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Investing in Ethereum Stock

Updated: Nov. 2, 2021, 5:44 p.m.

Ethereum (CRYPTO:ETH) is the decentralized, open-source technology that powers much of the crypto world. Everything from decentralized finance (DeFi) applications and non-fungible tokens (NFTs) to enterprise blockchain solutions rely on Ethereum's technology. That has made Ethereum's native token, Ether, the second-largest cryptocurrency after Bitcoin (CRYPTO:BTC).

If you want to profit from the growing use of Ethereum, there are several ways you can invest. The most direct option is buying Ethereum itself. Because it's extremely volatile, this carries the greatest risk but also the greatest potential profits. A less-volatile option is Ethereum stocks. These include managed funds that invest in Ethereum for you as well as companies with large exposure to Ethereum technology.

Top Ethereum stocks

Here are the best stocks to buy if you want to add Ethereum exposure to your portfolio:

1. Grayscale Ethereum Trust

The Grayscale Ethereum Trust (OTC:ETHE) is a managed fund that makes it easy to add Ethereum to your brokerage account. Each share is backed by a fixed amount of Ether tokens (approximately 0.01 Ether per share).

Keep in mind that the fund's share price is often lower than the value of Ethereum at the prevailing conversion rate. Grayscale also charges a somewhat expensive annual management fee of 2.5%. Shareholders can't exchange shares for Ethereum, so there's no price arbitrage opportunity.

2. Bitwise Ethereum Fund

Bitwise is the world's biggest crypto index fund manager. It offers managed funds for multiple types of cryptocurrency, and one such option is the Bitwise Ethereum Fund.

This fund is available to accredited investors and has a minimum investment of $25,000. The fund's managers seek to minimize transaction costs, and they hold the fund's Ethereum offline in cold crypto storage, making this a cost-efficient and secure Ethereum stock. There's an annual management fee of 1.5%.

If you want a more diverse digital asset portfolio, check out the Bitwise 10 Crypto Index Fund (OTC:BITW), which includes a mix of several of the top cryptocurrencies.

3. Coinbase

Coinbase (NASDAQ:COIN) is the largest cryptocurrency exchange in the U.S. The company charges transaction fees to buyers and sellers of a wide range of cryptocurrencies, including Ethereum. In addition to Ethereum itself, many of the other cryptocurrencies traded on Coinbase use the Ethereum blockchain.

As more people flock to crypto, Coinbase has seen staggering growth, making it one of the most profitable cryptocurrency stocks. Monthly users jumped from 1.5 million in the second quarter of 2020 to 8.8 million a year later, an increase of 487%. Net revenue grew by more than 1,000%, from $178 million to $2.03 billion, over that same time period.

4. Staked ETH Trust

Ethereum is in the process of upgrading to Ethereum 2.0. Part of that process involves switching to a proof-of-stake model to verify transactions. With this model, Ether token holders can stake crypto so it will be used to validate transactions and earn rewards.

The Staked ETH Trust is the first traditional investment vehicle that allows shareholders to get Ethereum exposure and receive staking rewards. The fund is open by private placement to accredited investors. It has a minimum investment amount of $25,000 and an expense ratio of 1%.

5. HIVE Blockchain

HIVE Blockchain (TSXV:HIVE) is a cryptocurrency mining firm. Through green energy facilities, it mines cryptocurrency, meaning it uses computing power to validate transactions and earn rewards. It currently mines three cryptocurrencies: Bitcoin, Ethereum, and Ethereum Classic (CRYPTO:ETC).

It's worth noting that although HIVE has historically focused on Ethereum, that will likely change in the future. As the cryptocurrency upgrades to Ethereum 2.0, it will switch away from the proof-of-work model and Ethereum mining it has been using to validate transactions. The proof-of-stake model it's changing to doesn't use crypto mining.

HIVE is still a way to gain Ethereum exposure for now, but after the Ethereum 2.0 upgrades, it will focus on other proof-of-work cryptocurrencies.

