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How to Get Exposure to Crypto through Your Regular Stock Broker

2021-08-01

How to Get Exposure to Crypto through Your Regular Stock Broker

For a variety of reasons, many people do not wish to gain crypto exposure through the traditional route of sending fiat money to exchange and swap it for cryptos such as Bitcoin and Ethereum. As an alternative, many investors are gaining exposure to crypto through their regular stock brokers.

Several explanations include the following:

  • Business operations – by dealing with exchanges, audits, and accounting gets more complicated.
  • Your bank/banks are refusing to collaborate with exchanges.
  • Lack of trust in self ability to ensure security for your cryptos.

All of these are very good explanations for being reluctant or unable to purchase cryptocurrency via crypto exchanges such as Coinbase or Binance.

However, not everything is lost.

For the reasons pointed out above, you have the choice of investing in crypto funds through your regular stockbroker.

Why more are choosing to use a Regular Stockbroker

According to research conducted in 2021, institutional investors in Europe tend to invest in crypto by exchange-traded funds rather than directly. About half (53%) use exchange-traded products (ETPs) to gain access to bitcoin, whereas only a quarter (23%) use standardized products and just about one in five (21%) use direct investment.

Blockchain exchange-traded funds (ETFs) invest in businesses that use or benefit from blockchain technologies. Blockchain is a distributed ledger technology that is rapidly being used in finance, investing, bitcoin, and other industries. Although blockchain technology is still in its infancy, many of the businesses operating in the space are well known.

In the United States, there are three bitcoin exchange-traded funds (ETFs), excluding inverse and leveraged ETFs and funds with less than $50 million in assets under management (AUM). Over the last 12 months, these ETFs have outperformed the overall market, generating higher total returns than the S&P 500's 49.0 % total return as of May 4, 2021.

How can I get exposure to Crypto without directly Buying Crypto?

Many buyers could be hesitant to participate in blockchain technologies as a result of the technology's relationship with the volatile cryptocurrency sector. However, blockchain is not synonymous with bitcoin, and blockchain ETFs invest exclusively in the securities of licensed businesses, the majority of which are large blue-chip companies, rather than explicitly in cryptocurrencies.

Consider one of the ways individuals may gain exposure to cryptocurrencies from their traditional stockbroker. BLCN is a component of the NASDAQ Blockchain Economy Index, which measures the output of companies engaged in the growth, study, support, innovation, or use of blockchain technology. The ETF invests in both growth and valuation securities in large-cap firms in developing markets.

Just 17% use hedge funds. Additionally, the research showed a large demand for bitcoin exposure, with approximately nine out of ten (87 percent ) respondents suggesting that they plan to raise their exposure to bitcoin in 2021 and four out of five (80 percent ) anticipating a rise in the USD price of bitcoin throughout the year.

Interestingly, despite the fact that the US asset markets are typically the most creative, they have been slow to adopt crypto. Numerous firms have applied to the Securities and Exchange Commission to publish Bitcoin ETFs, but none have been authorized so far.

Grayscale developed the Grayscale Bitcoin Trust as a workaround to meet the pent-up desire.

The Grayscale Bitcoin Trust

Individual investors can purchase and sell the Grayscale Bitcoin Trust through their own trading accounts. On January 21, 2020, it registered as an SEC reporting firm, registering its securities with the Commission and designating the Trust as the first digital currency investment vehicle to achieve SEC reporting company status.

Grayscale Bitcoin Trust's qualified securities are traded on OTCQX® under the symbol GBTC, enabling investors to buy and sell shares simultaneously during the trading day at market prices.

Grayscale asserts that the fund's administration is worth more than the annual charge, and one of its primary selling points is its security. Safely storing cryptocurrencies is famously difficult, but Grayscale guarantees investors that the Grayscale Bitcoin Trust's funds are "protected by a rigorous storage scheme that adheres to industry-leading security requirements."

As an over-the-counter investment vehicle, GBTC is accessible to investors in the same manner that almost every other US security is. GBTC, for instance, may be traded via your regular stockbroker. As of October 2018, one GBTC share was worth less than 0.001 bitcoin. This suggests that it will take more than 1,000 GBTC shares to buy a single bitcoin.

In Europe, on the other hand, they have a range of crypto-related Exchange-Traded-Products (ETPs).

Securities and Crypto Markets: Where Do they meet?

It seems likely that two of the investing world's hottest markets will converge sooner or later. For cryptocurrency enthusiasts and investors interested in capitalizing on the growing success of exchange-traded funds (ETFs), the prospect of an ETF tracking bitcoin represents the strongest potential for this form of link.

There are two reasons why these two markets cannot successfully merge, yet:

The Securities and Exchange Commission (SEC) is reluctant to approve an exchange-traded fund (ETF) based on the recent and mostly untested cryptocurrency sector.

VanEck and SolidX, a fintech firm focused on bitcoin, unveiled plans for the VanEck SolidX Bitcoin Trust ETF earlier this year. According to ETF Trends, this ETF will target institutional investors with a share price of $200,000. XBTC is intended to monitor an index of bitcoin trading desks.

The thought is that by broadening the ETF's scope, XBTC will be able to allay the SEC's fears regarding funds linked to bitcoin.

The world's biggest cryptocurrency by market capitalization continues to be mostly uncontrolled.

An exchange-traded fund (ETF) is a type of investment vehicle that measures the value of a specific asset or group of assets. ETFs allow investors to diversify their portfolios without directly purchasing the underlying assets. ETFs provide a simpler approach to purchasing and selling individual securities for investors looking to concentrate exclusively on profits and losses.

A bitcoin ETF is a fund that tracks the price of the world's most common digital currency. This enables customers to invest in the ETF without having to navigate the complex world of bitcoin investing.

The Catch

Due to The Grayscale Bitcoin Trust being the first investment of its kind dedicated exclusively to bitcoin, investors have been paying a premium. In September 2018, GBTC shares reached a high of $7.95, about 20% higher than the valuation of the bitcoin within the confidence that each share served at the time.

While this premium is substantial, it is smaller than in the past, when GBTC traded at more than twice the value of the underlying bitcoins. Grayscale maintains that prices are determined by the economy, not by Grayscale, and that price variations can be caused by supply and demand.

If a bitcoin ETF simply replicates the price of bitcoin, why bother with the middleman?

Why not invest directly in bitcoin? This is for a variety of causes. To begin, as mentioned previously, investors are relieved of the security concerns associated with bitcoin and other cryptocurrencies. Additionally, there is no need for investors to negotiate with cryptocurrency exchanges—they can simply buy and sell the ETF through standard exchanges and markets.

Perhaps most notably, ETFs are much better understood in the financial community than cryptocurrencies, even as digital coins and tokens gain popularity. A user interested in digital currencies should concentrate on trading a vehicle they are already familiar with rather than trying to learn the ins and outs of something that seems to be confusing.

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