What is a Crypto Stock?

As cryptocurrencies continue to shake up the world of finance, there are always new investment opportunities emerging. One such opportunity combines the world of traditional stocks with the emerging crypto market: crypto stocks. But what is there of a crypto stock, exactly? This guide will provide you with the ins and outs of this asset class, including its benefits, risks, and where it fits in the investment ecosystem.

Understanding the Basics

What is a Traditional Stock?

A traditional stock means you own equity and shares of public companies. Its stocks allow investing with a chance of returns in the form of dividends or an increase in stock prices. The companies sell their stocks through the stock exchanges, i.e., the NYSE and NASDAQ.

What is Cryptocurrency?

Before considering crypto stocks, it’s important to understand the basics of cryptocurrencies. Cryptocurrency is a digital or virtual currency that uses cryptography to secure its transactions and to control the creation of new units. They function on a decentralized technology known as blockchain, which is a distributed ledger recording all transactions over a network of computers. That decentralization renders them immune to censorship and control by one entity. If you want to learn more, see our guide on what cryptocurrency is.

Defining “Crypto Stock”

The term “crypto stock” can refer to a few different kinds of investments, each with their own characteristics:

1. Companies Directly Involved in Cryptocurrency: These are publicly traded companies whose core business activity is all about cryptocurrencies. This could include:
   • These are companies that mine cryptocurrencies like Bitcoin, e.g., Riot Blockchain (RIOT) and Marathon Digital Holdings (MARA). For more about this process, read our explainer of what crypto mining actually means.
   • Cryptocurrency Exchanges: Companies such as Coinbase (COIN) that allow the purchase, sale, and exchange of cryptocurrencies. You can survey some of the best choices in our list of best crypto exchanges and apps.
   • Companies creating and applying blockchain technology: IBM (IBM) or Nvidia (NVDA), which sells hardware for crypto mining. Find out about the technology below in the What is Blockchain Technology article.
2. Companies Holding Significant Cryptocurrency Assets: These are companies with the most funds in cryptocurrency. One such company is MicroStrategy (MSTR), a public company and major holder of Bitcoin on its balance sheet. Tyler, who also falls into the intermediate category, but to a lesser extent, is TESLA (TSLA).
3. Exchange-Traded Funds (ETFs) with Crypto Exposure: These are funds that invest in an index of the crypto industry or a basket of assets related to the sector. Examples include:
   • ProShares Bitcoin Strategy ETF (BITO): This ETF tracks Bitcoin futures contracts.
   • Valkyrie Bitcoin Strategy ETF (BTF): A further ETF offering exposure to Bitcoin futures.
   • Global X Blockchain ETF (BKCH): Gives exposure to crypto and blockchain firms.

Benefits of Investing in Crypto Stocks

Investing in cryptocurrency stocks has multiple advantages.

• Indirect Exposure to Cryptocurrency: Crypto stocks also offer an indirect way for investors who are wary of—or have trouble maintaining digital wallets for—directly purchasing cryptocurrencies, due to their price volatility. New to the market? Begin with our advice and how to buy cryptocurrencies.

• Regulation and Transparency: Public companies are liable to provide reports, which makes them open to scrutiny. This is something that cannot be expected from the decentralized cryptocurrency market. ETFs are also a regulated investment vehicle. More on this can be found on the U.S. Securities and Exchange Commission (SEC) and our cryptocurrency rules article.

• Liquidity: Crypto equities are easier to buy and sell like you would on conventional stock markets, unlike some cryptocurrencies.
• Potential for Growth: Bitcoin is a relatively new market and has plenty of space to grow. Investing in stocks of companies that work in this field could deliver substantial returns.
• Diversification: Cryptocurrency stocks may help reduce overall risk through diversification in a traditional investment portfolio.

Risks of Investing in Crypto Stocks

And while there can be positives to cryptocurrency stocks, there’s also real danger:

• Volatility: Cryptos can be highly volatile assets, and the same goes for crypto stocks. News impacting the company, regulatory changes, and fluctuations in the cryptocurrency market regularly impact their prices. You get your market updates from CoinDesk and CoinTelegraph.

• Relation with Cryptocurrency Prices: The price of cryptocurrencies, particularly bitcoin, has a strong correlation with the performance of many cryptocurrency stocks. A drop in the cryptocurrency market could have a significant effect on the value of these stocks. To understand these market movements, read our article on cryptocurrency market crash.