6. Robinhood Markets

Robinhood Markets (NASDAQ:HOOD) may be best known as the discount broker that ushered in the age of commission-free trading. That's not the only way it has been ahead of the game. In 2018, it began offering crypto trading of Bitcoin and Ethereum.

The broker has since expanded its selection to include a few other cryptocurrencies, including Litecoin (CRYPTO:LTC) and Bitcoin Cash (CRYPTO:BCH). While Robinhood isn't a pure cryptocurrency play, it does get you some exposure to Ethereum.

What is Ethereum?

Ethereum is an open-source blockchain technology in the form of software. Software developer Vitalik Buterin originally proposed the idea in 2013, and Ethereum launched in 2015.

Any developer making an application that would benefit from blockchain technology can build it on the Ethereum network. While Ethereum is most associated with its native Ether token and other cryptocurrencies, its technology is also enabling widespread innovation in industries as diverse as insurance, logistics, and healthcare.

Developers write programs on Ethereum using self-executing, self-enforcing protocols called smart contracts, which are deployed to Ethereum-powered blockchains. The blockchain's network of computers executes the smart contract by performing specified actions when the conditions of the contract are met. Blockchain data can't be modified after it's created, and that gives users confidence in the technology itself.

While early cryptocurrencies, most notably Bitcoin, are merely stores of value that can be transferred, Ethereum has far more uses. If Bitcoin is a smartphone app, Ethereum is more like the device maker. Ethereum's cryptocurrency benefits from its technology because transaction fees for decentralized applications on its blockchain are paid in Ether.

How to invest in Ethereum

If you want to invest in Ethereum directly, you can buy it through a crypto exchange, a stock broker, or even a payment app that carries it. Since Ethereum is one of the largest cryptocurrencies by market cap, it's available on almost all platforms that sell crypto.

Here are the different types of platforms you can use to buy Ethereum:

  • Cryptocurrency exchanges: These exchanges let users buy, sell, and trade cryptocurrencies. Examples of popular crypto exchanges include Coinbase and Gemini.
  • Stock brokers: Some stock brokers have started selling select cryptocurrencies, with Robinhood being the most prominent example.
  • Payment apps: You can buy and sell crypto, including Ethereum, on PayPal (NASDAQ:PYPL) and Venmo.

For serious crypto investors, a crypto exchange is usually the best option. Exchanges offer the widest selection of cryptocurrencies and the most features. They also let you transfer your crypto off the exchange to a crypto wallet that you control. Stock brokers and payment apps often don't let you transfer your crypto anywhere.

Should you invest in Ethereum?

Ethereum technology is at the core of most blockchain applications. Many believe blockchain will play a significant role in the future of finance and other industries, making exposure to Ethereum technology a potentially profitable addition to your investment portfolio.

The value of Ether as a digital currency is much more volatile and unpredictable than the growth of Ethereum technology. You can mitigate some of that risk and should take steps to guard against hacking, but, ultimately, the value of any investment directly linked to Ether is likely to fluctuate.

Any of the above investment recommendations deserves consideration, especially if you believe the advent of blockchain technology is only just beginning.

FAQs

What is ethereum?

Ethereum is a blockchain technology in the form of software. As an open-source technology, it is available to any developer building an application that can benefit from the blockchain method of validation. While Ether and other cryptocurrencies are what Ethereum is mostly associated with, the Ethereum technology is enabling widespread innovation in industries as diverse as insurance, logistics, and healthcare.

What are the best ethereum stocks?

The following is a list of the best stocks to buy if you want to add Ether or Ethereum exposure to your portfolio:

  • Grayscale Ethereum Trust
  • Bitwise Ethereum Fund
  • HIVE Blockchain
  • NVIDIA and AMD

How do I invest in cryptocurrency?

While financial transaction technology was the original idea behind blockchain -- and this has gained early traction among established companies -- crypto assets are being developed to help secure all sorts of things, from medical records to copyright protection to digital identification. Investors could take a position in crypto assets themselves (perhaps buying a small amount of a basket of different cryptocurrencies), but investing in companies that are betting on blockchain and crypto asset uptake is the best way to get exposure to the movement.

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