The cryptocurrency market continues to evolve, and new investment vehicles are being developed every year. In 2020, both retail and institutional investors have plenty of different options to invest in crypto, depending on their goal. If you are interested in investing in cryptocurrencies, the three methods we are about to discuss will provide a broader perspective on how any individual could get involved in one of the most revolutionary markets.
Buying via exchange platforms
Cryptocurrency exchange platforms represent the old-fashioned place where any individual or entity can buy physical tokens. At present, there are dozens of different exchanges offering competitive conditions (low spreads and small fees) to attract more people into crypto investing. Holding physical crypto is one of the best ways to invest long-term in a portfolio that has the potential for growth. There’s no additional charge for storing tokens in a wallet, once the purchase had been made.
However, the same as all the methods described here, buying via exchange platforms carry some weaknesses as well. Over the years, there are had been many concerns regarding security, especially for exchanges that use hot wallet storage. Also, depositing, buying tokens, and transferring to a personal wallet all takes time, making it a suitable solution solely for longer-term investments.
Crypto CFD trading
If you already know how to trade cryptocurrencies, then you’ve probably found out that most popular brokerage companies had included popular cryptocurrencies on their instruments list. That means retail traders can trade CFDs based on crypto and thus manage to profit from short-term price movements. Cryptocurrencies carry high volatility and with prices moving fast, trading opportunities arise. Crypto CFDs represent an additional tool to include in a day-trader’s portfolio, especially if we consider how active the market had been for the past few months.
Since we are talking about CFDs, spreads are not the only trading cost involved. Overnight swaps apply and would mean holding a position for a long time will reduce profitability if the asset price does not move impulsively in the trade’s direction. This means we can use these instruments to profit from short-term market movements.
Futures/options trading on crypto
Starting from December 2018, the Chicago Board Options Exchange (CBOE) had included futures contracts on Bitcoin. Since then, several other exchanges like CME or BitMEX had done the same, contributing to the development of a futures market. More recently, options on crypto futures contracts had also been created, expanding the tools investors can use to profit from cryptocurrency price fluctuations. The main advantage with futures and options is that both are traded on regulated and safe exchanges, negating some of the downsides traditional crypto exchange platforms have.
On the negative side, though, it may not be affordable for the average investor on the street to buy these instruments, especially futures, since the limited leverage makes them expensive. The good news is that both futures and options can be used for short-term trading as well as swing trading until the contracts will expire. This allows more flexibility and gives room for adjustments when markets don’t behave as expected.