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Lesson 11: Crypto Stocks

Lesson 11: Crypto Stocks

The best part about cryptocurrency stocks is that most of them are not pure plays on the industry, giving investors the reward of ample diversification.

Crypto stocks might be worth considering as an investment tool if investing in cryptocurrency seems to be complicated and risky. And that’s understandable because the prospect of buying digital assets is indeed a daunting task for those who haven’t yet been exposed to any blockchain operations. What’s more, if you’re new to the crypto space, the list of cryptocurrencies might even leave you utterly confused. The good news is that there are many ways to get into crypto markets using traditional investment.

There is quite a bit you should know before you dive in. If you want to invest in crypto stocks the right way, here is a quick guide that can help:

  • Research your crypto stocks – from crypto stocks that deal with blockchain technology or invest in crypto assets, there are multiple ways to get crypto exposure without buying the coins.
  • Define your strategy – trading lets you speculate on the price movement; dealing lets you take direct ownership of the crypto stocks
  • Take your positioncreate an account with us to start investing in crypto stocks.

For more info about crypto stocks, you can discover everything you need to know in this guide.

Investing in Crypto Without Buying Coins

Some years ago, buying cryptocurrencies meant downloading a cryptocurrency wallet and saving your keys (passcodes) in a safe place where nobody could get them. Over time, centralized crypto exchanges started to make things easier for investors.

But crypto trading can be more complicated than traditional investment, and the market is known for its volatility. It is not uncommon for Bitcoin, or other cryptocurrencies to fall 10% or more in one day. However, in the traditional stock market, this rarely happens. That’s why investors with low-risk tolerance may consider investing in crypto stocks as an alternative to direct exposure to the crypto market.

When owning the assets, you must learn how to store them, create a cryptocurrency wallet, secure it, and make sure you don’t lose the seed phrase and all related details.

Also, you’d have to deal with cryptocurrency exchanges and marketplaces. If you’re already used to the technology and how things work, it might not be an issue, but when you’re starting fresh, you will need to start reading and studying. But if that’s not for you, or you simply don’t have the time to research everything there is to know when owning crypto coins, then you don’t need to worry. You can still invest in cryptocurrency without buying coins.

The easiest way to get some cryptocurrency exposure is to invest in stocks of public companies that are involved in the space or support cryptocurrencies and blockchain technology. A portfolio that includes different crypto stocks will give you more variety than a portfolio with just a few cryptos.

However, just like any other traditional investment, it would be wise to research these crypto-related stocks before choosing to proceed with any investment.

Investors may also notice that crypto stocks present a few added benefits compared to investing directly in crypto:

  • Convenience. It's as simple as buying traditional stocks. You don't need to learn as much about crypto investing, nor are you required to navigate new platforms, such as cryptocurrency exchanges and crypto wallets.
  • Security. The cryptocurrency exchanges have a long record of being hacked. While the blockchain has not been compromised, exchange hacks pose a risk to cryptocurrency investors. Financial authorities audit the stocks of public companies, and it’s unlikely that they will disappear overnight.
  • Volatility. Most stocks and even crypto-related stocks fluctuate less than cryptocurrencies. Many crypto stock prices fluctuate in correlation with crypto values but on a smaller scale. This is a risk to consider and something you should keep in mind when investing in crypto stocks.

If you want to diversify your crypto stocks portfolio, you might also be interested in diversified crypto ETFs. Exchange-traded funds (ETFs) have a track record of long-term value growth. If you are willing to take the risk, you may choose to give a portion of your portfolio to certain companies or to more specialized mutual or index funds. For instance, you may invest in metaverse stocks and ETFs, or blockchain stocks and ETFs.

Be aware that these represent highly speculative investments, and experts recommend that you keep these investments less than 5% of the total portfolio.

The most popular Crypto stocks

As we’ve mentioned already, unlike holding cryptocurrency directly, you may invest in companies that may act as a buffer and present less price volatility than the actual cryptos.

While these companies might say they are directly investing in cryptocurrency, it might be worth researching their balance sheet. A company's balance sheets can reveal a lot about the company. Some companies report huge holding in digital assets, but in fact, these represent only a tiny fraction of their total assets. Therefore, the percentage that the digital assets represent out of the total asset is important when investing in crypto stocks. A lower percentage means a reduced risk of the stock price dropping dramatically when the crypto’s price drops, but it might also mean that the crypto’s price will affect the stocks less when it rises. Of course, the opposite is true.

