Only a few years ago, cryptocurrency was dismissed by most mainstream investors as a strange niche investment. Things change fast in the fintech world, and now many accredited and experienced retail investors are looking for exposure to this new asset class.
But for those who don't know where to start, what are the options? You have to go through the steps to educate yourself by studying how cryptocurrency addresses work, familiarize yourself with hardware and software wallets, and go through the somewhat cumbersome process of creating accounts on exchanges.
For some people, their enthusiasm for this new technology is enough that they are more than willing to go through all that. They might even enjoy it! But what about other investors who are intrigued but don't want to learn all that stuff?
Furthermore, purchasing cryptocurrency directly generally doesn't allow for investors to claim certain tax rebates or incentives that other asset classes benefit from. Some investors may want to take advantage of their 401(k) plans in the United States or RRSP contributions in Canada.
As it stands, there are two main barriers that prevent widespread investment in cryptocurrency: confusion about how to do so securely, and the ambiguity surrounding which cryptocurrencies are worthy of investment.
Even if you are an experienced investor in traditional asset classes, setting up accounts with these exchanges to get access to a variety of assets can be complicated and tedious. There is an emerging market of investment products that makes crypto investing as straightforward as buying stocks.
In some cases, investing in cryptocurrency in this way can even offer important tax benefits.
One of the first institutions to grasp the opportunity represented by cryptocurrency was Grayscale. To achieve this, it established the Bitcoin Investment Trust in 2013 to provide accredited investors exposure to this new asset. The idea was inspired by previous products, such as the SPDR Gold ETF, which allows you to purchase shares in order to gain exposure to the underlying asset without having to buy and hold the gold itself.
Soon afterward, the Bitcoin Investment Trust was approved to move into the over-the-counter market. Those who had invested earlier could now resell their shares in a public market under the symbol "GBTC." This effectively makes GBTC a secondary market for Bitcoin Investment Trust shares.
As you might expect, investment trust products generally require pretty substantial minimum investments.
However, GBTC does not and is available to anyone who has a brokerage account, including retail investors.
Of course, other financial institutions weren't going to let Grayscale have all the fun. Other options include the Bitcoin One Tracker, which made headlines last year by offering U.S. investors another way to invest in the wake of ongoing delays in the approval of bitcoin exchange-traded funds (ETFs). This exchange-traded note (ETN) offers another easy entry point for investors who want to invest in bitcoin without buying BTC itself. This represents an opportunity for investors who are frustrated by the lack of an SEC-approved crypto ETF.
While these assets allow direct exposure to select cryptocurrencies, a group of other exchange-traded assets also provide access to portfolios of digital currencies. For example, I sit on the board of a digital asset investment company called Cypherpunk Holdings, which focuses on a portfolio of cryptocurrencies with strong privacy characteristics, also known as "privacy coins." Since it's listed on the Canadian Securities Exchange, the stock is compatible with TSFA and RRSP for Canadian citizens planning for retirement.
Another new project, based out of Toronto, is Ether Capital (listed as ETHC on the NEO exchange), which provides investors with exposure to Ethereum and assets built on its blockchain.
If you are considering these options, it might be difficult to choose which specific stock to select. Considerations you should keep in mind are your location, as well as price premium. Not all of these assets are available to all customers in different countries. Customers in the U.S. are generally restricted from the Bitcoin One Tracker, whereas European investors are not. Furthermore, due to the difficulty in purchasing cryptocurrencies, some of these assets have a tendency to trade higher than their net asset value (NAV). Before purchasing any of these assets, it might be worthwhile to see how much of a premium you are paying.
Regardless of which crypto-tracking stock you go with, you are essentially getting the same thing with all these various opportunities: exposure to a new asset class in a form familiar to the rest of your investment portfolio. You won't need to set up a new brokerage account or file your taxes any differently than normal, which can be a huge time-savings come year end.
As public awareness about cryptocurrency continues to grow, more opportunities for investment via crypto-linked stocks will arise. If you're not a big "tech" person but still want to get involved with crypto, these investment vehicles offer an opportunity to get exposure to this new asset class.