How To Invest in Crypto Without Buying Crypto

You can gain exposure to cryptocurrency without buying any by purchasing shares of Bitcoin Spot ETFs, Bitcoin Trusts, or ETPs linked to cryptocurrency futures. The Securities and Exchange Commission also gave three exchanges the green light to begin listing eight Ether Spot ETPs in May 2024.

These indirect ways of investing in crypto are much cheaper and possibly less risky than purchasing crypto outright. Here’s what you need to know if you want to invest in crypto without buying crypto.

Key Takeaways

• Although cryptocurrency has existed for some time, many consider it a relatively new investment with a major learning curve.
• Investing directly in cryptocurrencies can be challenging because of their volatility, and some investors prefer using more traditional investments.
• You can indirectly invest in crypto through funds and cryptocurrency-related stocks.
• Options include spot and futures-based crypto exchange-traded funds (ETFs).

What Is Indirect Crypto Investing?

You have options if you don’t want to open an account on a crypto exchange and buy cryptocurrencies. You can invest in cryptocurrency indirectly through traditional methods like stocks, mutual funds, and ETFs.

There are pros and cons to consider, including security, fees, and the risk of losses. When you buy cryptocurrency through third parties, those funds are going to earn their keep somehow, so you should consider any additional costs when deciding whether to buy crypto using an indirect method.

Here are some ways you can invest in crypto indirectly.

Crypto ETFs

When trying to get broad access to a particular asset class, the first port of call is usually ETFs. Investment funds can be found that track pretty much everything, from gold to the S&P 500. Unfortunately, with cryptocurrency, it’s a little more complicated.

After many years of denying spot cryptocurrency ETF applications, the Securities and Exchange Commission (SEC), under pressure from a 2023 D.C. Court of Appeals decision, approved the first 11 in January 2024. Previously, the regulator only gave the green light to ETFs that owned bitcoin futures contracts. Here are some:

• ProShares Bitcoin Strategy ETF (BITO)
• Valkyrie Bitcoin Strategy ETF (BTF)
• VanEck Bitcoin Strategy ETF (XBTF)
• Global X Blockchain & Bitcoin Strategy ETF (BITS)

Here are the first Bitcoin spot ETFs to be approved:

• ARK 21shares Bitcoin ETF (ARKB)
• Bitwise Bitcoin Trust (BITB)
• Fidelity Wise Origin Bitcoin Fund (FBTC)
• Franklin Bitcoin ETF (EZBC)
• Grayscale Bitcoin Trust (GBTC)
• Hashdex Bitcoin ETF (DEFI)
• Invesco Galaxy Bitcoin ETF (BTCO)
• Ishares Bitcoin Trust (IBIT)
• Valkyrie Bitcoin Fund (BRRR)
• Vaneck Bitcoin Trust (HODL)
• Wisdomtree Bitcoin Fund (BTCW)

In May 2024, the SEC gave three exchanges approval to list certain Ether Spot ETFs. NYSE Arca, Nasdaq, and Cboe BZX are able to list and trade shares of:

• Grayscale Ethereum Trust (NYSE Arca)
• Bitwise Ethereum ETF (NYSE Arca)
• iShares Ethereum Trust (Nasdaq)
• VanEck Ethereum Trust (Cboe BZX)
• ARK21 Ethereum ETF (Cboe BZX)
• Invesco Galaxy Ethereum ETF (Cboe BZX)
• Fidelity Ethereum Fund (Cboe BZX)
• Franklin Ethereum ETF (Cboe BZX)

There are catches to investing in crypto this way. First, futures contracts and ETF shares don’t necessarily deliver the same returns as their target assets. Second, ETFs for crypto can be complex and have fees that can eat into your potential returns.

Important

Fees and underlying investments vary based on which fund you choose, so be sure to read the prospectus carefully to know what you’re getting.

Ethereum ETFs

Once spot Bitcoin ETFs were approved, calls became louder for Ethereum’s native token, ether, to get the same treatment. Ether-based ETFs were only able to use futures contracts to track the price of ether rather than directly holding the digital currency, as traditional ETFs and now many Bitcoin ETFs can do. However, this has changed following the SEC’s May 2024 exchange proposal approval.

Asset managers like VanEck, Grayscale, and Fidelity have filed for permission to launch Ethereum ETFs, which would give investors exposure to the world’s second-largest cryptocurrency via SEC-regulated funds. This would likely give Ethereum greater liquidity, improve price tracking, and lead to potentially lower fees than futures-based ETFs can offer.

Note

Other countries, including Canada, have been quicker in adopting spot crypto ETFs.

Crypto ETFs vs. Crypto ETPs

ETPs are financial instruments that track underlying securities, an index, or other financial products traded on exchanges. They can be purchased and sold throughout the trading day, like stocks. ETFs are the most common form of ETP. Other types of ETPs are exchange-traded notes, which specialize in debt securities, and exchange-traded commodities, which track the performance of commodities such as precious metals, agricultural products, and energy resources.

When the SEC approved spot bitcoin ETFs in January 2024, they were classified as ETPs under the Securities Act of 1933 rather than ETFs as defined by the Investment Company Act of 1940. Thus, the term ETP is a bit of a misnomer, though Investopedia has followed the more common usage in the investment community despite the SEC’s determination.

