Cryptocurrencies have become a hot investment that is gaining mainstream adoption. Markets for digital currencies such as Bitcoin (BTC -2.15%) were virtually unheard of in 2012, but they have since grown into a massive industry.
[Cryptocurrency] is a new asset class, but like real estate, there's only so much Earth. So it's defined, and therefore this moving price of the commodity is just how much, within this finite class of a commodity, this new asset class, how much people value it or want it.
5. Robinhood Markets
Robinhood Markets (HOOD -13.24%) is a popular discount brokerage app that allows users to buy stocks, options, rare metals, and now, cryptocurrencies. Investors can buy and sell more than a dozen cryptocurrencies, including Bitcoin, Ethereum, and Dogecoin (DOGE -2.86%), commission-free on the platform, 24/7. The company already holds billions of dollars in crypto assets under custody, with crypto trading revenue now comprising a significant portion of overall sales.
Robinhood can combine its commission-free trading model with scaling the number of cryptocurrencies on the platform, gaining a massive competitive advantage over both traditional and decentralized exchanges. The company also could offer the same crypto analytics services as Coinbase to further promote trust in the sector and boost its adoption.
Bitcoin Cash (BCH)
6. CME Group
CME Group (CME +0.96%) operates the world's largest financial derivatives exchange, allowing investors to trade futures, which bet on the future price of an asset, and options, which grant investors the option to sell or buy an asset in the future at a predetermined price. CME Group's exchange trades a diverse assortment of assets, including agricultural and mining products, energy, stocks, and currencies. It's the latter that makes CME Group a crypto stock.
At the end of 2017, CME established the first market for Bitcoin futures. At the start of 2020, the company created a market for options on Bitcoin futures. By March 2022, Ether (units of the crypto platform Ethereum) also had futures available on the exchange. Both Ether and Bitcoin futures were joined by micro futures this year, based on smaller slices of the underlying cryptocurrencies.
Establishing a full-featured exchange for derivatives of the best-known cryptocurrencies has given Bitcoin and Ethereum some extra legitimacy and provided a way for digital currency owners (both individuals and a growing list of businesses that accept cryptocurrencies as payment) to mitigate risk from changes in cryptocurrency prices. Cryptocurrency derivatives are still a small market for CME Group, but adding more exchanges for crypto assets in the future is possible -- and even likely.
Mainstream adoption of crypto stocks
The best part about cryptocurrency stocks is that most of them are not pure plays on the industry, so investors have the reward of ample diversification. Cryptocurrencies are quite volatile and can cause wild swings in the revenue and earnings of companies with sector exposure.
The crypto realm is rapidly gaining mainstream adoption. In August 2021, United Wholesale Mortgage (UWMC -4.93%), the second-largest mortgage lender in the U.S., announced it would accept Bitcoin to settle mortgage payments from its customers. Expect further momentum in crypto stocks as more companies join in the blockchain revolution. However, just two months later, United Wholesale Mortgage canceled the scheme due to a lack of customer interest.
At the same time, you need to keep an eye on the evolving regulatory framework while the crypto market adapts to the ever-changing global economy. The stocks mentioned above are smart investments in digital currencies, and most of them come with the benefit of also running significant business operations outside the crypto sector. As such, many investors find that they make more sense than buying the cryptocurrencies themselves, at least until regulators and governments around the world have nailed down their long-term approach to digital assets.
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