The crypto boom has led to numerous new offers and products. How to get started as an investor. In addition to physical crypto trading with Bitcoin or Ethereum, investors can also place exchange-traded products such as ETF or ETN, derivatives such as CFD, or shares in crypto companies in their portfolios in order to participate in the development of the crypto sector. Here, however, it depends on your provider, since Bitcoin ETFs, for example, can only be traded to a limited extent.
ProShares’ first US bitcoin ETF to be approved last October, BITO, is based on so-called bitcoin futures contracts, which reflect the future price of bitcoin. This is transparent for investors because futures contracts are traded on regulated trading venues. It should be noted that you do not participate in the performance of so-called “spot prices”, i.e. in the “real” Bitcoin price.
Nevertheless, the launch of a Bitcoin ETF on US land should have opened the door for other crypto-specific products. The approval of a classic crypto ETF in the US seems to be only a matter of time. Neighbor Canada is already further along and has already approved the first “real” Bitcoin ETF.
Since the beginning of 2019, investors in Europe have been able to participate in the performance of various crypto assets with the help of Exchange Traded Products (ETP). Exchange-traded debt securities such as exchange-traded notes (ETN) are traded on a regulated exchange, are similar to ETFs, and track the price almost one-to-one, but differ in the legal shell compared to ETFs.
Coinbase opens the door
With a Contract for Differences (CFD), you can bet not only on rising but also on falling prices and hedge yourself in turbulent market phases in a capital-efficient manner by taking the opposite position. For example, IG Bank offers the so-called Crypto 10 Index, which is made up of a total of ten different crypto assets and is therefore broadly diversified.
Not least due to the IPO of the US trading platform Coinbase in the spring of 2021, Bitcoin and Co. can no longer be ignored by Wall Street. At the same time, the IPO offers opportunities for investors to participate in the performance of crypto assets via share certificates without having to own physical assets.
It can also be worth looking at values from sub-sectors of the crypto industry such as the mining industry. These include classic mining companies that specialize in the production of crypto assets, but also hardware providers, especially graphics cards.
However, investors should not fall into the classic fee trap: providers of ETPs or CFDs usually charge ongoing fees that can reduce your potential income. With the classic physical investment, you usually only have to pay one-time purchases or sales fees. On the other hand, with non-physical products, you do not run the risk of losing the so-called private key for the assets. However, you bear this risk in the case of a physical investment, which requires further knowledge.
Recurring purchases for long-term build-up
Recurring purchases can act as a viable vehicle for long-term wealth accumulation. With the help of regular purchases, you can benefit from the so-called ” average cost effect ” through predetermined times. As a rule, a savings plan is suitable for those new to the stock market, as they often find it difficult to calculate the risk.
However, the application of the average cost effect also has disadvantages. In a falling market, this is almost ineffective. If prices rise and the savings rate remains the same, only a few shares can be acquired. There is expressly no guarantee of an advantage compared to a one-off investment.
What can be said is that the decision on how to invest in Bitcoin and Co. is yours alone. In this context, your investment horizon and your personal risk profile are of great importance. The associated risks and costs must be carefully considered. You should also consider the required technical know-how, such as the safekeeping of crypto assets.
An investment outside the box in crypto companies can round off a portfolio. Although you can use the average cost effect to strategically realign your portfolio, there is no guarantee of success. Especially in the crypto sector, you should always keep in mind the risk of a total loss.