Investing in Cryptocurrency Stocks
Cryptocurrency stocks offer investors exposure to the price movements of popular cryptocurrencies. They are traded on exchanges and are updated by top Wall Street experts and key indicators. However, these stocks are not pure plays on the industry. Increasing adoption of the technology on a large scale, including United Wholesale Mortgage’s announcement that it will accept Bitcoin for mortgage payments, means that their volatility may be higher than the general market. Therefore, investors should treat them with caution and a skeptical eye.
Some of the companies that make use of crypto-mining technology are NVIDIA, Marathon, and Coinbase. NVIDIA made its name as a graphics card producer, but its technologies have expanded to include cryptocurrency mining. Cryptocurrency mining is an energy-intensive, yet lucrative process, which helps unele cryptocurrencies operate without the oversight of a central authority. Marathon, meanwhile, is another company that heavily invests in Bitcoin directly and holds $387 million of it.
The price of cryptocurrencies fluctuates wildly, so it is important to understand the volatility of these assets before investing. Although broad stock indexes offer low volatility, the possibility of extremely high gains can be limited. For example, a single coin like Ethereum might drop as much as ten percent in a single day. It is also important to consider your time frame when investing in such volatile assets. Many experts suggest that investors should invest for at least three years to fully reap the benefits.
In addition to the risks, investors should carefully consider the leverage and minimum investments of their cryptocurrencies. Leverage is the ability to trade above your initial deposit, thereby multiplying your gains. High leverage is suitable for experienced investors but not recommended for beginners. A common cryptocurrency leverage is 20:1 or higher depending on the platform. Hedging is an important risk mitigation technique that involves offsetting a secondary position with a primary asset. In addition, hedging is an insurance policy that reduces the risk of a trade.
While cryptocurrency may seem appealing, investing in it requires research and evaluation. Since stocks are linked to a particular company, they are subject to well-defined financial reporting requirements. These disclosures give investors a good sense of a company’s prospects. However, cryptocurrencies are not regulated in the U.S., so discerning viable projects can be difficult. Financial advisors can provide input on which cryptocurrency is right for you. In addition, you can use your retirement account to invest in cryptocurrency stocks.
If you want to invest in cryptocurrency but don’t feel confident in the market, a better alternative may be to invest in a stock actively pursuing the crypto market. This way, you won’t be dependent on the prices of individual cryptocurrencies to earn a profit. Companies involved in facilitating these transactions will benefit even if the prices of coins fall. The stock market can be volatile. To get a fair return, make sure you diversify your investments with a low-risk alternative.
