Maybe you’ve been thinking of investing in cryptocurrency, but you’re a bit daunted by the risky and complex prospect of buying individual coins—especially with hundreds to choose from. Not to worry, there are plenty of ways to dip your toe into the crypto market using traditional investments like stocks, mutual funds and exchange-traded funds (although not yet a bitcoin ETF).
Originally, buying a cryptocurrency meant downloading the currency’s unique software and saving keys—essentially pass codes—on your computer. More recently exchanges like Coinbase and Binance have appeared, allowing customers to hold coins in digital wallets. But trading even popular coins like bitcoin and ether can still pose a lot more hassles than just typing a ticker symbol into your brokerage account.
And don’t forget risks: It’s not unusual for bitcoin to drop 10% in a single day, a move that would signal a cataclysmic shock in the stock market. (It’s a big reason financial advisors recommend putting no more than 1% to 3% of your savings in crypto.)
Most traditional brokerages like Schwab and Merrill Lynch still don’t allow customers to hold crypto directly. Instead, here are some of your best options to buy crypto that don’t involve learning how to trade individual coins.
1. Bitcoin futures ETFs
For everyday investors looking for an easy way to buy crypto, an exchange-traded fund that owns bitcoin (just like the ETFs that hold gold and silver) seems like an ideal solution. However, the Securities and Exchange Commission has so far declined to permit this kind of product, much to the fund industry’s chagrin.
What investors can buy, at least for now, are ETFs that own futures contracts tied to bitcoin’s price. Professional investors use futures to bet on future price movements of commodities and currencies, among other things. ETFs that track the price of oil also hold futures contracts rather than physical oil. Because ETFs can be bought and sold through a regular stock-market brokerage account, they can be a convenient option for crypto beginners. If your trading account offers fractional shares, you may be able to get started with just a few dollars.
There are drawbacks. Since ETFs are mutual funds, they include a management fee. The oldest and most popular of these, the ProShares Bitcoin Strategy ETF, levies an annual fee of 0.95% of invested assets. To put that in context, broad-market stock ETFs typically charge less than 0.1%. (ProShares says the fee reflects the “effort and expertise” involved in managing the fund.) Perhaps an even bigger issue: ETFs that own futures contracts don’t always deliver returns that match the returns of the asset they target. While so far bitcoin futures ETFs have performed relatively well, oil futures ETFs, which have a much longer track record, have generated controversy when the ETFs prices deviated wildly from the price of the underlying crude.
Where to get started
Popular crypto futures ETFs include:
- Global X Blockchain & Bitcoin Strategy ETF
- ProShares Bitcoin Strategy ETF
- Valkyrie Bitcoin Strategy ETF
- VanEck Bitcoin Strategy ETF
2. Grayscale and Osprey over-the-counter trusts
These investments are another attempt to get bitcoin into a fund-like vehicle. The trusts trade throughout the day, making it possible to bet on crypto without the hassles of buying, storing and safekeeping the coins or tokens themselves.
You can buy these in most investing accounts, and they are overseen by the SEC, adding an extra layer of security. However, you may pay a higher fee for this type of fund than for an ETF. For instance, Grayscale Bitcoin Trust’s expense ratio is 2%, double what some popular futures ETFs charge.
Another issue is that the prices of these trusts don’t always match the prices of the cryptocurrencies they own. While crypto futures funds also share this problem, it tends to be more extreme with over-the-counter trusts. Trey Barnes, a financial planner in Overland Park, Kan., says he’s seen one popular fund, the Grayscale Bitcoin Trust, trade for prices as much as 33% below the value of the bitcoin it holds. (Grayscale notes this is part of the fund’s design and due to market forces.)
Of course, if you are a sophisticated investor, and willing to take on some extra risk, you may be able to use the price mismatches to your advantage. A discount kicks in when there are more sellers than buyers of the trust—a scenario that could someday reverse itself. “If you bought shares trading at a discount, you bought a dollar’s worth of bitcoin for less than a dollar,” says Barnes.
