Learn how you can use crypto banks to invest in cryptocurrency and securely store your digital asset investments.
Add bitcoin to your investment portfolio using an easy and secure platform to buy and trade cryptocurrency.
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What Is Cryptocurrency?
You’ve probably heard of bitcoin. That “internet money” that went from being worth a few dollars to over $20,000 at some point. Well, bitcoin is what you call a cryptocurrency.
In plain and simple English, a cryptocurrency is a digital currency (or an asset) that lives on the internet and can be traded and/or used in the same way as traditional currencies.
Bitcoin was the first cryptocurrency and is by far the most established cryptocurrency. Since its launch in 2009, the digital currency’s market capitalization has grown to over $200 billion, and one bitcoin (BTC) is currently worth over $10,000.
Aside from its use case as an online payment system, bitcoin (and many other cryptocurrencies) have become popular investment assets. Today, even the likes of Wall Street investors and Fortune 500 companies are buying the “digital gold,” bitcoin.
What Is the Blockchain?
Cryptocurrencies – also known as digital currencies, digital assets, and cryptoassets – typically operate on a public blockchain, which acts as a disrupted ledger that records all transactions publicly and in real-time but without detailing the parties involved in transactions.
The blockchain is composed of many distributed nodes (network participants) that ensure – through a combination of cryptography and economics coded into the cryptocurrency protocol – that only correct data is processed. Therefore, only “real” transactions are confirmed by and recorded on the blockchain, making blockchain technology an incredibly secure network for digital money and data storage of any kind.
From a crypto investor’s point of view, the main thing to know about blockchain is that it is the underlying technology that processes and secures your cryptocurrency transactions.
What Are Crypto Banks?
Crypto banks are cryptocurrency banking and investment applications that allow users to easily and securely buy, sell, and hold digital assets.
Unlike standalone cryptocurrency wallets, crypto banks typically come with federally-insured bank accounts and a prepaid debit card in addition to cryptocurrency wallets. Moreover, crypto banking services providers are usually regulated.
Pioneers in the crypto banks space include Bitwala, Coinbase, and Wirex, which were among the first to offer a full-service crypto banking experience. But the list of crypto banks is growing fast – both in the US and globally – as the old world of finance is emerging with the brave new world of cryptocurrencies.
For first-time crypto investors, creating an account at a crypto bank may be the easiest and most secure way to get started.
Best Crypto Banks
Now that you know what crypto banks are, let’s have a look at the best providers in the market.
|BlockFi||Buy bitcoin and securely lend it out to earn interest.||Buy, sell & store bitcoin. Lend bitcoin to earn interest.|
|Bitwala||EUR bank accounts and cryptocurrency wallets to transition between traditional and crypto finance.||Buy, sell & store bitcoin. EUR bank account. Earn yield on crypto. Debit card.|
|Coinbase||Buy, sell and hold a wide range of digital currencies and earn yield on their holdings.||Buy, sell & store crypto. Earn yield on crypto. Merchant crypto services.|
|Crypto.com||Buy, sell, and hold digital currency and spend it via a prepaid debit card.||Buy, sell & store crypto. Earn yield on crypto. Crypto debit card.|
|Nexo||Primarily focused on providing crypto-backed loans.||Buy, sell & store crypto. Crypto-backed lending.|
|Kraken||A digital currency exchange with a banking license in the US.||Buy, sell & store crypto. Earn yield on crypto.|
|Seba||Traditional banking services and crypto banking services for its customers.||Traditional and crypto banking services for individuals and businesses.|
|Wirex||A crypto wallet and prepaid crypto debit card provider to spend digital currency in the real world.||Buy, sell & store crypto. Fiat and digital currency money transfers. Visa debit card.|
|Xace||Traditional bank accounts and crypto wallets as well as a range of crypto services.||Buy, sell & store crypto. GBP/EUR bank account. Virtual debit card.|
How to Start Investing in Cryptocurrency
While cryptocurrency may be more complex than stocks or bonds, investing in digital assets is arguably easier as buying crypto can be as easy as downloading an app and purchasing bitcoin & co using your debit card.
The process of buying cryptocurrency using a crypto bank is as follows:
- Register an account by providing your name, email address, and password
- Complete KYC (typically takes a few minutes)
- Ensure that you backup your in-app crypto wallet(s)
- Decide on which cryptocurrency you want to buy and how much of it
- Input the purchase details into the app’s “Buy” feature
- Input your card details
- Click “Buy” and wait a few minutes for the transaction to settle
That’s it! You should now hold your first cryptocurrency investment in your wallet.
The exact process will vary from platform to platform, but the above steps are typically all you need to do to make your first cryptocurrency investment.
Once you have purchased your cryptocurrency, it is best practice to store it either with a qualified crypto custodian, secure it in an offline wallet (such as a hardware wallet), or hold your investment with an insured wallet provider.
Unfortunately, the cryptocurrency trading ecosystem is still relatively new and regularly falls victim to hacks, which lead to lost funds. Hence, it is vital to store your cryptocurrency as secure as possible, ideally offline.
