The short version
- Many people still consider a direct investment in crypto to be too risky. But the good news is that there are several ways to invest in cryptocurrency without buying any coins.
- Investing in crypto stocks can be a great way to gain indirect exposure to the nascent industry of digital assets.
- Other popular alternatives to buying cryptocurrencies include: purchasing shares of crypto ETFs, investing in blockchain technology, mining, and adding companies to your portfolio that themselves invest in crypto.
1. Invest in crypto stocks
Looking to financially benefit from the rise of crypto without actually buying and holding the hot, volatile asset itself?
Perhaps the most direct way to investing in crypto without buying any is to buy crypto stocks.
Crypto stocks are companies whose products, services and practices are somehow tied to the crypto industry. They may be mining companies, payment processing platforms, NFT minters or even crypto marketplaces.
Investing in crypto companies versus cryptocurrency itself has a few advantages.
First, it's convenient. Scooping up shares of crypto stock is as easy as, well, buying any other stock. There's no learning curve as there is with buying crypto, nor do you need to navigate a new platform.
Second, it's more secure. Although the blockchain itself has never been hacked, the cryptocurrency exchanges certainly have. An investment in crypto stocks is worth considering as it's less likely to disappear from your portfolio overnight.
Or maybe you see more upside potential in the industry surrounding crypto than in crypto itself. Maybe you want to specifically invest in mining or a global cryptocurrency exchange. A stock investment lets you do that. It's also more diverse. An investment in, say, seven different crypto stocks lends more diversity to your portfolio than investing in a small handful of cryptos.
Finally — and you probably saw this one coming — most stocks (even crypto stocks) are less volatile day to day than are specific coins.
Now, stability is relative. For better or worse, many crypto stock prices tend to ebb and flow in correlation with the values of crypto — just on a more limited scale. And that's something to keep in mind before you invest in crypto stocks.
Share price of Coinbase over the last year.Source: Google Finance
2. Buy crypto ETFs
In contrast to crypto stocks, crypto exchange-traded funds (ETFs) lend even more stability, diversity and convenience.
As a quick recap, ETFs are like bundles of stock and other assets. In order to be approved by the U.S. Securities and Exchange Commission (SEC), each ETF must have a “theme” to justify its existence and attract investors.
For example, you could have an ETF that represents the performance of an emerging market, an ETF full of top-performing clean energy stocks or even an ETF that tracks companies getting an unusual amount of attention on social media.
Naturally, it wasn't long before the SEC received applications for crypto ETFs. After a handful of rejections, the first few crypto ETFs began passing through the rigorous SEC gauntlets to successfully hit the markets in Q4 2021. However the majority of them are bitcoin futures ETFs.
The Amplify Transformational Data Sharing ETF (BLOK) is one of the more popular crypto ETFs containing actual crypto stocks. BLOK's ingredients range from small mining and fintech companies to household names like Square, PayPal and chipmaker NVIDIA, whose shares skyrocketed during the pandemic due to screaming product demand from gamers and miners.
As mentioned, crypto itself is so speculative, volatile and hard to predict that even tangentially-related assets like individual crypto stocks can suffer from heavy turbulence.
The relative stability and diversity of a crypto ETF help mitigate the risk of cryptos. Not only are ETFs convenient to research and buy, they also help your portfolio benefit from the meteoric performance of crypto without exposing yourself to too much risk. Discover the best stock brokers to buy ETFs in our Stock Broker Guide.
3. Mine crypto
Stocks and ETFs are great, but they're still beating around the figurative crypto bush.
What if you really want some actual crypto?
Not a lot, since it's so volatile — just enough so you can one day tell your grandkids you had it. Or to placate the diehard bitcoin investor in your friend group. Or perhaps just to add a fun, “mega-risk” category to your portfolio.
Well, if you have a powerful enough computer, you can earn Bitcoin free just by mining it. And since you're getting it free, the added risk to your portfolio is zero.
How mining works
So how does mining work?
Traditionally speaking, mining is the process of dedicating your computer's processing power to validating crypto transactions and etching them to the blockchain. In exchange for your support, the blockchain automatically “mints” new coins and gives you a small share.
