I always recommend investing directly in cryptocurrencies to maximize your gains.
But we are in the middle of a bear run, and it’s perfectly understandable that some investors will want to use crypto stocks as an easier, somewhat less risky way to gain exposure to the crypto sector.
For one, many brokerages don’t allow you to buy Bitcoin outright – at least not yet. For many regular investors, the closest you can get is through OTC index funds, Bitcoin futures exchange-traded funds (ETFs), or crypto mining stocks.
Not to mention the fact that buying stocks avoids the technical challenges and headaches of storage, possible hacks, and wallet address errors that can send your crypto into oblivion.
The good news is that today, investors seeking exposure to cryptocurrencies via the stock market have more choices than ever.
From index funds to ETFs to crypto mining stocks, here are three ways to gain exposure to Bitcoin (BTC) and other cryptos without buying them outright…
Backdoor Pick No. 1: Bitcoin Index Fund
The Grayscale Bitcoin Trust (OTC: GBTC) tracks the price of Bitcoin almost exactly, but it’s a hedge fund, not a stock, launched in 2013 as a way to create a “backdoor” Bitcoin ETF that did not require Securities and Exchange Commission (SEC) approval.
At first, only accredited investors could buy shares, but after a 12-month period, those early investors could sell shares to anyone on the over-the-counter (OTC) market. Because of that loophole, retail investors can buy GBTC through their brokerage account.
Like a commodity ETF, Grayscale does own Bitcoin to back the shares. But it suffers from a disadvantage: It can’t create and destroy shares as easily as a SEC-approved ETF can. Now that the SEC has approved futures-based ETFs, Grayscale has applied to the SEC to have GBTC converted to a full-fledged spot-based Bitcoin ETF, which would be a big deal.
The caveat here is that GBTC typically trades at a steep premium to its net asset value, so you’re overpaying to get exposure to Bitcoin. Grayscale also offers index funds for other cryptos.
At the time of this writing, GBTC is trading at $18.88. It’s down nearly 45% year-to-date, but if you zoom out to five-year resolution, you find a very different picture: nearly 244% in gains.
Backdoor Pick No. 2: Bitcoin Futures ETF
Then, there’s the ProShares Bitcoin Strategy Fund (NYSE: BITO), which debuted in October 2021 as the world’s first Bitcoin ETF (exchange-traded fund).
The arrival of the first Bitcoin ETF was a long time coming and generated a lot of excitement among investors. It saw $1 billion in trading volume on its first day to become the second-most heavily traded debut ETF in history. BITO closed its first day up nearly 5% with $1 billion in AUM (assets under management).
This BITO Bitcoin ETF is futures-based, which means it’s based on derivatives rather than being physically backed by Bitcoin. But it’s still a way for retail investors to gain indirect exposure to Bitcoin – and unlike Bitcoin, it’s available to buy through just about any brokerage.
The BITO price is $17.88 as of this writing, down more than 38% year-to-date, but it’s every bit as well positioned as Bitcoin to run much higher this year.
Backdoor Pick No. 3: Crypto Mining Stocks
Bitcoin miner Core Scientific (NASDAQ: CORZ) went public just a few weeks into 2022 after taking the SPAC (special-purpose acquisition company) route to the markets. Blackrock Inc. (NYSE: BLK) was the anchor investor.
Core Scientific not only mines its own Bitcoin, but it also provides services for third-party miners, including infrastructure and technology. It’s one of the biggest Bitcoin miners in North America, with 6.6 exahashes of mining power – double that of most of its rivals. Its customers have a combined 6.9 exahashes.
The company has more than 70 patents associated with digital asset mining. It operates in Georgia, Kentucky, North Carolina, and North Dakota, with a site planned for Texas. Through using green power and buying credits, it seeks to keep its operations carbon-neutral.
Core Scientific kicked off the year strong with 255% revenue growth year-over-year, bringing in $192.5 million in the first quarter of 2022.
Its stock is currently trading at $3.84, a significant discount from its closing price of $9.35 on January 20.
So, own crypto if it’s even remotely possible for you to do so, but it’s undeniable investing in one of these publicly traded stocks offers a good option for beginners to get their feet wet in cryptocurrency without going all-in.
Chief Crypto Strategist, American Institute for Crypto Investors