Crypto Investing Will Get Easier Soon
🚀 The quick version: Cryptocurrency was once again trending in the news this week as we are getting closer to a solution for everyday investors to easily invest in the asset class.
Let us explain:
The problem: cryptocurrency is complicated to invest in.
There is currently no easy way to directly invest in cryptocurrency. To do it yourself you need to first find a platform that allows you to trade it, explore storage and digital wallet options, and then hope that when you buy it from someone, you get a fair price.
The only other way to invest in the space right now is to do it indirectly by investing in stocks of companies that are related to crypto (think Robinhood or Coinbase) or investing in more complex financial instruments like futures contracts (term: this means exactly like it sounds and a futures contract is a product that allows you to bet on the future price of an underlying asset like the S&P 500 or Bitcoin).
The solution: enter ETFs. ETFs, or exchange traded funds, are basically like stocks trading freely up and down each day for people to buy and sell as they choose in virtually any investment account. But instead of buying one stock, the ETF you are buying will represent ownership in a lot of different assets (kinda like buying a seat at an all you can eat buffet, it gives you a little bit of everything). So if you buy one ETF for technology stocks, for example, that one ETF will own shares of a bunch of different technology companies.
The advantage of an ETF is that it gives investors immediate diversification vs. having to go out and buy all the individual assets yourself.
The timeline: within the next few months. The hold up for any cryptocurrency ETF has always been that the Securities and Exchange Commission (SEC) has to approve it first; until now, the SEC has been reluctant to do this for anyone who has tried.
However, the dominos are lining up as large financial firms like Blackrock recently applied to the agency to create one (BlackRock ETF applications have a 99.8% success rate with the SEC); in addition, a U.S. court this past week ruled in favor of another firm suing the SEC for blocking the firm’s application.
👪 How it affects your family: As a result of all of the above, we think it’s a matter of months at most before your current brokerage account is able to actively trade a cryptocurrency ETF with ease.
That said, when it comes to investing in cryptocurrency in general, we tend to lean a bit more skeptical and don’t invest in the asset class ourselves at the moment (we have more thoughts here); and while this is our current opinion, we also to are open to the idea that we could be totally wrong, too.
However, if you want to explore some of the topics above in more detail, here are some guides to help:
More on ETFs. If you hear “ETF” and think “huh?”, start here. We will take you in simple language through what an ETF is, the good and bad, and some alternatives to an ETF.
Cryptocurrency simplified. We wrote about this one a few weeks ago but for any parent who want’s a simple explanation about what is crypto and how to teach your kids, we have a guide here.
Breakdown of terms. Forget ETFs and Crypto mumbo jumbo, do you just want someone to breakdown some common investing terms to help you or to teach your kids? We tried to do that for you here.
