as mentioned earlier, I prefer to avoid funds that immediately dismiss the idea of allowing their customers to assign a small amount (say, up to 10% of total holdings) to Bitcoin or even the crypto and blockchain companies.
Then again, it’s 2023, so if you want to gain exposure to this (relatively) nascent investment class, there are ample opportunities to do so through other means.
To reiterate, pursuing this idea of having Bitcoin in your 401(k) exposes you to greater risk than (relatively) more stable options through a retirement fund. However, most funds have riskier choices for their clients, so the idea is not farfetched when comparing Bitcoin to emerging, small-cap stocks.
I cannot comment on everyone’s circumstances; you should do what’s right for you.
Ideally, you should consult a registered financial advisor to see whether this suits you at your particular stage in life and how much volatility you are willing to accept overall in your fund.
Besides a 401(k), an individual retirement account (IRA) is a common alternative that is used by Americans opting to fund their retirement rather than via an employer with a 401(k).
I found this Forbes piece with a helpful synopsis of what a Bitcoin IRA entails, the pros and cons and more.
Following an insane year (2022) for the crypto asset class, some senators (you know the usual suspects by now) have encouraged Fidelity Investments to reconsider this plan mentioned above for Bitcoin in 401(k) funds.
Funds should allow their clients, mainly retail, i.e., everyday investors, to assign even just a tiny portion of their holding in crypto assets, even as a component of an overall high-growth or emerging technologies option within a fund.
In short, give people options, and equip them with impartial education on this topic and a series of free modules/resources to allow them to make an informed decision. From here, they can determine whether Bitcoin or altcoins in their fund work for them (perhaps just BTC initially for simplicity).
Exchange-traded funds (ETFs), index funds and mutual funds
An ETF is a collection of financial assets (stocks, bonds, forex, real estate, commodities, etc.). Unlike the latter, it is similar to an index fund (via a mutual fund) but designed to be easily and readily traded on a stock exchange.
Essentially, this collection of securities allows you to spread your risk instead of committing to single stocks.
Different ETFs exist, and I will touch on spot and futures ETFs regarding crypto.
A Bitcoin Spot ETF would allow everyday traders to have exposure to the investment in real-time without holding BTC in a wallet. In contrast, a Bitcoin Futures ETF contract would involve buying the asset at a set price at a pre-determined date. The latter’s set of contracts expires monthly and usually occurs on the last Friday of each month.
I know that these are simplified explanations, but the focus here is on crypto and blockchain, not the intricacies of these funds. Moreover, I have little interest in such products and personally prefer direct ownership (that is to say, my own BTC wallet) that allows for 24/7 trading or pursuing other options listed here.
I recommend these resources for an excellent overview of Bitcoin spot and futures ETFs, what they entail and their pros and cons.
Ark Invest is a renowned crypto/blockchain investment firm offering (six) tech-related ETFs. Spearheaded by Cathie Wood, Ark’s ETFs focus on innovation across multiple sectors, not just fintech and crypto.
After skimming through their corresponding fact sheets per fund, the two with the most significant exposure to Bitcoin and cryptos are ARK Fintech Innovation ETF (ARKF) and the ARK Next Generation Internet ETF (ARKW); Block and Coinbase feature in the top 10 list of companies in each fund.
Grayscale, similar to ARK Invest, offers a tech, innovation and blockchain-related ETF titled the Grayscale Future of Finance ETF (GFOF). Once again, this features numerous publicly-listed entities covered earlier with their diversified fund.
The digital-currency investing giant boasts over $23 billion of crypto AUM — $17.53B and $5.28B for BTC and ETH, respectively. They have been a leading player in this space for several years and launched their Bitcoin Trust nearly a decade ago…well before most of us even knew about HODLing, staking sats, and all that jazz.
The main reason I am featuring this enterprise is that it is also involved in a lawsuit with the US SEC; the latter is taking no prisoners with all of these crypto-related lawsuits…
Why? Grayscale intended to convert its aforementioned trust to a Bitcoin Spot ETF. The US SEC has, unsurprisingly, rejected this request. Now, Grayscale (rightfully so) thinks that this is a ridiculous outcome and is contesting the initial decision.
For context, multiple attempts to list a Bitcoin spot ETF reportedly date back to 2017, yet the US SEC has still refused to grant permission to any company to offer such a product legally.
Before wrapping up with ETFs, I admit that I have solely focused on the USA here and disregarded other parts of the world. On a positive note, other nations (including its northern neighbour) have embraced the idea of a Bitcoin Spot ETF. I am pleased that my country, Australia, has also green-lighted this product.
