There are many ways to invest in cryptocurrencies. Some involve directly investing while some are indirect. This article will show you many different ways to invest in this space.
The simplest way to invest in cryptocurrencies is to just go and buy it.
While there are many crypto-to-crypto exchanges, many users don’t feel comfortable sending coins from exchange to exchange. This is completely fine because I believe this technology will evolve to simplify this process (like the internet and email). For now though, if you want the most direct way to invest, go to Coinbase or another fiat-to-crypto exchange and buy your favorite coins. Just remember, “Not your keys, not your crypto.” If you plan on investing this way, please read this article (click here), it explains the different types of wallets and what the benefits of each one are.
Mining, Masternodes, and Staking
If you are technology savvy, mining is a great option. By using your computer’s CPU and/or GPU, you can mine certain cryptocurrencies (BTC, BCH, LTC, DOGE). In return for spending electricity, you receive the coin you are mining.
Some miners sell all, some, or none of their cryptocurrency in order to remain profitable while mining but that decision is completely up to you.
Another option is to create a masternode or to stake your coins. These two types of investing give you a percentage return over a certain predetermined time period.
While some coins are Proof of Work (PoW), some cryptocurrencies like TOMO, ICX, EOS, and ETH (soon) use some variation of Proof of Stake (PoS).
With a masternode, you run the full version of the blockchain in real time to provide security to the network. In order to do this, your computer must always be up and running. Masternodes are very similar to mining except there isn’t as much electricity used.
The other option is staking your coins. With a masternode, you are required to have a certain amount of coins, but staking doesn’t require a minimum. It is important to note that usually when staking or running a masternode, you lock up your coins for a predetermined time period.
We have multiple tutorials on how to run masternodes and stake cryptocurrencies on our YouTube channel. Check them out by clicking here.
Work For It
This is the most controversial one on this list because it involves a regulated business. Every jurisdiction and country is different, before choosing to accept cryptocurrency as payment please ensure it is legal with local officials.
Many companies accept Bitcoin and other cryptocurrencies as forms of payments. If your business is in a good financial situation, open up to accepting this volatile asset as a payment method. Or choose to partner with BitPay to allow users to pay with their Bitcoin and you receive fiat. This is a great way to use other people’s money to buy cryptocurrency.
This is where directly investing ends and indirect investing begins. With institutional products, you neither hold nor can you withdraw any of the coins because you have no control over them.
The most popular products are the CME and CBOE Futures markets and The Swiss Bitcoin ETP, HODL. The Swiss product is very new, November 2018, but has been well received in the European markets. The futures contracts started in December 2017 and for good or for bad have been a way to invest in Bitcoin without directly buying the volatile asset.
In the future, products like Bakkt and a potential ETF by Van Eck & SolidX, Bitwise, or another group could dramatically change the landscape of the markets. It remains to be seen if this will be good or not for the future of the space.
The last product I will talk about is a stock called Bitcoin Investment Trust (GBTC) by Grayscale. This product is a stock in which the company owns Bitcoin and has been publicly traded since May 2015. Essentially by owning stock in the company, you “own” their Bitcoin.
The biggest downside with this is the premium paid on the product. It is estimated that there is about an 18% premium on the cost of Bitcoin vs buying an equivalent amount of Bitcoin with GBTC. While this is a large downside, you don’t have to worry about your cryptocurrency being hacked since it is controlled by Grayscale.
This last group of investments not only is directly related to cryptocurrency markets but they have their own businesses that have been extremely successful long before the highs of crypto markets in December 2018 and January 2019. These companies are Overstock.com, Microsoft, Nvidia, and AMD.
Nvidia is a computer hardware company that went public in the early 2000s. During the bull market of 2017, the prices of GPUs rose drastically and the company’s stock rose from about $100 to $223 in January 2018 and then to a high of about $280 in late September 2018. This company’s price action was mainly due to people buying miners at a premium in order to mine their favorite coins.
AMD has been the longtime rival of Microsoft and has been public company since the 1980s. While this stock didn’t see the drastic rise that Nvidia did, the stock price is still about double the price of what it was at the beginning of 2017 ($11 to about $20 as of now). While Nvidia is most known for making GPU’s, AMD also makes hardware used for mining cryptocurrency.
Microsoft has been one of the largest computer hardware manufacturers since the 1980s. At the beginning of 2017, their stock was around $62 and rose to a high of $114 in September 2018. Microsoft was one of the first major companies to accept Bitcoin as payment back in November 2014. Over the next few years, their decision was definitely the correct one with Bitcoin rising from a few hundred dollars to about twenty thousand.
Last but not least, Overstock.com, like Microsoft, was one of the first major companies to accept Bitcoin as a payment method back in 2014. Their stock rose from about $17 in January 2017 to a high of about $84 in January 2018. This company’s price seems to be the most correlated to the price of Bitcoin’s price, as it has dropped all the way back to pre-2017 prices.
CEO Patrick Byrne has created tZero which is a platform to allow for the regulated trading of tokenized securities. If his vision is fulfilled, the returns could be huge.
I hope that I have given you some idea on how to invest in cryptocurrency markets directly and indirectly. The more direct your investment is, the more volatile it is due to the infancy of the cryptocurrency markets. If invested correctly, along with a bit of luck, the indirect investments can help mitigate your losses or make you gains while crypto markets are going down.