TL;DR
We all love buying coins on our favorite exchange or dex, hopefully even self-custody part or all of it. But buying coins is not for everyone (hi dad!). What are our traditional options to get exposure to the rising tides of the crypto ecosystem? Here’s an overview of the options, ranging from single stocks to crypto-minded ETFs and crypto index funds.
Even for seasoned crypto natives, there are good reasons to invest part of your portfolio in funds through your tradfi broker. Buying a coin is like picking a stock. But sometimes you are agnostic and just want exposure to the industry. Buying a crypto fund is like buying a stock index fund, a strategy that has proven profitable for stocks. It’s hard to beat the index.
Also, it makes strategic sense to avoid a single point of failure. Sure, self-custodying your crypto is a good idea. But it is also common sense to maybe not trust yourself with the entirety of your coins. Exchanges then? But these can blow up too, as we know all too well. Whereas a publicly traded stock or ETF can give you exposure to crypto prices in a regulated environment, with regulatory oversight.
We won’t discuss the BTC spot ETF here but will focus on other vehicles: stocks and ETFs.
Stocks with Highest Crypto Exposure
Let’s start with old-fashioned stocks. In the way that gold mining companies will benefit from rising gold prices, companies that mine BTC will benefit from a bull market. Bitcoin miners are the obvious category of companies that benefit from rising crypto prices. Another category is exchanges. Coinbase is the only US-listed crypto exchange.
Morningstar analysts distinguishes six categories by virtue of which companies can be involved in crypto:
- Technology provider (for example, Alphabet)
- Fintech (For example, Coinbase)
- Payment platforms (for example, PayPal)
- Mining (for example, Marathon Digital)
- Hardware (for example, Taiwan Semiconductor)
- Asset owners (for example, MicroStrategy)
For every major stock, Morningstar analyzed to which degree it is exposed to crypto in one or more of the above ways.
Publicly Listed Stocks COIN, MSTR
Before we dive into funds, we should briefly pause at two stocks in particular: Coinbase and MicroStrategy. The reason is that these NASDAQ-listed stocks offer far from watered-down exposure to the crypto market. On the contrary: they can even offer outsized returns.
Why? Let’s start with Coinbase (COIN). Owning Coinbase stock is somewhat like owning a cryptocurrency index fund. As Coinbase benefits from trading activity in 200+ coins, its revenue benefits from pumps in all coins. As an exchange, Coinbase performs best in bull markets. In 2023 it was up 450%, more than BTC and more than the crypto market as a whole.
MSTR
MicroStrategy is acting a bit like a leveraged Bitcoin ETF. It outperforms BTC, especially in times of rising prices. MicroStrategy (MSTR) is a Nasdaq-listed software company that owns a shit ton of Bitcoin.
Since the adoption of its BTC strategy, its share price has had a higher correlation with Bitcoin’s price than with its industry peers (software companies). Why is it a levered bet and why are the price spikes to both the upside and downside higher? A part of the reason is that MSTR buys BTC with its profits, shares and debt. This means that buying a…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