What are the implications? Besides having a less diversified portfolio, ETPs are governed by slightly different rules. Diversification and the type of assets held played a role in this designation. With bitcoin ETPs, physical spot exposure is given to a single commodity of cryptocurrency. Conventional funds, like other ETFs and mutual funds, must hold a more diverse range of assets. Registered under the Securities Act of 1933, ETPs are not subject to the same diversification and leverage restrictions as ETFs. This provides more flexibility in the types of assets they can hold, including cryptocurrencies.

While ETPs are subject to securities regulations, they do not offer the same level of investor protection as ETFs. Investors should exercise more caution and conduct thorough due diligence. The tax treatment of ETFs and ETPs can also differ. Investors should consult with tax professionals to understand the tax implications of investing in crypto ETPs. Lastly, the crypto market in which crypto ETPs are now players (since they have to trade crypto tokens) is not SEC or CFTC-regulated.

Cryptocurrency and Blockchain Stocks

Another way to invest in crypto without buying digital tokens is to purchase shares in companies that work in blockchain or hold cryptocurrency on their balance sheets.

Companies specializing in blockchain technology are often involved in crypto mining, software development, and other blockchain-based services. Notables include Riot Blockchain (RIOT), Canaan Inc. (CAN), HIVE Blockchain Technologies (HIVE), and Bitfarms (BITF). These companies have different risk and reward trade-offs than those directly invested in cryptocurrencies.

Alternatively, some companies hold cryptocurrencies or are directly involved in them. For instance, Coinbase (COIN), a publicly traded company, is one of the largest and best-known cryptocurrency exchanges. As of its Dec. 31, 2023 Form 10-K, it held more than 74,000 bitcoin, ether, solana, and other cryptocurrencies.

Generally, as crypto prices decline, related stocks also struggle. This volatility is one of the risks inherent in this sector, a key point to remember when exposing your portfolio to crypto-related products. Given the rapid changes in cryptocurrency regulations and market moves—and as a general rule of thumb for investing—it’s prudent to diversify your portfolio to guard against crypto’s risks and consult a trusted financial professional to review your investment plans.

There are also ETFs that specifically invest in companies with links to cryptocurrencies.

Crypto and Your 401(k) 

You can invest a part of your retirement funds in cryptocurrencies with minimal effort. In 2022, Fidelity announced that clients could add Bitcoin to its 401(k) accounts. Fidelity buys the coins and holds them in a digital asset account.

This was a major step toward bringing cryptocurrencies fully within the mainstream through traditional retirement investment portfolios. Ultimately, it’s often up to your employer to decide on the specific portfolio of funds available to you for your 401(k).

Credit Card Rewards

Credit card rewards are one final method to fill your cryptocurrency portfolio without opening your fiat wallet. Several cards allow you to earn crypto when you swipe, tap, dip, click, or do anything else to use a credit card for payment.

Examples of cryptocurrency credit cards include the Gemini Credit Card, and cards offered by the Crypto.com and Coinbase exchanges.

Some cards, like the Venmo credit card, offer flexible redemption options, including cryptocurrency. When you earn crypto as a credit card reward, you invest in crypto without buying crypto.

Is Crypto Worth Investing In?

There are many risks when investing in crypto—fraud, hacks, significant losses from price fluctuations, regulatory changes, and more. It’s best to talk to a financial advisor familiar with cryptocurrency to learn if it’s suitable for your financial circumstances and portfolio.

How do Beginners Invest in Cryptocurrency?

Knowing how to invest in crypto can be intimidating, given the complexity of blockchain technology, the hype surrounding it, and the many available currencies. The first step is to get up to speed on the fundamentals of cryptocurrencies, how blockchain technology underpins them, the kind of crypto wallet you will need, and the differences among cryptocurrencies like bitcoin, ether, and altcoins. Reputable resources such as Investopedia and courses offered by universities—many freely available online—can be invaluable. Platforms like Coinbase or Binance might be a good choice for your initial steps into the market since they have accessible interfaces and resources to guide you. Once in, stay updated on crypto news and regulatory developments.

Which Crypto Is Best to Invest In Now?

Investing in cryptocurrency comes with many risks, the most prevalent being the loss of capital from wild price swings. If you feel you must invest in cryptocurrency, it’s best to talk to a financial advisor who is familiar with it and find out if it’s suitable for your financial circumstances. Additionally, it’s essential to remember you should never invest more than you can afford to lose, especially when investing in cryptocurrency.

The Bottom Line

Investing in cryptocurrency directly requires getting set up on an exchange and finding ways to store your digital coins safely. It can also mean potentially having a lot of money tied up in a volatile asset.

Fortunately, there are alternatives. You can invest indirectly in cryptocurrencies through ETFs that own future contracts tied to currency prices, bitcoin ETFs that securitize bitcoin holdings, or by purchasing shares in companies involved in cryptocurrency mining, software development, and other services. Alternatively, you can consider a credit card with cryptocurrency rewards or see if your employer offers this asset class through your 401(k).

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.

Read the original article on Investopedia.