Where to get started
Popular over-the-counter crypto trusts include:
- Grayscale Bitcoin Trust
- Grayscale Ethereum Trust
- Grayscale Litecoin Trust
- Osprey Bitcoin Trust
- Osprey Solana Trust
3. Crypto industry stocks and ETFs
Investors who are more comfortable with the stock market than the world of crypto may want to take a different approach: investing in companies that stand to profit from the growing cryptocurrency industry. If you want to own individual stocks, you could buy shares of a publicly traded exchange like Coinbase or invest in a handful publicly traded bitcoin miners such as Riot Blockchain or Marathon Holdings. There’s also a growing number of crypto ETFs that target the overall crypto ecosystem—companies involved in developing new uses for blockchain technology, the code that undergirds cryptocurrencies.
As always with stocks, there are risks: Although bitcoin mining companies are improving the efficiency of creating new bitcoin and there’s no longer competition from China, these data farms still require lots of energy to operate and they can only be profitable if the price of bitcoin rises from current levels.
ETFs have drawbacks too. Like all mutual funds they come with a management fee. And some stocks in their portfolios may be only tangentially tied to the crypto market. One example: Invesco’s popular Invesco CoinShares Global Blockchain UCITS ETF holds a position in Coinbase and several crypto mining companies, but other top holdings include Shell and Walmart.
Where to get started
Popular crypto industry stocks include:
- Coinbase Global Inc.
- Riot Blockchain Inc.
- Marathon Digital Holdings Inc.
Popular crypto industry ETFs:
- First Trust SkyBridge Crypto Industry and Digital Economy ETF
- Fidelity Crypto Industry & Digital Payments ETF
4. Crypto separately managed accounts (SMAs)
If you are a more sophisticated investor, willing to make some decisions but still looking for help from a professional, consider a separately managed account—a portfolio created for a single investor and typically managed by your financial advisor, working directly with investment firms that offer these products.
SMAs are like mutual funds in that a professional money manager makes investment decisions and trades for you. But unlike with a fund, you can offer a degree of direction, for instance, asking the manager to avoid a particular coin you don’t like or to cap the amount you want invested in bitcoin at 25%. With SMAs you also own the coins yourself (as opposed to owning shares of a mutual fund.)
Of course, all that personal attention can come with a cost. Many SMA firms require you to invest at least $25,000 to open an account. And they frequently market themselves exclusively through financial advisors, so if you invest on your own, you may be out of luck.
Fees can also be high, as much as 2% is common—double what you would pay for a similar exchange-traded fund. One way the fee could be justified: Many SMAs promise “tax-loss harvesting,” a trading strategy that can help lower capital gains tax bills. Given the wild volatility of crypto markets, this can be a valuable perk.
Where to get started
Popular Crypto SMA companies include:
- Arbor Digital
- BITRIA Inc.
- Bitwise Asset Management
- Eaglebrook Advisors Inc.
- Honeycomb Digital Investments LLC
- Rubicon Crypto LLC
5. Your 401(k)
Millions of retirement savers may soon have another crypto option. In April, Fidelity Investments, the largest 401(k) provider, announced a program that will enable individuals to keep a portion of their savings in bitcoin starting later this year.
If your employer allows it, you could sign up to have up to 20% of your paycheck allocated to bitcoin in your retirement account. Fidelity would purchase the coins on your behalf and hold them in a “digital assets account,” which would contain both bitcoin and short-term money market investments.
Remember, your employer holds the cards in deciding if and when it wants to offer this option and will establish employee contribution limits and exchange limits into the account.
Sound risky? If you are near or in retirement, you have a lot more to lose than someone who is still decades away from retiring. If you’re many years away from needing to tap into your retirement savings, devoting 1% of your savings to bitcoin today could set you up to profit, if the digital currency really does someday end up at the center of the global payments system.
Meet the contributor
David Conti
David Conti is a contributor to Buy Side from WSJ.
