The crypto winter seems to be thawing. As a result, Bitcoin (BTC +1.94%) just rose above $50,000 per token and a trillion-dollar market cap for the first time since early December 2021.
The leading cryptocurrency's last visit in the trillion-dollar territory didn't last long, forming the peak of a temporary bull market. Things should be different this time, with another halving of miner rewards coming up soon amid rising respect from institutional investors.
Let's say you're looking to dip your first toe in the encrypted waters of digital assets and Bitcoin is the only name on your wish list. There are many ways to approach that first crypto investment, and each option could be the best idea for some people but completely wrong for others.
It would take a book to cover all the bases, but you have to start somewhere. Let me walk you through four of the most popular ways to invest in Bitcoin today. One of them (or some combination) should suit your investing approach.
CRYPTO: BTC
Key Data Points
1. Buy actual Bitcoin
The most obvious option is to simply buy some Bitcoin or just a small fraction of one coin. Purists will always prefer owning the actual asset rather than some wrapper or reflection of someone else's Bitcoin holdings. However, the most direct approach isn't necessarily the easiest method for a brand-new crypto investor.
Most stock brokerages don't support buying and selling cryptocurrencies directly. Unless you manage that stock-based nest egg under one of the exceptions, such as Robinhood or Interactive Brokers, you'll need to open a new account with a crypto-trading service. This could be a minor hassle or a deal-breaker, depending on your willingness to manage yet another money-handling platform.
There will be a modest learning curve, even for seasoned stock investors. Most Bitcoin orders will look more like a stock-trader's market order than a limit order. The difference isn't huge for ultra-liquid assets like Bitcoin, but some investors insist on the tight price controls of a limit order -- and that's typically not available in crypto transactions.
Buying a few Satoshis (the smallest Bitcoin fraction you can own) could be right for you, but it's not the only way to buy into this trillion-dollar cryptocurrency.
NYSEMKT: GBTC
Key Data Points
2. Bitcoin-based ETFs
The Securities and Exchange Commission (SEC) recently approved 11 exchange-traded funds (ETFs) that track the current spot price of Bitcoin. When the crypto goes up or down, the ETFs make the same move.
But you can buy and sell these funds just like you would any other ETF or stock. Limit-priced orders are always an option, and you probably already have a brokerage account that offers all of the Bitcoin-based ETFs.
The most popular Bitcoin ETFs so far include the Grayscale Bitcoin Trust (GBTC 1.72%), the iShares Bitcoin Trust (IBIT 1.71%), and the ARK 21Shares Bitcoin ETF (ARKB 1.70%). Their day-to-day and minute-by-minute price moves should be identical for all intents and purposes, apart from their varied management fees.
The Grayscale ETF used to be the only Bitcoin-owning mutual fund before the SEC approved its ETF conversion. iShares is a leading ETF issuer, backed by the financial might of BlackRock. The ARK 21Shares fund is managed by famed growth investor Cathie Wood and her crack team of analysts.
It's a lot like trading ordinary stocks. The only business of these funds is managing portfolios of Bitcoin tokens, with no other products or services. Picking up a few shares of a Bitcoin ETF should be the simplest approach for most people. Between this approach and direct Bitcoin trades, you probably already found what you're looking for.
NASDAQ: MARA
Key Data Points
3. Bitcoin miners
You can also step up your Bitcoin investment to greater potential rewards and a higher level of risk. If Bitcoin itself isn't volatile enough to tickle your thrill-seeking spine, you might be interested in Bitcoin miners like Marathon Digital Holdings (MARA 3.44%) or Hut 8 Mining (HUT 3.05%).
Hut 8 and Marathon both engage in Bitcoin mining using specialized computing equipment and oodles of electric power to earn Bitcoin. Their fortunes are closely linked to the cryptocurrency's price but amplified by the constant effort to generate new tokens.
Marathon is known for its aggressive expansion and large-scale operations, mostly in Texas and North Dakota. Hut 8 focuses on operational efficiency and sustainability with 11 mining centers scattered across Canada.
As investments, they offer a higher level of risk and potential reward, compared to directly purchasing Bitcoin. They go beyond simply owning Bitcoin, with the potential for financial growth due to their active Bitcoin production. At the same time, the mining business is expensive, and investors are exposed to the risk of bankruptcy if crypto prices stay low for too long or electric power fees skyrocket, among other possible threats.
Mining stocks aren't for the faint of heart. Going this route requires nerves of steel, and you should keep your starting position relatively small. If Bitcoin is a speculative investment, Bitcoin miners are speculation squared.
NYSE: SQ
Key Data Points
4. Stocks with ties to the Bitcoin market
If every idea so far has been too rich for your blood, you might prefer an indirect entry into the crypto sector instead. A few companies have amassed significant Bitcoin holdings, and others run business operations in the crypto arena. Investing in a respectable business with close ties to Bitcoin may dampen the digital-asset risk.
Now, the risk isn't always lower. For instance, data analytics software company MicroStrategy (MSTR 4.00%) converted nearly all of its cash reserves into Bitcoin in the fall of 2020. Founder and Chairman Michael Saylor keeps pouring more money into the company's Bitcoin holdings, including new debt and selling new stock shares for that purpose. In this case, MicroStrategy's software business almost feels like a distraction from the cryptocurrency purchases.
With $9.9 billion of Bitcoin holdings and a $13 billion market cap, MicroStrategy looks like a Bitcoin miner using financial tools instead of computing hardware to grow its crypto holdings.
Others offer a milder Bitcoin commitment. The Bitcoin reserves of Elon Musk's Tesla (TSLA 1.55%) stand at about $500 million today, or 0.1% of the electric-vehicle giant's $578 billion market cap. Digital-payments expert Block (SQ 2.90%) has parked 1% of its market value in Bitcoin, while providing crypto-based products such as a hardware wallet and Bitcoin-based payment services.
With or without rising Bitcoin prices, Tesla and Block run successful and profitable business operations. Their crypto bets may pay off in the long run, but for now, they don't move the needle for either company. Hence, these stocks provide the calmest on-ramp to the cryptocurrency superhighway.
