Why and How to Invest in Cryptocurrency Stocks: A Beginner's Guide
April 4, 2023
Cryptocurrency stocks provide an exciting opportunity for investors of all kinds to add crypto exposure to their portfolios.In this guide, you will learn why investors are getting more and more interested in cryptocurrency stocks, and you will discover a list of leading crypto stocks that you could add to your equity portfolio.
Why Are Equity Investors Buying Cryptocurrency Stocks?
The global crypto market has experienced tremendous growth in the last decade, resulting in multi-thousand percent returns for anyone who invested in the right crypto assets at the right time.However, with great reward, comes great risk. The crypto markets are tremendously volatile, especially when considering cryptocurrencies with market capitalizations of less than $1 billion. Pricing fluctuations throughout 2017-18 and 2021-22 highlighted the boom and bust nature of the crypto markets, proving it a risky play for anyone looking for stable, long-term returns.Investors interested in adding exposure to this fast-growing asset class to their portfolios also want to limit the downside risk in order to retain stable capital growth.Enter publicly-traded crypto companies.Purchasing shares in a leading crypto exchange, a bitcoin mining company, or a digital asset manager allows investors to participate in the growth of crypto as an industry and as an asset class while alleviating the operational and idiosyncratic risks of investing in individual crypto assets.For retail investors, that means logging on to their online broker and buying crypto stocks in the same way they would buy technology or banking stocks. There’s no need to download a crypto wallet, learn how to manage their wallet’s private keys, and purchase crypto on an exchange, thus breaking many technical barriers of entry to the crypto markets.Institutional investors, on the other hand, aren’t able to invest in crypto assets directly for regulatory reasons, thus making cryptocurrency stocks an appealing alternative. While crypto stocks are not only driven by the value of the crypto market but also by the individual company’s performance, they - overall - tend to trade roughly in line with the price of Bitcoin and the crypto market at large.
How to Invest in Cryptocurrency Stocks
Investing in crypto stocks works essentially the same way as purchasing shares in any other type of publicly traded company.
1. Research the industry
Every experienced investor knows that you should never invest in something you don’t understand. While you don’t need to go as far as understanding the inner workings of the cryptography used by Bitcoin and other blockchains, you need to understand the basics of cryptocurrencies and the investment case for crypto.
2. Determine which crypto stocks you want to invest in
Globally, there are only a few dozen publicly traded Bitcoin and blockchain companies. You have to take the time to research the companies to which you have trading access with your online broker to ensure that you are investing in companies you believe have a bright future.
3. Decide how much you want to invest
Always invest money you can also afford to lose. Regardless of what you’re investing in, you should only use capital you have put aside for investments when buying stocks..
4. Set up a brokerage account
To buy and sell crypto stocks, you will need an online brokerage account that provides you with access to the stock market. When choosing an online broker, pay attention to the stock exchanges to which you have access as that will determine whether you can invest in crypto stocks listed on exchanges in the U.S., Canada, or Europe.
5. Fund your brokerage account
Before you can start adding crypto stocks into your portfolio, you will need to fund your brokerage account. Different providers offer different payment methods to fund your account, but most will allow you to use a bank transfer that will typically settle within 24 to 48 hours.
6. Select the crypto stock(s) you want to buy
Once you have deposited funds in your account, you can start to buy the crypto stocks you have chosen based on your research, risk appetite, and investment strategy.
7. Monitor your crypto stock investments
While there’s no need for you to stare at stock charts all day, you do want to check in periodically to see how your crypto stocks are performing.
Examples of Leading Cryptocurrency Stocks
Now, let’s take a look at five leading cryptocurrency stocks.
