The great cryptocurrency expansion of the last decade or so has primarily been about one form of investment — direct trading; either for fiat currencies like dollars and euros or for other cryptocurrencies. Our post on ‘How to Become Profitable in the Cryptocurrency Market’ listed tips such as learning price trends and getting savvy to price manipulation that are still very much relevant to anyone seeking a profit from this method. However, there’s more to crypto investment than direct trading and ‘hodling’ (holding) on for long-term gains. As the whole industry has matured, other options have become viable.
For those who are unfamiliar, an exchange-traded fund is a publicly listed basket of securities. That is, a fund that is invested in a group of stocks, broken into tradable units. While there are actively managed ETFs, popular ones typically track an index like the Standard and Poor’s 500, a group of big US stocks. Enter blockchain ETFs, which include cryptocurrency and other blockchain-related investment opportunities. Many of these follow the same model, including stocks like the Coinbase exchange platform or companies like VMWare that have staked part of their business on blockchain tech.
What about ones that offer exposure to cryptos themselves? A Business Insider primer on Bitcoin ETFs notes that only a handful have become available in the US and Canada since late 2021, all tied to futures in the digital asset and available to trade like any other ETF on your brokerage of choice. Getting these through US regulators has taken years, and to date the UK Financial Conduct Authority are still playing it cool.
Among traders, spread betting is a popular way to avoid some of the overheads of owning assets as is often the case in other forms of investment. Specifically, it isn’t subject to tax in the UK, although it may be worth speaking to a tax professional to avoid any confusion. A write-up on spread betting at FXCM explains the general idea of spread betting as applied in traditional foreign exchange, where an investor will join others taking a long or short position on the difference (spread) between the euro and the dollar, for instance. Depending on what the spread actually is at the agreed point in time, a win or a loss will be calculated for the investor.
Since spread betting is based on the projected volatility between currency assets, it makes sense that some would want to do the same for cryptocurrencies, most of which are broadly much more volatile than most fiat currencies. At the time of writing, it is possible to place a spread bet on Bitcoin against the pound, dollar, euro, yen or renminbi.
The design of the phrase Initial Coin Offering intentionally apes that of Initial Public Offerings, or IPOs, when companies launch themselves for public trading on a stock exchange. Just like an IPO, the idea is to raise money for a project, only by offering a sale of crypto tokens rather than jumping through the hoops required to list on a stock exchange. The downside of the reduction in red tape is a higher prevalence of scams, so higher-than-usual diligence is required for those hoping to get in on the ground floor of a successful project.
Also worth noting is Initial Dex (decentralized exchange) Offerings, or IDOs. The principle is much the same as an ICO, but these have become popular thanks to the advantages of using decentralized exchanges over centralized ones — namely things like speed, flexibility and transparency. A full explainer on Cryptopotato goes through this and other differences, but for those deep into crypto, IDOs are usually considered a more fitting application in a world that’s supposed to be decentralized.
Ultimately, there are many ways to invest in cryptocurrencies without heading to an exchange, setting up a wallet and simply trading them. Token sales, spread betting and ETF derivatives are just some of the popular options, though are yet to overtake standard trading.