Bitcoin has regained its trillion-dollar status, surging past the $50,000 mark. This exciting comeback raises the question- how can you invest in this digital asset? While buying Bitcoin directly seems simple, there are various approaches with distinct risks and rewards, catering to different investor profiles. Here are four popular methods to gain exposure to the Bitcoin market, as per your comfort level and risk tolerance.
Owning the Actual Bitcoin- For the Purists
This method grants you direct ownership of Bitcoin, the coveted gold of the digital world. For purists who want to own the underlying asset, purchasing a fraction of a Bitcoin (known as Satoshis) offers complete control. However, it comes with obstacles:
- Limited brokerage support- Most traditional stock brokers do not deal in cryptocurrencies, so you are required to open a dedicated crypto-trading account.
- Learning curve- Mastering crypto exchanges and navigating order types might feel more complex than stock trading for beginners.
Bitcoin ETFs- The Familiar Route
Exchange-traded funds (ETFs) tracking Bitcoin’s price offer a somewhat familiar and convenient option. These funds reflect the cryptocurrency’s movements so that you can buy and sell them like regular stocks on your existing brokerage account. Popular choices include Grayscale Bitcoin Trust (GBTC), iShares Bitcoin Trust (IBIT), and ARK 21Shares Bitcoin ETF (ARKB).
Pros
- Simplicity- Investing in ETFs requires minimal learning compared to direct Bitcoin purchases.
- Limit order- Unlike crypto exchanges, you can set precise price limits for buying and selling.
Cons
- Management fee- ETFs charge annual fees that eat into your returns compared to owning Bitcoin directly.
- Indirect exposure- You do not truly own Bitcoin with ETFs but rather track its price through underlying holdings.
Bitcoin Miners- High Risk, High Potential
If you want more exposure to Bitcoin’s price movements, consider Bitcoin mining companies like Marathon Digital Holdings (MARA) or Hut 8 Mining (HUT). These companies use specialized equipment to solve complex puzzles, earning new Bitcoins in the process. Their fortunes are tightly linked to Bitcoin’s price, but with added volatility:
- Amplified gains– When Bitcoin rises, mining companies can see even greater returns due to their ongoing token production.
- Higher risk- This sector faces multiple threats, including volatile energy costs, competition, and potential regulation.
Companies with Bitcoin Ties- A Controlled Exposure
For a milder approach, consider companies with significant Bitcoin holdings or operations in the crypto space. These businesses offer indirect exposure and mitigate some of the volatility associated with owning the cryptocurrency directly. Here are some examples:
MicroStrategy (MSTR)– This data analytics company boasts the largest corporate Bitcoin treasury, actively acquiring and holding the cryptocurrency.
Tesla (TSLA)- Elon Musk’s electric car giant holds a smaller but noteworthy amount of Bitcoin as part of its investment strategy.
Block (SQ)- Formerly known as Square, this digital payments specialist offers crypto-related products and holds a portion of its assets in Bitcoin.
It is pertinent to mention that these companies hold diverse business interests, and their success should not solely rely on Bitcoin price movements.
The Motley Fool’s Take
While Bitcoin presents an exciting investment opportunity, remember the inherent risks and volatility. Diversification is crucial, and it is vital to consider your risk tolerance before diving in. The Motley Fool Stock Advisor service recommends alternative investments with potentially higher returns and lower risks, but the final decision rests with you. Hence, you must do your research, understand the market, and choose the path that complements your financial goals and risk appetite.
Note: This article is for informational purposes only and should not be considered financial advice. When investing in any asset, including Bitcoin, there is always the risk of loss.
Celine Brooks is a renowned journalist and author specializing in cryptocurrency and blockchain technology. She holds a Master’s degree in Economics from Harvard University and is very passionate about Crypto. Celine regularly hosts webinars and workshops, sharing her insights and forecasts about the evolving digital currency landscape. She is also an active contributor to several leading financial and tech publications, where she breaks down complex crypto trends into understandable insights for everyday investors.