Ever since the Bitcoin phenomenon gripped the world in 2017, it is hard to avoid hearing friends, relatives and co-workers discussing the relative benefits and drawbacks of various cryptocurrencies.
As cryptocurrencies, or “cryptos”, are now more accepted as a form of payment, they also become available to retail investors as tradable securities. Investment platforms like CMC Markets allow trading CFDs linked to Bitcoin, the original cryptocurrency, or Ethereum, its peer competitor.
Trading cryptos is not suitable for everyone. Many investors are unfamiliar with trading cryptos or they simply do not fit their risk appetite. But they are still curious about the phenomenon and are attracted by potential returns. Because of this, they are looking for a safer way to gain exposure to the boom without directly investing in a volatile asset.
Bitcoin is down 70% from December’s record highs of $19,461 but found support above the $5,900 handle and bounced 11% from 2018 lows. Is now an opportune moment to invest in cryptocurrencies?
This report analyses some of the options available for retail investors who are interested in gaining exposure to the cryptocurrency boom. Either directly though Bitcoin CFDs or through blue-chip equities, sensitive to the financial world’s hottest asset.
Why are cryptos receiving attention?
Since mid-2017, a growing number of media outlets, financial institutions and market commentators have been reporting on the cryptocurrency boom, initially championed by industry flag bearer Bitcoin. Stories of investors without any trading experience gaining returns of 100% or more attracted immense interest to this new and volatile market.
Many traditional investors remain cautious, questioning the fundamental nature of Bitcoin as a currency and suggesting that price surges are speculative rather than generated by fundamental factors. Despite persistent doubt, demand for cryptos has boomed globally and shows no sign of letting up, encouraging investors to examine their portfolios to potentially include crypto-tied assets.
The risks of trading cryptocurrencies
There are multiple reasons why direct investment in cryptocurrencies can be risky. Volatility is a major concern for investors; swings of 20-30% per day can be sudden and commonplace. This can lead to considerable profits, but also significant losses.
Falling on the wrong side of a crypto price swing can be very costly. Increased volatility means that even trading CFDs, a 50% deposit is required to open a position, while spreads can vary between 9 and 100 points, depending on the type of cryptocurrency.
Mitigate your crypto risk with equities
These risks should not to be taken lightly. For investors who do not want to be directly exposed to them, there are alternative opportunities to trade less volatile equities that have some form of exposure to cryptocurrencies.
This still allows investors to tap into the potential of the cryptocurrency boom, however it removes a significant portion of trading risk. Furthermore, the process of trading equities is simpler than cryptos, thanks to the access to a unified investment platform to execute trades and manage your portfolio.
Overleaf, we examine stocks that can provide opportunities to gain exposure to the crypto boom. If you see an exciting opportunity in Bitcoin, get in touch with one of our brokers to discuss your options.