Estimate Time6 min

Ways to invest in crypto

Key takeaways

  • There are currently 3 main ways retail investors are gaining exposure to crypto: buying crypto directly, buying a crypto-related ETF, or buying crypto stocks.
  • Note that crypto may be more susceptible to market manipulation than securities, and crypto holders do not benefit from the same regulatory protections applicable to registered securities. Also note that the future regulatory environment for crypto is uncertain.
  • Crypto is not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Only buy crypto with an amount you're willing to lose.

Despite the dramatic ups and downs of the crypto market, interest in crypto is growing. And that growth has helped increase the diversity of investment options in the market.

Retail investors looking to enter the market can now choose between buying crypto outright or buying a crypto-related asset. Those interested in the full experience of crypto ownership may opt for the former, while others may prefer indirect exposure through the latter.

In both cases, the market now offers multiple ways to get in on the emerging crypto markets. Let's discuss the basics of how they work.

What is cryptocurrency?

Before you invest, consider making sure you understand what cryptocurrencies are and how they work.

In a nutshell, cryptocurrencies are digital assets that can be bought and sold in the same way as stocks or collectibles. Unlike stocks, however, owning crypto does not give you legal ownership of a company. Instead, you are buying a digital asset you are betting will rise in value. Some cryptocurrencies may also offer some practical utility, like the ability to exchange them for goods and services.

In general, crypto is highly volatile, so make sure you understand the implications of a potential investment before jumping in. Note that crypto may be more susceptible to market manipulation than securities, and crypto holders do not benefit from the same regulatory protections applicable to registered securities. Also, the future regulatory environment for crypto is currently uncertain. 

Crypto is also not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, meaning you should only buy crypto with an amount you're willing to lose.

Ways to invest in cryptocurrency

If you understand the fundamentals, know the risks involved with investing, and have decided to enter the market, there are a few ways to gain exposure.

Advantages and disadvantages of buying cryptocurrency.

1. Buying crypto outright

The most straightforward way to gain exposure to cryptocurrency is by investing in the coins you're interested in. This is most commonly done via a traditional investment platform or crypto exchange.

There are some unique aspects to this strategy. For example, buying crypto outright gives you exposure to the industry in as little as minutes. Entering an order on a traditional investment platform or an exchange can also provide hands-on experience on the buying process, which can be useful for better understanding how crypto works.

Buying crypto outright may give you complete custody over your coins, which allows you to transfer coins between wallets (i.e., personal crypto accounts). This may make it easier to understand how blockchain technology works. And because the markets are open 7 days a week, there's more flexibility to decide when you want to invest compared to traditional assets like stocks and ETFs.

However, there are also risks to be aware of. Before buying crypto outright, consider learning the basics of crypto cybersecurity first. Like any digital asset, crypto is vulnerable to online theft. Transferring coins is also a multi-step process where even small errors could mean losing access to investments forever. And remember crypto is highly volatile, and that there's a possibility that the value of any cryptocurrency can drop to zero.

Advantages and disadvantages of buying crypto-related ETFs.

2. Buying crypto-related ETFs on a brokerage platform

Crypto-related exchange-traded funds (ETFs) give you exposure to a diversified basket of cryptocurrency values without actually owning any cryptocurrencies. Note that these ETFs are based on crypto futures and crypto stocks, and are not direct crypto ETFs.

ETFs that track the broader industry may offer less volatility compared to buying individual coins. Investors who believe blockchain technology may become an economic force might find it easier to invest in a single ETF, as opposed to buying individual coins and companies.

With that said, ETFs don't give you ownership of actual cryptocurrencies, which means they can't be used to pay for goods and services. Also, because ETFs are portfolios made up of multiple investments, the upside associated with individual cryptocurrencies or associated companies can be diluted. If a specific coin or company appreciates in value, you may not be able to capture the same level of growth by holding an ETF.

Advantages and disadvantages of buying crypto-related stocks.

3. Buying cryptocurrency stocks

Another way to invest in crypto is by buying individual stocks of companies in the crypto industry. Examples include crypto exchanges, bitcoin mining companies, and banks that provide solutions for crypto companies.

Crypto stocks offer a way for investors to bet on which companies will lead the industry. And while buying crypto on an exchange incurs trading fees, most major brokerages offer trading for both stocks and ETFs with zero commissions (note that ETFs may still have management fees).

However, inexperienced investors should be aware this strategy has its risks. Crypto's inherent volatility, poor earnings reports, negative industry trends, and other factors, can all cause a stock's value to plummet.

Less-experienced investors may not want to put all their eggs in the same basket, in which case crypto-related ETFs may be a preferable option.

A note about holding crypto in IRAs and crypto 401(k)s

As the market matures, more brokerage platforms and financial services companies are offering the option to hold crypto in retirement accounts.

Those who can buy cryptocurrency in a Roth IRA account may have a potential advantage if the value of crypto continues to appreciate: Tax-free withdrawals on any earnings after age 59 if you've held the account for at least 5 years.

On the other hand, investors should also think critically about the risks. The goal of a retirement account is to provide financial stability for your later years by setting aside money you don't plan on touching for decades. For this reason, portfolio allocation is often built around index and mutual funds, which offer diversification and lower risk than many other options.

In contrast, cryptocurrencies are high risk. They're an emerging investment and their longevity is still uncertain, which may not align with the goal of a retirement account.

What to consider when investing in crypto

Because the industry is still young and volatile, prioritizing risk management over upside may save you emotional and financial stress.

Ultimately, inexperienced investors who understand the risks may want to consider sticking to the largest cryptocurrencies or crypto-related ETFs rather than go all in on crypto stocks. Given the ups and downs, they may also want to consider only investing an amount they can afford to lose. This could help them avoid catastrophic financial consequences in the event investments go south.

Finally, remember that crypto may be more susceptible to market manipulation than securities, and crypto holders do not benefit from the same regulatory protections applicable to registered securities. Also, the future regulatory environment for crypto is currently uncertain. Crypto is not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, meaning you should only buy crypto with an amount you're willing to lose.

Fidelity Crypto®

A secure and stable platform—because where you trade matters.

More to explore

Past performance is no guarantee of future results.

Fidelity Crypto® is offered by Fidelity Digital Assets℠.

Investing involves risk, including risk of total loss.

Crypto as an asset class is highly volatile, can become illiquid at any time, and is for investors with a high risk tolerance. Crypto may also be more susceptible to market manipulation than securities. Crypto is not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. Investors in crypto do not benefit from the same regulatory protections applicable to registered securities.

Custody and trading of crypto are provided by Fidelity Digital Asset Services, LLC, a New York State-chartered limited liability trust company (NMLS ID 1773897).

Brokerage services in support of securities trading are provided by Fidelity Brokerage Services LLC (“FBS”), and related custody services are provided by National Financial Services LLC (“NFS”), each a registered broker-dealer and member NYSE and SIPC.

Neither FBS nor NFS offer crypto nor provide trading or custody services for such assets.

Fidelity Crypto and Fidelity Digital Assets are service marks of FMR LLC.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular digital asset/cryptocurrency is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the digital asset. Neither Fidelity nor any of its affiliates are recommending or endorsing these assets by making them available.

Diversification does not ensure a profit or guarantee against loss.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

1048804.3.0