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 the astonishing performance of some cryptocurrencies is also hard to ignore: the price of one bitcoin rose from $5,000 (about Rs 3.74 lakh) in March 2020 to over $60,000 (about Rs 44.91 lakh) by this April. Bitcoin price in India is Rs. 40.62 lakh as of 6 October (6:22pm IST).
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 being cautious, here are ways to gain exposure without buying cryptocurrency, and if you do decide to buy, how to reduce your risk.
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 have in terms of direct or indirect exposure.” runs the gamut indirectly.” Money in New York City. “It just depends on how much of their balance sheet is in crypto.”
A check of the company’s balance sheet may reveal: As of June 30, 2021, Tesla held $1.31 billion (about Rs 9,806 crore) 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 percent 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.
Invest in Cryptocurrency Infrastructure
Another way to gain exposure is to invest in companies that have a stake in the cryptocurrency industry. Coinbase 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 specifically in the blockchain space, but there aren’t many of them.”
Riot Blockchain is 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.
Get Ready for Cryptocurrency ETFs
While there are currently no cryptocurrency exchange-traded funds that have been approved by the Securities and Exchange Commission, there is demand for them. A cryptocurrency ETF will work like any other ETF, but instead of tracking a market exchange like the S&P 500, it will track a cryptocurrency. For example, a bitcoin ETF would track the price of bitcoin.
“There have been many different attempts at ETFs and many of them have been rejected. There are ETFs in other countries for bitcoin that have been allowed, and I think that is just one thing that will happen in time, “Says Tristan Yavar, head of strategy at FTX.US, a US-regulated cryptocurrency exchange. “I don’t have an estimate of when this will happen, but I think it will be something that will happen, and I think it is something that will allow people who are not comfortable investing directly in digital assets. To be exposed to bitcoin and other cryptocurrencies.”
There have been several applications for cryptocurrency ETFs, and the SEC is expected to decide whether to approve investment manager VanEck’s bid for a bitcoin ETF on November 14, 2021, which could be the first such fund in the United States.
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 cashback 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.
Another way to reduce your risk is to invest in stablecoins, which are similar to traditional cryptocurrencies but backed by real-world assets, making them less likely to drop significantly in value.
Cryptocurrency is an unregulated digital currency, is not legal tender and is subject to market risks. The information in this article is not intended to be financial advice, trading advice or any other advice or a recommendation of any kind offered or endorsed by NDTV. NDTV shall not be liable for any loss arising out of any investment based on any alleged recommendation, forecast or any other information contained in the article.