Samara Asset Group
Samara Asset Group is a publicly traded asset management group that invests in Bitcoin and tech-driven alternative assets. The Malta-based company aims to offer investors a seamless way to invest indirectly in the crypto economy through its listed shares.Samara’s investment strategy focuses on seeding the world’s best emerging managers and builders in Bitcoin.Features:
- Launch: 2018
- Listing: FSE
- Ticker: SRAG
Coinbase is a crypto exchange that allows users to trade 200+ digital assets. The US-based company offers a trusted and easy-to-navigate platform for users to participate in the wider crypto economy.The company also acts as a crypto wallet provider and offers prime brokerage services, custody for institutions, and a cloud interface for developers to build decentralized applications. The exchange is listed on the US stock exchange.Features:
- Launch: 2012
- Listing: NASDAQ
- Ticker: COIN
Galaxy Digital is a financial services and investment management company focused on blockchain and crypto technology sectors. The financial services company aims to help institutions, startups, and qualified individuals to participate in the crypto economy through its proprietary platform.Galaxy has five main business lines, including trading, investment banking, asset management, venture capitalism, and more.Features:
- Launch: 2018
- Listing: TSX
- Ticker: GLXY
MicroStrategy is an enterprise analytics platform designed to serve scalable businesses. The US-based company aims to provide institutions with an easy and scalable analytics platform with no hidden fees.Though their business traditionally did not have any ties to Bitcoin, MicroStrategy began buying bitcoin to add to its balance sheet as a hedge against inflation once its CEO Michael Saylor understood the merits behind Bitcoin. To date, the company has acquired over 130,000 BTC. MicroStrategy plans to continue accumulating bitcoin, adding 2,500 BTC in December 2022.Features:
- Launch: 1989
- Listing: NASDAQ
- Ticker: MSTR
Northern Data is an international tech company focusing on high-performance computing infrastructure, ASIC-based hardware solutions, and GPU cloud technology. The Frankfurt-based company aims to empower compute-intensive industries.Northern Data is known for deploying Bitcoin mining hardware as well as being a reliable partner for individuals or businesses looking to set up a mining farm. The company partners with NVIDIA, Gigabyte, and AMDA to meet the requirements for crypto miners.Features:
- Launch: 2009
- Listing: XETRA
- Ticker: NB2
Buying Cryptocurrency Stocks vs. Cryptocurrencies
Investing in crypto stocks and crypto assets directly provides investors with exposure to the performance of the global crypto markets. However, there are significant differences between these two types of investment products.Let’s take a look.
When you purchase a cryptocurrency, you have direct ownership in a specific crypto network’s native asset, which generally acts as a proxy to the success or failure of that specific crypto project. Conversely, when you purchase a cryptocurrency stock, you acquire a share in the ownership of a crypto company.
When you purchase crypto stocks through your online brokerage account, your investment is held in segregated accounts as a custodial bank. You don’t need to concern yourself with the safe custody of your assets.Conversely, when you buy cryptocurrencies, you need to securely store them in a personal wallet. For non-tech-savvy investors, this creates a barrier to entry into the crypto markets. As a result, many first-time crypto investors hold their crypto assets on exchanges.
Crypto stocks are bought and sold on regulated securities exchanges that offer a relatively high degree of protection to buyers and sellers. However, crypto exchanges operate in a less regulated space, exposing users to higher levels of risk, ranging from bankruptcy risk to cybersecurity risks.However, in the case of an exchange bankruptcy (as we have witnessed with FTX), users typically lose access to all their investments, making crypto exchanges an unsafe place to store your crypto assets.
The cryptocurrency market is highly volatile, especially when it comes to assets with lower market capitalizations. While cryptocurrency stocks tend to correlate with the performance of the crypto markets, they tend to be less volatile than cryptocurrencies. As a result, investors who prefer lower volatility might choose crypto stocks over cryptocurrencies.
The stock market is highly regulated. The same cannot be said for the crypto markets. As a result, a certain degree of regulatory risk exists when investing in cryptocurrencies outright, whereas crypto stocks are arguably less affected by regulatory risk.
The Bottom Line
Cryptocurrency stocks enable investors to add crypto exposure to their portfolios without having to deal with the technical hurdles of investing in cryptocurrencies directly.For retail investors who are more comfortable investing in stocks through their trusted online broker, cryptocurrency stocks offer an excellent avenue to add “crypto” to their portfolios.Moreover, institutional investors, who are prevented from investing in Bitcoin and other digital assets for regulatory reasons, can invest in crypto stocks as a proxy for the broader crypto market.
What is a cryptocurrency stock?
A cryptocurrency stock represents fractional ownership in a publicly traded company in the crypto asset industry. Examples of cryptocurrency stocks include Coinbase, Samara Asset Group, MicroStrategy, and Northern Data.
Why should I invest in cryptocurrency stocks?
Cryptocurrency stocks offer you indirect exposure to one of the potentially highest-performing asset classes of the last decade. Moreover, they enable you to invest in the growth of the crypto market without having to go through the technical process of buying and securely storing crypto assets.
Where to buy cryptocurrency stocks?
You can buy cryptocurrency stocks by opening an account with a stockbroker that provides access to securities exchanges where the crypto stocks you’d like to purchase are listed.
Is cryptocurrency a stock?
No. Stocks and cryptocurrencies differ on a fundamental level. A cryptocurrency is a digital asset underpinned by a blockchain that is typically used to transfer value across a network. A stock is a share of ownership in a publicly traded company.