Crypto stocks are stocks of public companies that offer hardware, software, and payment services for cryptocurrencies. These companies are the most popular in their respective crypto fields. The major tech companies are aggressively pursuing crypto markets. Some companies offer direct crypto trading, such as Coinbase. NVIDIA and AMD provide crypto mining chips, while PayPal and Square provide payment services. These companies have a high potential for growth if the crypto market continues to grow in the future.

The way companies invest in cryptocurrency and the supporting technology might vary over time, so researching the company’s current investments might always be a good idea. Here are the most popular crypto stocks:

Tesla (TSLA)

crypto stocks
Source: CAPEX WebTrader

Tesla Inc. (TSLA) is involved in the development, manufacturing, sale, and maintenance of fully electric vehicles, as well as energy generation and storage systems. Tesla was founded by Jeffrey Straubel and Elon Musk. The company is headquartered in Palo Alto, California. Tesla is a crypto stock because it accepts cryptocurrency payments for some of its merch. The company used to accept Bitcoin for their main product, electric cars, until the spring of 2021, when Elon Musk declared that Bitcoin mining leaves a much too big carbon footprint and he does not want to support it. The company has invested in crypto and, at some point in 2022, held 42,000 Bitcoins but sold over 75% in July 2022 to try and recover from the bear market.

Tesla also offers vehicle service centers, supercharger stations, and self-driving capabilities. The following segments are operated by the company – Automotive, Energy Generation, and Storage. The Automotive segment is responsible for the development, manufacturing, and sale of electric cars. The Energy Generation and Storage segment deals with manufacturing, installing, selling, leasing, and renting stationary energy storage products and solar power systems. Customers also get electricity generated by their solar energy systems. It designs and manufactures energy storage products that can be used in homes, commercial buildings, and utility sites.

Riot Blockchain (RIOT)

Riot (RIOT) is one of the most important Bitcoin miners in the U.S. Due to the growing demand for cryptocurrency, Riot represents one of the top crypto stocks as it supports the Bitcoin blockchain. Experts predict that miners will not discover every bitcoin before 2140. This means that these mining companies have much work ahead of them.

How does the blockchain that supports Bitcoin work? Mining computers, also called miners, use specialized hardware to solve cryptographic calculations and confirm transactions on the blockchain to produce new bitcoin. As a reward, miners will receive a newly created bitcoin.

Because mining companies are heavily dependent on their mined assets, the stock's value would likely rise as Bitcoin’s price increases.

MicroStrategy (MSTR)

MicroStrategy (MSTR) is a data analytics company. What makes MSTR a crypto stock is its increasing amount of Bitcoin holdings. The company’s CEO, Michael Saylor, is one of the most vocal advocates for cryptocurrency. Investors may view MicroStrategy’s stocks as a proxy for investing in Bitcoin. MSTR was the first publicly traded company that invested significant treasury assets into Bitcoin. It holds over 129,000 coins, valued at approximately $2.5 billion, with a Bitcoin valuation of around $20,000. Saylor sees Bitcoin as an efficient way to store value and believes that the asset will rise in value over time. MicroStrategy organized a January event called "Bitcoin for Corporations," in which they discussed the benefits of including Bitcoin in corporate initiatives. The event featured Michael Saylor, CEO. MicroStrategy shares can fluctuate due to Bitcoin price swings.

Block (SQ)

Block Inc (SQ), previously known as Square, operates many different businesses, which are often referred to as the building blocks to help individuals on their financial journey. One of these blocks is Square, which allows businesses to accept fast and secure payments via Cash App, a mobile payment service that allows users to transfer money. Other lines of business include Spiral, Tidal, and TBD. Spiral is a segment that focuses on open-source Bitcoin projects. Tidal is a global music and entertainment platform. TBD, a decentralized peer–to–peer cryptocurrency exchange. Jack Dorsey, Block’s CEO, is a celebrity in the crypto space and a renowned Bitcoin supporter. He believes that Bitcoin is the currency of the web. Block investors can invest their dollars in a company that is focused on strengthening the crypto ecosystem. Block's focus is on international expansion and growing engagement in its community.

PayPal (PYPL)

PayPal (PYPL), a competitor to Square’s Cash App, is an online payment processor that allows international money transfers. It also offers a variety of ways to get paid for online businesses. Since 2021, PayPal users can also use the platform to buy cryptocurrency. At some point, there was a rumor that PayPal had explored the possibility of creating its own stablecoin, known as PayPal Coin. Stablecoins are cryptocurrencies that are tied to an underlying asset such as the U.S. Dollar and are often used by investors to manage volatility within crypto markets.

