There are many valid reasons why people can’t or don’t want to own digital assets such as Bitcoin or Ethereum. In this article, I would like to discuss various ways to get exposure to bitcoin or other cryptocurrency without actually owing the digital asset.
Why not hold bitcoin directly?
There are various reasons why people don’t want to own bitcoin or other cryptocurrency directly.
1) Cryptocurrency is difficult to secure. Most people have heard about the Mt. Gox hack where nearly $450 million dollars in bitcoin was lost / stolen. This is only one of many hacks where people or crypto exchanges have lost money. There are ways to secure cryptocurrency using offline cold storage wallets but let’s be real here… these cold storage wallets are more complex and more of a hassle than the average person is willing to deal with.
2) Buying or owning cryptocurrency may be legally restricted. In certain countries around the world, buying or owning Bitcoin may be frowned upon or outright banned. These include countries like China, Russia, Vietnam, Bolivia, Columbia and Ecuador.
3) Another negative to owning Bitcoin directly is the high volatility. All cryptocurrency including Bitcoin and Ethereum can swing massively on a day to day basis.
Because of the reasons above, some people feel safer using alternate investments that give some exposure to Bitcoin without actually owning it. We’ll discuss those options below.
Bitcoin Futures ETF
On October 19, 2021, the first Bitcoin Futures ETF was launched and became publicly traded. The ProShares Bitcoin Strategy ETF (BITO) made history as the first Bitcoin related ETF to be approved by the SEC and should pave the way for other Bitcoin related ETFs to be approved in the near future.
It’s important to distinguish that a Bitcoin Futures ETF has less correlation to Bitcoin than a true Bitcoin ETF that tracks the “spot” price or current price of Bitcoin. That means the price of a futures-based bitcoin ETF could trade at a premium during a bull market or at a discount during a bear market.
Nonetheless, with the approval and launch of the Proshares Bitcoin Strategy ETF, this will undoubtedly pave the way for other Bitcoin ETFs to be approved in the near future.
Bitcoin Mining Companies
Recently we have seen a surge in the number of companies whose sole purpose or mission is to mine Bitcoin. Investing directly in these companies offers a way to get Bitcoin exposure without holding the cryptocurrency directly.
Marathon Digital Holdings (MARA) and Riot Blockchain Inc (RIOT) are probably two of the most well known.
These companies mine Bitcoin and hold it, with the sole intention of profiting off of the price appreciation of Bitcoin. As Bitcoin goes up, the value of the Bitcoin they are holding also goes up. This in turn increases the companies value.
Companies that hold Bitcoin instead of Cash
Some other companies have decided to invest part of their cash holdings in Bitcoin or other cryptocurrency instead of holding it in cash.
Tesla Inc. (TSLA) is probably one of the most famous of these companies. In February of 2021, Tesla disclosed that they had purchased about $1.5 billion worth of Bitcoin. They also announced that they would accept payment in Bitcoin but that decision was later rescinded.
Microstrategy Incorporated (MSTR) is another company that has decided to hold a large portion of it’s cash reserves in Bitcoin. As of September 2021, it was reported that Microstrategy holds about $5 billion worth of Bitcoin.
Cryptocurrency Brokerages
Companies such as Coinbase Global Inc (COIN) and Robinhood (HOOD) allow exposure to Bitcoin and other cryptocurrency because as the price of crypto goes up and down, so does the trading volume. These crypto brokers make money on purchase and sell orders. As Bitcoin and Ethereum rise and fall, retail traders are buying and selling and generating revenue for the company.
As you can see, there are numerous ways to get exposure to Bitcoin and other cryptocurrencies. If you are interested in investing in Bitcoin but do not want to deal with the headache of securing it, consider investing in one of the options above.