Cryptocurrencies are inherently esoteric – it’s right there in the name. And if you follow Warren Buffett’s advice not to invest in businesses you don’t understand, it can be difficult to justify investing in a math currency instead of gold.
But it’s also hard to ignore the astonishing performance of some cryptocurrencies: the price of one bitcoin BTCUSD,
From just under $5,000 in March 2020 to over $60,000 this year.
The excitement around digital currency can make some investors feel like the only kid at a pool party who wants to have deep-end fun with their friends, but are too nervous to jump in.
For investors who are keen on caution, here are ways to gain exposure to cryptocurrency without buying it, and if you do decide to buy, how to reduce your risk.
related: Want to bet on bitcoin without an owner? Try these mining stocks.
Invest in companies with cryptocurrency holdings
Think of this strategy as a form of cryptocurrency investment once it has been taken off. Few publicly traded companies have cryptocurrency holdings. And because they’re betting on its success, you can act as a buffer with those companies, too.
Douglas Bonparth, a certified financial planner and president of Bon FIDE, says, “When you’re thinking about investing in a company because they have exposure to crypto, it’s really about how much of that exposure you’re looking for directly or indirectly.” runs the gamut indirectly.” Money in New York City. “It just depends on how much of their balance sheet is in crypto.”
Checking the company’s balance sheet may reveal: As of June 30, 2021, Tesla TSLA,
Held $1.31 billion in digital assets. And while the tech giant has garnered a lot of media attention for its investments, the $1.31 billion currently accounts for only 2.4% of Tesla’s net worth. But if the value of those assets ballooned, as the cryptocurrency sometimes won’t, then Tesla’s stock price could too.
Kathy Wood Says Institutional Buying Makes Bull Case for Bitcoin to Reach $500,000 by 2026
Invest in Cryptocurrency Infrastructure
Another way to gain exposure is to invest in companies that have a stake in the cryptocurrency industry. coinbase It is a platform where investors can buy and sell cryptocurrency – and it is publicly traded.
“Just like you have with gold, you can invest either in the commodity or its surrounding infrastructure, with miners, materials needed for mining, energy and oil,” says Bonparth. “And there are public companies that are operating exclusively in the blockchain space, but not many of them.”
Riot Blockchain Inc. riot,
One of the few publicly traded companies focused on cryptocurrency mining. Riot Blockchain, among others, helps build cryptocurrency infrastructure and provides another cryptocurrency-adjacent investment opportunity.
Invest in Cryptocurrency ETFs
So far, the US has approved a cryptocurrency exchange-traded fund, or ETF. This bitcoin etf
Launched by ProShares does not invest directly in bitcoin. Instead it is based on futures contracts involving cryptocurrencies. Because it is an ETF, investors can invest directly from their brokerage accounts instead of opening a crypto wallet.
Be careful while investing directly
If you are willing to invest directly in cryptocurrency, there are a few ways you can reduce your risk. One way to do this is to reduce the amount you invest. Some credit cards offer cryptocurrency rewards just like cash back or miles. If you decide to add cryptocurrency to your portfolio through rewards, you don’t even need to use your own dollars to do so.
Too Crypto Could ‘Destabilize Nations’ and ‘Weaken’ US Dollar Dominance, Says Hillary Clinton
Another way to reduce your risk is to invest in stable coins, which are similar to traditional cryptocurrencies but backed by real-world assets, making them less likely to drop significantly in value.
This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.
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Alana Benson writes for NerdWallet. Email: [email protected]