Coinbase (COIN)

Coinbase (COIN) is one of the most well-known cryptocurrency exchanges. Users can use crypto exchanges to buy crypto directly with their bank cards, store, and sell their cryptocurrency on the platform. Its mission is to create awareness and encourage the emergent crypto economy. Their customers include individual investors, institutions, family offices, and even businesses. This crypto exchange is used by more than 103 million people in over 100 countries. The company's focus is on expanding its digital products and investing in various crypto projects such as BlockFi, Etherscan, Compound, BlockFi, Etherscan, and others that aim to create an open financial system using digital assets. Investing in Coinbase stocks is one of the best ways to invest in crypto without buying coins, and it represents a solid long-term option for investors as the crypto market grows.

Robinhood Markets (HOOD)

Robinhood (HOOD) is a popular discount brokerage app that allows users to trade cryptocurrency, stocks and options. Robinhood has billions in crypto assets under its custody and relies on crypto trading revenue. They offer access to many cryptocurrencies, giving them a significant competitive advantage.

Robinhood does not entirely depend on crypto transactions to generate revenue. Its revenue is mainly generated from transaction fees, which can give investors more stability than other cryptocurrency exchanges.

CME Group (CME)

CME Group (CME) is the largest financial derivatives exchange in the world. It allows investors to trade futures that bet on the future price of an asset. It also offers options that allow investors to choose to either sell or purchase an asset in the future at a fixed price. CME Group's stock exchange has various assets, including stocks and currencies. That’s why we consider CME Group to be a top crypto stock.

CME created the first Bitcoin futures market at the end of 2017. In 2020, CME created a market to offer options on Bitcoin futures. As of March 2022, futures on Ether, the native coin on the Ethereum blockchain, were made available. Micro futures, which are based on smaller portions of the underlying cryptocurrency, were added to both Bitcoin and Ether futures.

The CME fully featured exchange allows you to trade derivatives of the most well-known cryptocurrency, and this has given Bitcoin and Ethereum more legitimacy. It also provides a way for digital currency holders (both individuals as well as growing numbers of businesses that accept cryptocurrency payments) to reduce risk from fluctuations in cryptocurrency prices. CME Group is still limited in its market for cryptocurrency derivatives, but it is possible to add more exchanges for crypto assets.

Nvidia (NVDA)

Nvidia Corp (NVDA) is a crypto stock investment that long-term investors should consider. Nvidia manufactures graphics processing units, or GPUs, that power the devices we use every day. Its profitability is largely due to graphics cards that are specifically designed for gaming. Nvidia launched a new product, GPUs for crypto mining, which is an essential component that supports the existence of the blockchain and cryptocurrency ecosystem. These devices were created for professional miners and increased efficiency in their mining operations. Nvidia offers industry-leading graphics cards for crypto mining. This allows for a high hash rate while using as little electricity as possible.

Advanced Micro Devices, Inc (AMD)

Advanced Micro Devices, Inc (AMD), just like Nvidia, is a leading global manufacturer of graphics processing units (GPUs) and central processor units (CPUs) which are used for cryptocurrency mining. Although it doesn't directly deal with cryptocurrency, AMD is responsible for the high-end graphics cards used in applications that create crypto assets.

High computational power is required to create a cryptocurrency that relies on a proof-of-work (PoW) consensus mechanism like Bitcoin. GPUs are the perfect solution in this situation. They are an essential piece of hardware that allows you to manage and create crypto assets.

AMD is a trusted industry leader in chip technology. AMD continues to innovate new technologies like blockchain, making it a worthwhile investment both now and in the long term.

Pros and Cons of crypto stocks

Many investors shy away from crypto due to volatility but don’t let that deter you from this investment opportunity. With more companies embracing blockchain technology, you can benefit indirectly through stocks involved in the crypto space.

Pros

  • Although crypto stocks are volatile, they tend to be much less volatile than actual crypto. Individual crypto stocks are more volatile than a portfolio of stocks. Therefore, diversification can be so beneficial.
  • Crypto stocks are best suited for investors who want to invest their money for a longer period of it. The longer you can keep the investment the better.
  • Stocks are highly regulated, unlike cryptocurrencies which are not regulated by any financial authority.
  • Crypto stocks offer diversification. Diversifying portfolios is a great way for investors to spread risk and increase their chances of gaining a profit. Because of its strong returns, crypto is becoming a popular choice for diversification. But if you’re not looking to be exposed to that high risk associated with crypto, then crypto stocks are the next best thing. There is an increasing number of applications and uses for crypto, and the industry is growing.