Many other jurisdictions could do it, but the US still hasn’t done it. I am surprised, but not really, as the USA likes to do some things its own way…
Why bother with this indirect exposure?
In brief, much of this boils down the three key factors:
– Convenience — No need for setting up a crypto wallet, additional KYC for separate exchanges (welcome to 2023), keeping private keys secure, frequent firmware updates, etc.
The company’s crypto integration will indirectly benefit (or cost) you depending on its performance over x amount of time.
– Diversification —This is especially true with crypto representing a portfolio component. Thinking of ETFs and retirement funds (i.e., the 20% max rule I touched on earlier), you are not fully exposed to the rapid and significant swings of the crypto market (or even just Bitcoin), yet you have skin in the game.
– Promoting mainstream adoption — Crypto is complicated for many people; I get it. These choices/services listed above boost overall crypto adoption, even if it goes against the whole idea of Bitcoin and decentralised cryptocurrencies.
Yes, many of these points will irk several puritans that steadfastly believe in not your keys, not your crypto. I concur and also support this mantra….to a certain point. Here’s the thing:
Not everyone wants to hold their own private keys.
Which is a shame. Most people under 50 should be confident enough to use a computer, surf the web and understand how USB drives work.
As a result, this cohort of society, and as time goes on, a broader demographic, should be confident enough to use a hardware wallet, one of the most convenient types of non-custodial crypto wallets available.
Image by rzoze19 on Shutterstock (Signed model release on file with Shutterstock)
This is a whole different topic of discussion. A smaller percentage of people would be willing to do so than you imagine. Still, much of it stems from them preferring to hold money in a bank or the old-school self-custody systems with tangible stores-of-value of payment methods — cash or gold in a vault, cash under the mattress, buried in the garden*…you get the idea.
Sidenote: Australia was the first country to invent synthetic polymer (plastic) banknotes. So no guilt about burying or washing “lobsters” or “pineapples”. Anyhow, I digress.
We’re all individuals and have different priorities in life (investing and otherwise), not to mention having varying degrees of technological competence.
I am a firm believer in giving people options, provided that these companies act with integrity, hold the amount of Bitcoin they claim to possess on behalf of their customers (Proof of Reserves should be mandatory for any entities that custody crypto) and due their due diligence when adding Bitcoin or any crypto to a given investment portfolio.
Of course, numerous financial companies act egregiously and irresponsibly, particularly banks (history repeats itself once again, notably as of late…), so we still have a long way to go before many retail investors that sufficiently understand crypto would trust financial services to manage their holdings.
Binance referral link. I receive a small commission from each successful referral.
I was contemplating listing ‘centralised exchanges’ in the list as mentioned earlier, which, strictly speaking (based on this article’s title), you do not directly hold (i.e., control, as in manage the private keys of your crypto wallet) as you entrust the exchange to the custody of your funds, and hope that they keep them out of the prying hands of hackers.
However, this piece is about people who do not want the thought of having to buy specific crypto; rather, the company does all of the work for them.
Another category that could have been included here is relying on a reputable (and registered + qualified) finance manager specialising in this asset class, distributed ledger technology and researching companies in this realm.
This combines direct and indirect exposure and varies depending on how your financial manager distributes your initial cash investment into this space.
Moreover, unlike most crypto investors that are directly involved in the entire process of buying crypto — finding an exchange, researching the digital assets, setting up a wallet, depositing cash, etc., you are delegating all of this to your financial manager, thus taking all of the hassles out of managing your digital assets.
What have I missed here? I look forward to your feedback and suggestions.
If you enjoyed this article, I recommend following my Medium page for regular reports about crypto assets, blockchain technology, and more. Feel free to check out my publication as well, Crypto Insights AU.
Thanks for your support.
N.B. None of this is financial or legal advice, and I am neither a financial advisor nor a lawyer. You are solely responsible for crypto investments and how you interpret the information provided in this piece.
The opinions expressed within this piece are my own and might not reflect those behind any entity listed here.
Please do your research before investing in any cryptos, staking, NFTs and other product affiliated with this space.
Statistics and prices included herein are correct at the time of writing and are based on the included links/sources.
Out of the shares included here, I hold COIN, SQ and CLSK. These collectively account for 5-7% of my overall portfolio, so their performance will have little negative impact on my general holdings if they were to all fail.
I received no incentive from companies or entities listed throughout this article to discuss their product.