5 ways to get exposure to Cryptocurrencies

Transactions through an exchange

Transacting through an exchange is still the default venue for investors looking to buy and hold Crypto. While there are still a handful of dominant actors, new exchanges are coming online and the technology to buy and sell Crypto and digital assets is improving, just as the cost to transact is coming down.

Costs still vary quite dramatically depending on the venue, but with low barriers to entry, increasing competition is the Crypto investors best friend. So, unless Crypto is fully prohibited by governments, which seems unlikely, then we can look at the equity landscape as a case study – where, recall 10 to 15 years ago an investor would pay 1%+ commission to fill an order and now you can trade from 0% commissions. One suspects this is the same path as Crypto is headed. 

Institutional involvement in Crypto is growing

With changes at a custodial basis, and through the introduction of Bitcoin futures and Greyscale Bitcoin Trust, ever more sophisticated and institutional players are publicly disclosing their interest. Certainly, these instruments are a breakthrough for institutional participation who are compelled by the low correlation to equities, commodities and fixed income. They are, therefore, a great vehicle to reduce the variability of a portfolio and for diversification purposes.

In a world where the expected returns matter for asset allocation, Bitcoin, Ethereum et al may have far higher statistical volatility (vol) than other asset classes, but the expected returns are superior - where the prospect of more than doubling one’s invested capital over 12 months easily compensates for the volatility. However, certainly in the case of the Greyscale Bitcoin Trust, there would be close to no retail participation.

An ETF would be a game-changer

An Exchange-Traded Fund (or ETF), notably one rolled out by one of the big players (such as Blackrock or Vanguard) would be a game-changer, especially for the retail investor. 

Consider, financial advisors would have a viable vehicle to channel clients into Bitcoin and the wider crypto space. While there are ways to do this now, it's an incredibly cumbersome process for the advisor to take a clip on the transaction, and therefore it’s not in their interest to promote to clients.

An ETF would offer advisors and retail investors real choice, although there would need to be a serious education and marketing push (both for advisors and the end investors) to sell this to the masses. However, the rollout of an ETF would see some serious capital going into crypto and would offer a cost-efficient vehicle for getting access to crypto.

When an ETF, or multiple ETFs, is offered is the subject of much debate in the world of digital asset investments, but it solves a problem. So, one suspects we’re likely to hear more within the next six months or so.

CFDs – a flexible trading vehicle for more active players

CFDs or Contracts for Difference are a vehicle for expressing a short-term view on the price of a range of popular crypto currencies. Instead of buying and selling ‘‘physical’ crypto, a trader will enter into an agreement (or a contract) with the broker to (cash) settle the difference between the opening and closing price. The trader will put down a percentage of the face value of the exposure, or what is commonly known as leverage.

With the cost to buy and sell Crypto CFDs a fraction of the cost to trade on an exchange, CFDs are geared towards traders and those who have a higher risk tolerance and may want to be far more active in trading the Crypto. There is no expiry date on the trade, and traders can hold positions at their discretion.

Like any other spread-based product CFDs allow traders to go short on Crypto and profit from a move lower in price. In fact, on current funding rates, Pepperstone’s clients are paid to hold short positions if held past the daily rollover point. For a retail trader the ability to have this sort of control to trade price in any market condition can be advantageous not just for price discovery, but to hedge a long-term psychical holding they may have hold on an exchange.

Pepperstone offers a range of popular Cryptocurrencies and Crypto indices for clients to trade, long or short, and from the most compelling spreads and funding rates. View our competitive Crypto spreads here.

Payment providers and ATMs

We can also look at payment providers and Bitcoin ATMs as vehicles to get exposures to Crypto. And again, these are venues for people looking to access the underlying market and take ownership of a coin. Payment providers, such as Square Cash or PayPal, have been at the forefront of the adoption story, and will continue to be so going forward.

While the situation is very different, there is much focus on Facebook, where Facebook Financial (or F2) who have reinvigorated its efforts to launch a stablecoin called Diem, and a wallet (Novi) in 2021. Whether this gets a blessing from regulators will be fascinating; if one suspects it does, then it could be another game-changer for the crypto space.