Investing in Bitcoin originally meant one had to possess direct ownership of the coins. However, various ways exist for investing in Bitcoin without buying the tokens.
In the past, investors had to purchase and hold the tokens to invest in Bitcoin directly. However, such conditions have significantly changed today with the widespread Bitcoin adoption and technological developments. Any retail or institutional investor can now buy Bitcoin without buying the tokens.
You can use various alternatives to invest in Bitcoin without direct ownership of the coins. The following are the best ways to gain exposure to Bitcoin without purchasing the tokens.
Bitcoin Futures ETFs
Like gold and silver ETFs, Exchange Traded Funds (ETFs) that own Bitcoin can be an easier way for everyday investors looking to buy Bitcoin without direct ownership. While the SEC is still adamant about releasing that kind of product, investors can acquire ETFs with futures contracts tied to Bitcoin’s price. Professional investors leverage futures to bet on the future price movements of currencies and commodities. Investors can buy and sell ETFs through traditional stock market brokerages, making Bitcoin futures ETFs an excellent option for crypto beginners. However, it is essential to note that futures ETFs do not consistently deliver the same returns as their underlying assets. Popular Bitcoin futures ETFs include Global X Bitcoin Strategy ETF, ProShares Bitcoin Strategy ETF, and VanEck Bitcoin Strategy ETF.
Investing in Companies with Bitcoin Holdings
You can also invest in Bitcoin indirectly by purchasing shares in companies with crypto interests. While you do not have direct ownership of the coins, investing in such companies enables your investments to gain value whenever the acquired shares increase in price and vice versa. However, experts recommend index funds as a better investment strategy than individual stocks. Instead of buying shares in a single crypto-related company, you should maintain a balanced portfolio by identifying multiple companies with crypto interests.
That will enable you to invest in companies with significant growth potential and diversify your investments within a broader fund. For example, Vanguard allows you to search for all the funds tied to specific companies. Other platforms, such as ChainReaction, provide similar ways for searching index and mutual funds by the company. However, you should remember specialized mutual funds may bear higher fees.
Over-the-counter (OTC) Trusts
OTC Trusts such as Grayscale and Osprey are investments that attempt to bring Bitcoin into fund-like products. The trusts facilitate daily trading, allowing investors to bet on cryptocurrencies without buying and holding the tokens. The SEC directly oversees those investments, adding a layer of security for investors. While you can easily acquire assets through an investing account, the fees may be higher than ETFs. For example, Grayscale Bitcoin Trust has an expense ratio of 2%, almost double what you will pay for futures ETFs. Besides, the prices of those trusts sometimes match the cryptocurrencies to which they tie. Savvy investors willing to take on additional risks may leverage the price mismatches to their advantage.
Separately Managed Accounts (SMAs)
More sophisticated investors who need professional help to invest in Bitcoin without holding the coins should also consider opening separately managed accounts. An SMA is a portfolio developed for a single investor and operated by a financial advisor who works directly with investment firms that offer such products. SMAs work similarly to mutual funds, with professional money managers making investment decisions and trading on behalf of investors. However, there is a degree of freedom since you can direct the manager to avoid certain coins or cap your Bitcoin investments at a particular level.
As discussed above, numerous options exist for investing in Bitcoin without buying the coins. The best choice depends mainly on your preferred investment strategy and risk threshold.
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