• Regulatory Uncertainty: The legal frameworks surrounding cryptocurrencies are still in their infancy, and changes can heavily impact both companies operating in the space.
• Company-Specific Risks: Like any other stock, crypto stocks are subject to company-specific risks such as financial performance, competition, or management issues. You can also search for some business financials here: Yahoo Finance
• Limited History: It is the earliest stage in the evolution of an industry, and there is only a limited history on which an investor can judge when patients borrow capital. Check out our article on the history of cryptocurrency for more on its origins.

How to Invest in Crypto Stocks

Investing in crypto stocks is akin to buying regular stocks:

1. Open a Brokerage Account: You will need a brokerage account to trade stocks. Good options include Webull, Robinhood, Charles Schwab, and Fidelity.
2. Research Crypto Stocks: Research the companies or ETFs you’re considering. Look at their business plans, financial records, and competitive landscape. Monitor their overall financial health and amount of exposure to cryptocurrency. Investopedia is one of the best ways to understand financial topics.
3. Order to Buy: Once you’ve settled on your investments, you can place an order to buy shares using your brokerage account.
4. Monitor Your Investments- account for your crypto stocks holdings and stay on top of trends in the broader market and the companies in which you have invested. Check out our guide to cryptocurrency trading strategies so you can develop a plan.

Crypto Stocks vs. Direct Cryptocurrency Investment

The following table highlights the key differences and trade-offs between investing in crypto stocks versus directly buying cryptocurrencies:

Examples of Notable Crypto Stocks

Here are some popular crypto stocks (and not an exhaustive list, nor investment advice):

Cryptocurrency Exchanges

• Coinbase Global, Inc. (COIN): One of the largest cryptocurrency exchanges globally, Coinbase provides a platform for buying, selling, and storing cryptocurrencies.

Cryptocurrency Miners:

• Marathon Digital Holdings, Inc. (MARA)—Marathon Digital Holdings, Inc. is dedicated to mining Bitcoin and growing its Bitcoin holdings.
• Riot Platforms, Inc. (RIOT): A Bitcoin mining company, and one that’s working aggressively to expand in North America.

Publicly Traded Companies That Hold Cryptocurrency

• MicroStrategy Incorporated (MSTR): A business intelligence company that has taken a substantial position in cryptocurrency (Bitcoin as its primary treasury reserve asset).
• Tesla, Inc. (TSLA): Tesla owns a large amount of Bitcoin and now accepts it as payment for select products. It has a large and growing share in the EV and AI markets.

Blockchain ETFs

• ProShares Bitcoin Strategy ETF (BITO): Offers exposure to Bitcoin through futures contracts, making it an accessible way to trade Bitcoin via traditional brokerage.
• Amplify Transformational Data Sharing ETF (BLOK): An actively-managed ETF investing in blockchain and crypto-related companies.

The Future of Crypto Stocks

The future of crypto stocks certainly hinges upon the future of the cryptocurrency market. When it comes to cryptocurrencies, it is no surprise that as they are becoming well-known, more and more businesses will be entering the market, and even more traditional investment products will offer exposure to crypto-assets. But the rules and laws that govern this asset class will be pivotal to its future.

This new era of financial innovation stems from the unification of cryptocurrency and the stock market. Crypto stocks are a fresh way to put money into the cryptocurrency revolution. They allow you to join this revolution with known methods of investment.

FAQ – Frequently Asked Questions

Conclusion

Crypto stocks are a newer and faster-growing investment area that straddles traditional finance and the thrilling and ambitious frontier of crypto. They provide exposure to the crypto market without the need to own the digital assets but come with their own set of risks. As with any investment, you should conduct your own research, know your risk tolerance, and consider speaking with a financial advisor before investing in crypto stocks. As digital assets increasingly enter the financial system, understanding crypto stocks will become important for investors. This guide gives you an in-depth understanding of what crypto stocks are and how they fit into today’s markets. For a closer look, read our guide to crypto trading.

Further Reading:

References & Sources

• U.S. Securities and Exchange Commission (SEC): www.sec.gov
• Investopedia: www.investopedia.com
• CoinDesk: www.coindesk.com
• CoinTelegraph: cointelegraph.com
• Yahoo Finance: finance.yahoo.com