Instruments for Cryptocurrency investments

in blog •  5 years ago  (edited)


There are many ways to invest in cryptocurrency markets. For example, if one were to directly learn to use coinbase or any other cryptocurrency wallet, one could directly exchange fiat to cryptocurrencies. However, this mode of investment is slowly becoming more and more difficult as governments, banks and other financial entities are tightening their regulations that permit fiat-crypto exchange. Many countries such as India prevent such direct exchanges. If countries do not prevent such access, banking systems such as those in the United Kingdom can often change the rules and make it extremely difficult for banks to serve crypto-exchanges through increasing costs of compliance.

Therefore, it is only a matter of time, before derivative higher-order financial instruments provide the most popular way for retail and institutional investment in the crypto sector.

For example, Exchange Traded Funds that are regulated by all national financial regulators are an important development. For several years now (atleast 5) many different ETFs have been proposed in the US, with each one being rejected for one reason or the other. These Exchange Traded Funds are secondary instruments that would invest in a portfolio of cryptocurrencies and would be similar to any professionally managed equity fund. During the last four years, the SEC has turned down proposals from at least 20 different organizations for launching such funds.

The second option is the Bitcoin Futures. A futures contract is an agreement to buy or sell an asset at a future date at an agreed-upon price. Investors have an ability to invest (go long) or go short at a certain price. These futures though have definite expiry dates and mandate that only relatively larger investors. The Chicago Mercantile Exchange and Bakktt trade these futures.

A third option is the Bitcoin Options. These options are settled daily, and prices of options vary by future prices.

Nevertheless, for HNIs or accredited investors there are specialized hedge funds that institutions will allow investment in.



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