Cryptocurrency Stocks: The Complete Guide

Cryptocurrency stocks are shares in publicly traded companies involved in the cryptocurrency and blockchain technology sectors. These include businesses such as crypto exchanges and crypto mining companies that generate new coins and maintain the blockchain network. The performance of these stocks is closely tied to the fluctuations in cryptocurrency prices, making them quite volatile.

Investing in crypto stocks allows individuals to participate in the digital currency space without directly buying cryptocurrencies. This approach can offer exposure to the industry’s growth potential through more traditional investment channels. As cryptocurrencies and blockchain technology become more widely adopted, the expectation is that companies in this space could see their stock prices increase over the long term. Although, of course, nothing is guaranteed.

The volatility of the crypto market means that these stocks can experience rapid price changes, which may only be suitable for some investors. The industry’s evolving nature, including the approach of governments to regulation, also adds a layer of uncertainty. To counteract this, some investors look for companies with broader business models that are not solely dependent on the crypto market, aiming to reduce risk.

Investing in the crypto market through stocks offers a range of options, catering to various investment preferences and risk tolerances. These options can be broadly categorised into cxchange-traded funds (ETFs), crypto industry stocks, and crypto-adjacent stocks.

Exchange-traded funds (ETFs)

Crypto ETFs have become a focal point for investors seeking exposure to digital currencies without the complexities of direct ownership. The Securities and Exchange Commission (SEC) recently approved 11 spot cryptocurrency ETFs for trading on US exchanges, including one managed by the world’s largest asset manager, BlackRock, marking a significant milestone for the digital asset space. These spot ETFs directly reflect the current market price of cryptocurrencies, offering a straightforward approach to investing in the digital currency market.

There are also futures ETFs, which have been available in the US and Australia for some time, and are based on futures contracts for cryptocurrencies. These contracts speculate on future prices rather than providing direct exposure to the current market price in real time. The key difference lies in the directness of the exposure to cryptocurrencies: spot ETFs offer a more immediate reflection of market movements, whereas futures ETFs involve a level of speculation on future prices. This distinction is crucial for investors to understand before choosing which type of ETF to invest in.

Some examples of crypto ETFs include:

• Global X 21Shares Bitcoin ETF (EBTC, CXA): Tracks the price of Bitcoin in Australian dollars, with Bitcoin holdings secured in cold storage by Coinbase. Global X also has a similar spot Ethereum ETF under the ticker EETH.
• iSHARES BITCOIN TRUST (IBIT, NASDAQ): The most prominent spot Bitcoin ETF, managed by Blackrock.

Crypto Industry Stocks

Companies that fall into the crypto industry stocks category are those whose primary business operations are linked to the cryptocurrency world. This includes listed crypto exchanges, platforms where users can buy, sell, and trade cryptocurrencies. These exchanges are central to the liquidity and accessibility of the crypto market.

Another significant part of this category are crypto mining companies. Mining is essential for maintaining the blockchain, and in return for their service, miners receive payments in crypto. These companies provide the computational power required to process transactions and secure the network, playing a pivotal role in the ecosystem’s functionality and growth.

Some examples of crypto industry stocks include:

• Coinbase (COIN, NASDAQ): One of the largest crypto exchanges globally, serving millions of retail and institutional clients worldwide. It is listed on the tech-heavy Nasdaq.
• Marathon Digital (MARA, NASDAQ): A leading company in Bitcoin mining, also listed on the Nasdaq.

Crypto-adjacent Stocks

Crypto-adjacent stocks represent companies that, while not primarily focused on cryptocurrencies, have significant engagements or investments in the sector.

This includes firms in the technology sector, like Graphics Processing Unit (GPU) manufacturers, whose products are crucial for mining cryptocurrencies and for the infrastructure of the blockchain technology itself. Additionally, there are companies that, despite having a broader business focus, choose to hold large amounts of cryptocurrencies on their balance sheets or integrate crypto-related services into their product offerings. These investments or services link them to the cryptocurrency market’s movements, with their stock performance often rising and falling alongside broader crypto trends.

Some examples of crypto-adjacent stocks include:

• MicroStrategy Inc. (MSTR, NASDAQ): Holds significant Bitcoin on its balance sheet, offering indirect exposure to Bitcoin’s price movements.
• Nvidia (NVDA, NASDAQ): Supplies GPUs and chips essential for crypto mining, benefitting from the cryptocurrency adoption wave.
• PayPal (PYPL, NASDAQ): Integrates crypto transactions into its payment platform and Venmo, linking traditional finance with the crypto market.

Each category of cryptocurrency stocks offers a different point of entry to the digital currency space, with varying degrees of exposure to the market’s volatility and growth potential. Understanding these distinctions is critical for investors aiming to align their portfolios with their investment objectives and risk appetite in the rapidly evolving cryptocurrency sector.