Cons

  • If you are purchasing stocks on your own, you must research each company to determine how profitable you think it will be before you buy its stock. You must learn how to read financial statements and annual reports and follow your company's developments in the news. You also have to monitor the stock market itself, as even the best company's price will fall in a market correction, a market crash, or a bear market.
  • Institutional investors and professional traders have more time and knowledge to invest. They also have sophisticated trading tools, financial models, and computer systems at their disposal.

Ways to invest in crypto stocks

There are two routes to investing in crypto stocks: speculating on their prices using CFDs or buying the assets in the hope they increase in value.

Trading crypto stocks using CFDs

A CFD is a contract in which you agree to exchange the difference in the price of a cryptocurrency from when you first open your position to when you close it. You are speculating on the price of the market, rather than taking ownership of the metaverse coins or stocks. If you open a long position and the cryptocurrency stock does increase in value, you’ll make a profit, but if it falls in price, you’ll make a loss – the same logic apply for a short position.

Before you can start, you would need to open a CFD trading account.

Buying cryptocurrency stocks

Alternatively, you might decide to buy cryptocurrency stocks, which means that you take ownership of a portion of the company outright, with the intention of holding it with a brokerage and profiting if it increases in value.

Before you can start, you would need to open an investing account with a broker like CAPEX.com.

Each investor should research the available ways to invest in crypto stocks before deciding what’s the best option for their situation. Remember that even if crypto stocks are not as volatile as cryptocurrencies, you shouldn’t invest more than you are willing to lose.

How to invest in crypto stocks with CAPEX

Here is how to invest in crypto stocks with an international, highly regulated broker like CAPEX.com:

  • Choose which type of account you want to use. Your first concern should be your risk appetite and time horizon. If you want to buy and hold cryptocurrency stocks open an investing account. If you want to speculate on price movements (including falling prices) with zero commission and leverage open a CFD trading account.
  • Create an account. Regardless of your chosen account, you need to register and complete the KYC process to verify your identity.
  • Fund your account with fiat money. Before buying and trading any crypto stock, you need to fund your exchange account with U.S. dollars, Euros, or other currencies.
  • Select your crypto stocks. It’s time to decide on your first crypto stock investment. We strongly recommend that you thoroughly research the public companies that have crypto holdings or are somehow invested in the cryptocurrency space. Of course, you may choose to invest in one or more crypto stocks.
  • Place a buy order for your chosen crypto stock. Follow the steps required by the trading platform to submit and complete a buy order for one or more crypto stocks.

When trading crypto stocks, the CFDs (contracts for difference) are stored in your account and are far more liquid. However, you should be aware that CFD trading is fast-moving and requires close monitoring. As a result, traders should be aware of the significant risks when trading CFDs. There are liquidity risks and margins you need to maintain; if you cannot cover reductions in values, your provider may close your position, and you'll have to meet the loss no matter what subsequently happens to the underlying asset.

With CAPEX, you can trade CFDs on +2.000 stocks and invest in +5.000 stocks with ownership.

Summary of crypto stocks

Crypto stocks may be suitable for more risk-averse investors and anyone who is used to traditional trading platforms. Investors may choose crypto stocks instead of investing in cryptocurrency directly due to:

  • The volatility of cryptocurrency. These digital assets can fluctuate tremendously in only a few hours, and they can be traded non-stop, as the market never closes, making them harder to manage. Crypto stocks are traded just like regular stocks.
  • Little to no regulation. Cryptocurrencies aren’t regulated assets in most jurisdictions, and anyone can create a new cryptocurrency. But public companies that own or support the crypto industry are regulated.
  • Blockchain technology requires investors to learn about additional platforms. To truly own the asset, a traditional investor should go through a cryptocurrency exchange. Then you’d need a cryptocurrency wallet. You’d also need to learn how the crypto app works and how to perform blockchain transactions. The process isn’t a complicated one, but there is a learning curve that not all investors are willing to embrace.

Luckily, we’ve covered the most popular ways to invest in crypto stocks and explore the cryptocurrency market without buying any digital assets.

Free trading tools and resources

Remember, you should have some trading experience and knowledge before you decide to invest in crypto stocks. You should consider using the educational resources we offer likeCAPEX Academyor ademo trading account. CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader.

Our demo account is a great place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFD trading works – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.

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