In the early days of crypto you almost needed a computer science degree to set up a mining operation, but nowadays you can just add your computer to a pool of miners at the click of a button. NiceHash is a well reputed company that lets you register and start mining within seconds. If you have a powerful computer, mining is a no-brainer. While it may raise your power bill just a hair, it's still the easiest passive income you'll ever earn.
More: Best crypto passive income strategies
Or learn and earn
And if you'd still like free crypto but don't have a powerful computer, here's a pro tip: You can earn $15 worth of various cryptos in under 30 minutes on the crypto exchange Coinbase simply by watching videos and taking quizzes.
Keep in mind, however, that if you choose to mine/earn crypto you'll now have an actual crypto asset that you'll want to keep in a wallet. You can learn all about digital wallets and how to set up one in our article, “Hot Wallet vs. Cold Wallet.”
4. Invest in blockchain technology
Go to any crypto conference and there'll be at least one keynote on how the real investment isn't crypto, it's blockchain technology.
In fact, in his original 2008 whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System [PDF],” Satoshi Nakamoto never mentions Bitcoin again after the title. The rest of his (her? their?) writing is about blockchain and its potential to replace traditional banking and third-party payment systems.
So why might it be a better idea to invest in blockchain tech than crypto?
What Is blockchain?
Let's quickly recap blockchain first. Put simply, blockchain is the tech that makes crypto possible. It's a complex, impenetrable web of cryptography where data can be stored and read but never overwritten.
The implications for the human race sharing a decentralized, unhackable online ledger are vast and go well beyond managing financial data. Medical records, legal documents and more can be safely stored there, completely revolutionizing how we access and share sensitive data.
For that reason, it's easy to see why many investors are pouring capital into blockchain — not the cryptocurrencies it facilitates.
How to invest in blockchain
The most direct way to invest in blockchain (aside from buying and mining crypto) is to invest in blockchain stocks and ETFs. These can include anything from mid-cap companies entirely focused on blockchain, such as HIVE Blockchain Technologies Ltd. (HIVE), to blue chips that have started voraciously adopting blockchain tech for a competitive advantage.
Perhaps the most notable blockchain-loving blue chip is IBM. The 110-year-old company is keeping things fresh by going all-in on blockchain tech, as clearly evidenced by their blockchain page where they lay out how IBM blockchain solutions will revolutionize clients in every industry (if they haven't already).
So, crypto or blockchain? You hardly have to choose. In fact, there's tons of cross-pollination between crypto and blockchain stocks and ETFs.
For now, at least! Given the widespread applications of blockchain tech, we're sure to see more distinct, crypto-free blockchain ETFs in the near future.
5. Invest in companies that invest in crypto
Last but not least, one of the more subtle ways to invest in crypto (without actually buying any) is to invest in companies that themselves invest in crypto.
So, when I say “companies that invest in crypto,” Tesla often comes to mind. Tesla's relationship with crypto has been checkered, to say the least. It went from accepting bitcoin to not accepting bitcoin within three months, then began accepting DOGE in their merchandise store eight months later.
Tesla's complicated relationship with crypto did something fascinating in the background. It decoupled Tesla's stock performance from the Nasdaq-100 and linked it more closely to the value of bitcoin. In fact, some analysts attribute bitcoin's 2021 bull run and subsequent tumble to the EV maker's wavering support.
Other companies that have bitcoin on their balance sheets include MicroStrategy (MSTR). As of Q3 2021, the analytics platform company held a staggering 108,992 bitcoins bought at an average of $26,769 according to Yahoo! News. Funny enough, one of the very financial titans that Nakamoto intended to topple, Square (SQ), owns over 8,000 bitcoins thanks to CEO Jack Dorsey's famously bullish sentiment.
But will investing money in a company that holds a boatload of crypto make you more money? With such a small sample size, it's hard to say for sure.
But hey, who says investing doesn't involve a little speculation?
Despite an overall rise in values, a direct investment in crypto can still expose you to a ton of risk.
Thankfully, with so many companies dabbling in crypto and adopting blockchain technology, the stock market presents boundless opportunities for indirect investments. Plus, if you're just looking for a taste, you can always mine it or earn it free.
But if you're still considering a direct investment, check out my other piece, “How to Invest in Bitcoin.”