Cryptocurrency stocks are traded the same as traditional stocks, making them accessible to investors familiar with the stock market. You can buy and sell these stocks using online brokerages or trading platforms that offer access to stock exchanges where these securities are listed. This includes major exchanges like the ASX (Australian Securities Exchange) for domestic offerings and various US exchanges, such as the Nasdaq, for international options.

One key difference between trading cryptocurrency stocks and dealing directly with cryptocurrencies is the regulatory environment. Stocks are traded on regulated exchanges, providing a layer of security and oversight not always present in the cryptocurrency market. Additionally, trading stocks does not require investors to manage digital wallets or directly secure their cryptocurrency holdings, which can be complex and risky.

This approach offers a more traditional pathway for investors seeking exposure to the cryptocurrency and blockchain sectors without the direct risk of holding cryptocurrencies.

Here’s a straightforward guide on investing in crypto stocks, both locally and internationally.

Buying Crypto Stocks Locally:

1. Choose a brokerage or trading platform: Start by selecting a reputable broker or online trading platform within Australia and offering access to the ASX or other local exchanges where crypto stocks and ETFs are listed.
2. Open and fund your account: Register for an account with your chosen platform, providing the necessary identification for KYC (Know Your Customer) processes. Once your account is approved, deposit funds using one of the available methods, such as bank transfer or debit card.
3. Research and select stocks: Use the resources available on your platform to research cryptocurrency stocks. Look for companies or funds with solid fundamentals, a clear connection to the cryptocurrency or blockchain industry, and a performance history or growth potential that aligns with your investment goals.
4. Place your orders: Decide the amount you wish to invest and place your order/s. You can use market orders for immediate execution at current prices or limit orders to specify the price you’re willing to pay, offering control over your investment cost.
5. Monitor your investments: Keep track of the performance of your investments through your trading platform. Stay informed about market trends, news related to the cryptocurrency industry, and any factors that could impact the value of your crypto stocks.

Buying Crypto Stocks Internationally:

To extend your investment portfolio to include international crypto stocks, follow these additional steps:

• Ensure international access: Verify that your brokerage account or platform provides access to international markets. Some platforms may require you to activate this feature or open a separate account for global trading.
• Understand the tax implications: Be aware of the Australian tax implications for international investments, including capital gains tax and any taxes on dividends. Consider consulting a tax professional to understand your obligations.
• Consider fees and currency exchange rates: Investing in international markets involves exchanging AUD for the currency in which the stocks are traded. Monitor exchange rates and fees associated with currency conversion, as these can affect your investment’s overall cost and returns.
• Research international regulations: Familiarise yourself with the regulations and market practices of the international exchanges you’re interested in. This includes trading hours, settlement periods, and any restrictions on foreign investors.

By following these steps, Australian investors can better navigate the world of cryptocurrency stocks, leveraging opportunities both within Australia and globally. Whether investing locally or internationally, thorough research, ongoing education, and a clear understanding of your investment goals are crucial to success.

Investing in cryptocurrency stocks offers a unique way for investors to engage with the world of digital currencies and blockchain technology. However, like all investment opportunities, it comes with its own benefits and risks. Understanding these can help investors make informed decisions that align with their investment goals and risk tolerance.

Benefits

• Exposure to crypto: Crypto stocks allow investors to gain exposure to the cryptocurrency market’s growth potential without directly dealing with the complexities of buying, storing, and securing digital currencies.
• Regulated investment vehicles: Unlike direct cryptocurrency investments, shares are traded on regulated stock exchanges. This provides security and oversight, offering protection against fraud and market manipulation.
• Diversification: For investors looking to diversify their portfolios, cryptocurrency stocks present a novel asset class. Investors can potentially reduce overall portfolio risk through diversification by including companies involved in blockchain technology and digital currencies.
• Innovation and growth potential: Investing in crypto stocks can provide a stake in this rapidly evolving space, with the potential for significant long-term growth.

Risks

• Volatility: The cryptocurrency market is known for its high volatility and fluctuating prices across short time-frames. This volatility can extend to crypto stocks, especially those directly tied to the performance of cryptocurrencies or blockchain projects.
• Regulatory uncertainty: The regulatory environment for cryptocurrencies and related businesses is still evolving. Regulation changes can suddenly and significantly impact companies in this sector, affecting stock prices.
• Technological risks: The technology behind cryptocurrencies and blockchain is complex and rapidly changing. Companies may face challenges adapting to new technological developments or fail to deliver on blockchain projects, impacting their stock performance.

Investing in cryptocurrency stocks requires careful consideration of these benefits and risks. While the potential for high returns exists, the inherent uncertainties and volatility in the market demand a cautious approach. Investors should conduct thorough research, consider their financial situation and investment objectives, and, if necessary, consult with a financial advisor to navigate this complex investment landscape effectively.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class.  Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.