Top 5 Cryptocurrency Investment Options
If you are new to cryptocurrency, you will probably be surprised to find out that there are several different ways to add crypto exposure to your investment portfolio. From buying actual cryptocurrency to purchasing bitcoin mining stocks or blockchain ETFs, there is seemingly something for every type of investor.
The top five crypto investment options include:
- Buying cryptocurrency directly
- Investing in crypto mining stocks
- Purchasing blockchain stocks
- Acquiring exchange-traded cryptocurrency products
- Diversifying into blockchain ETFs
Below, you will find a summary of the five investment opportunities, and each explained in more detail.
|Opportunity||Description||Where to Buy|
|Cryptocurrency||Decentralized digital currencies or tokens that operate on a distributed ledger network.||Crypto Bank or Digital Asset Exchange|
|Crypto Mining Stocks||Shares in publicly-traded companies involved in the mining of cryptocurrency.||Stock Exchange|
|Blockchain Stocks||Shares in publicly-traded companies involved in the development or distribution of blockchain technologies||Stock Exchange|
|Exchange-Traded Crypto Products||Regulated, exchange-traded investment vehicles that track the price of a cryptocurrency.||Stock Exchange|
|Blockchain ETFs||Exchange-traded funds (ETFs) that invest in companies involved in the development or distribution of blockchain technologies.||Stock Exchange|
Arguably, the easiest and most pure form of gaining investment exposure to the cryptocurrency market is purchasing actual cryptocurrency and storing it securely in a crypto wallet.
There are several publicly-traded companies involved in the “mining” of cryptocurrencies, including HIVE Blockchain (TSXV:HIVE), Hut 8 Mining (CVE: HUT), and Northern Bitcoin (ETR: NB2).
Adding these stocks in your investment portfolio provides you with indirect exposure to cryptocurrencies and direct exposure to the crypto mining industry.
The blockchain is one of the hottest technologies in the market today. Unsurprisingly, therefore, a wide range of publicly-traded companies are researching, developing, deploying, or distributing blockchain technology.
Technology giants like Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) are betting on blockchain and, therefore, provide investors with indirect exposure to the growth of the blockchain sector.
To enable investors to gain regulated exposure to cryptocurrencies, a number of investment managers have launched regulated, exchange-traded crypto investment vehicles.
Exchange-traded trackers – such as Bitcoin Tracker One (OTC:CXBTF) or Bitcoin Exchange Traded Crypto (XETRA:BTCE) – enable investors to indirectly invest in bitcoin without having to go through the technical process of buying and storing it.
If you believe in the future of blockchain technology, you could invest in blockchain ETFs. There are a handful of ETF issuers that provide ETFs that invest exclusively in companies that are involved in blockchain technology in some form.
An example of a blockchain ETF would be the Amplify Transformational Data Sharing ETF (BLOK).
How Risky Is Crypto Investing?
The values of digital currencies – especially less established ones than bitcoin – have the tendency to fluctuate in price quite aggressively. That means that one day you can be up 10% on a holding and then down 20% the next. Needless to say, crypto is not for the faint of heart.
Therefore, most financial experts and bitcoin proponents agree that even risk-loving investors should typically only hold a small percentage of their overall portfolio in bitcoin or other cryptocurrencies.
So, if you do decide to invest in bitcoin (or other digital assets), you are probably best off keeping your crypto exposure to five percent or less of your overall investment portfolio to minimize the risk that stems from this new asset class.
How Does Bitcoin Fit Into a Diversified Portfolio?
Several bitcoin proponents have pointed out that holding just a small amount of a diversified portfolio in bitcoin could – based on historical price data – substantially increase portfolio returns.
Bitcoin has been the best-performing asset of the last decade, aggressively outperforming stocks, bonds, gold, and oil. While many industry experts agree that the incredible returns of early adopters are unlikely to repeat themselves, most also agree that we are yet to see how high the price of bitcoin can go. Some suggest $25,000, others $100,000, and some have even predicted that one bitcoin will one day be worth $1,000,000.
What’s more, bitcoin can act as a diversification asset because it has a low correlation with traditional asset classes, such as stocks and bonds.
Bitcoin’s correlation with traditional assets has gone from negative to positive to uncorrelated over the past few years. The reason for that is that bitcoin is a unique asset in many ways. Bitcoin is akin to gold – in terms of its characteristics and safe haven asset status – but sometimes behaves like a tech stock.
For investors holding a portfolio composed of stocks and bonds, adding small exposure to bitcoin means the potential for higher overall returns and increased asset diversification.
Crypto Custody: How to Securely Store Digital Assets
If you make the decision to invest in bitcoin or other cryptocurrencies, it is essential that you store your digital assets securely.
If you are a high-net-worth individual planning to invest a large amount in digital assets, you would probably prefer to store your investments with a qualified crypto custodian. Conversely, if you are looking to invest a small amount or prefer to have complete control over your cryptocurrency holdings, you can opt for self-custody.
Whatever crypto custody solutions you choose, ensure that you understand exactly how they work and what processes are in place to secure your cryptocurrency investments.