Crypto, Blockchain, Bitcoin, Ethereum, virtual currencies… A few years ago, the vast majority of the public didn’t know those words at all.
But today, the situation is certainly different: investing and trading virtual currencies is no longer the domain of youngsters and “lunatics” only, and is certainly not a “passing trend” as many were saying at the very beginning, virtual currencies are here to stay, and they definitely affect the whole market. In the following article, we will explain how it happens and why.
We will not delve into the use and trading of virtual currencies, the advantages, disadvantages, and the reasons their use has become common in recent years and the trading gains more more popularity. Instead, we attempt to uncover how traders and investors can get exposure to the crypto world by trading, investing in stocks and ETFs.
When the Covid-19 pandemic began, many believed another stock market crisis is near, as it was in the subprime crisis in 2008. You have probably heard traders who had experienced the subprime crisis say they are unable to approach the stock market after the losses they sustained in 2008. However, when the coronavirus erupted around the world and many countries went into isolation, somehow the exact opposite happened. Instead of people fleeing the stock exchange, many people entered the stock exchange for the first time! Apparently, many people, with no much experience, saw the crisis as an opportunity. As they saw large and well-known companies that fell in dozens of holdings they decided that it was precisely the right time to enter the stock exchange. As a result of a wide public exposure to the stock market and the search for the next big win, more and more traders were now presented to the world of blockchain and virtual currencies .
Another factor that constitutes for us the seal of approval is that currencies are not a passing fad, and they are here to stay in the synchronization created by the large stock indices (SPY QQQ) for the two largest beneficiaries: “Bitcoin (BTC/USD) and Ethereum (ETH/USD).” Over the past two years, it is noticeable that both currencies are responding to stock market events and are moving in a fairly high correlation.
In the early years of Bitcoin, its price movement was completely independent and not determined by the mood in global markets, e.g, there could have been a situation where bitcoin rose 5% a day and the leading indices around the world actually declined, and vice versa.
The fact that on the days when the markets are falling, Bitcoin is going down and on days when the markets are rising Bitcoin is responding and rising at the same time, serves for us, investors and traders a kind of “validation” that the virtual currencies can be treated as commodities (sector for all intents and purposes), and perhaps even, that the large institutions have adopted them.
It is also important to note that in recent years, various ETFs have been issued that allow investment in Bitcoin, such as GBTC. While GBTC is a publicly traded Bitcoin fund, it does not constitute a direct investment in Bitcoin and sometimes may have differences in price movements. (BTC/USD vs GBTC).
So, how do we invest and trade cryptocurrencies in a simple and easy way?
Why easy? Well, first of all, buying Bitcoin is not that simple. You must open a digital wallet, to remember the password and secure it completely independently. There are enough stories already, about people who forgot the password or lost their wallet with some Bitcoins inside. Tax reporting on profits from virtual currencies is different than a stock profits reporting, and trying to deposit those profits to your personal bank account can be a complete nightmare.
So, what can be done?
Trade stocks that are directly related to Bitcoin price movement. A quick Google search will reveal dozens of stocks that are in one way or another related to the crypto market. When it comes to stocks there is actually a much wider variety than you think! For example, there are companies that provide bitcoin mining services, companies that enable clearing and payment with Bitcoin for businesses, crypto exchanges, and even large companies that have decided to invest a large portion of their capital in crypto and digital currencies.
As for the research, which publicly traded companies deal with cryptocurrencies, well that’s on you. By making a short google search you’ll find quite a few large companies traded on the U.S. stock market that have some connection to the crypto world. It means that actually, exposure to crypto can be achieved by trading or investing indirectly in virtual currencies by buying stocks and ETFs, like many investors and traders around the world have done already.
It’s important to note, since cryptocurrencies are trading 24/7 and the stock market isn’t, there are often large gaps in cryptocurrency-related stocks. For example, suppose that on Friday trading closed when the price of Bitcoin was X, and on the night between Saturday and Sunday an announcement was made that cause the currency to fall 10%. Therefore, on the Monday before trading opens, there is a great chance that the shares related to crypto will open in a large Gap Down just because they are affected by the price movement of the currency.
Finally, the world of cryptocurrencies is undoubtedly a big and fascinating world! What we see there no is only the beginning of its journey. Therefore, price movements are unpredictable and can be highly volatile.