As with any form of investing, there are various ways to invest in crypto. But the specifics of the crypto market — being wholly digital, decentralized and dependent on blockchain technology — means that investing in this realm can look quite different from trading stocks, bonds, and ETFs. That said, even crypto is inching into more traditional markets, as you’ll see when you explore the options below.
Perhaps the easiest way to invest in crypto is by trading, much as you would trade traditional securities like stocks, bonds or ETFs. You can open an account on a crypto exchange (see above); fund the account by connecting your bank or using a wire transfer of cash (different exchanges have different rules); and begin buying and selling the crypto of your choice.
As with traditional forms of investing, it’s best to have a strategy. Are you going to trade daily? Are you looking to buy and hold for the long term? Do you want to invest in bigger, more established crypto with some smaller coins for diversification? With SoFi Invest® you can start trading crypto with as little as $5, and you’re able to trade 24/7.
Mining is another way to obtain crypto assets, but it typically requires a much bigger investment in terms of time and equipment. Crypto mining, also called proof-of-work, is a consensus mechanism used by many crypto platforms. It’s an intensive and highly competitive endeavor, whereby miners (basically the computers or “nodes” on the network) execute billions of complex calculations in order to verify a block of data on a given blockchain. When a miner is the first to confirm a block, they’re typically rewarded with coins.
Recommended: Is Crypto Mining Still Profitable in 2021?
An alternative to the proof-of-work model is proof-of-stake (PoS). This is also a consensus mechanism, but it employs a process that’s considered more passive and therefore more energy efficient compared with PoW. Staking crypto involves purchasing crypto and waiting to be selected as a validator on the network. Validators, similar to miners in a PoW system, validate blocks on the blockchain and can be rewarded with more coins. Thus far, there are fewer projects that use PoS, and there is some debate about whether PoW or PoS is more efficient or more secure.
After a prolonged regulatory battle, in October 2021 the SEC began approving exchange-traded funds (ETFs) based on bitcoin futures, opening the door to a wave of new investment opportunities. As of November 2021, these ETFs only invest in bitcoin futures, not actual bitcoin assets. Investors can also consider certain funds that are investing in blockchain-based technologies.
As cryptocurrencies grow, so do the companies that provide hardware and other backend services. Investors can consider investing in companies that do large-scale crypto mining, cryptocurrency exchanges, or companies that use crypto as part of their business or payments model. Like the emerging crypto-based ETFs, crypto stocks are likely to provide investors with an increasing number of opportunities as this space expands.