Cryptocurrencies have once again piqued the interest of some retail investors, as the likes of Bitcoin and Ethereum have reached new all-time highs.
And this time it could be fair dinkum. There are reports institutional investors have finally started buying up electronic currencies.
Bitcoin has quadrupled in price in the past 12 months, making it one of the best-performing assets over the COVID-19 period.
But to many share investors, they remain a bit of a mystery.
How does one acquire them? How do you store them safely? How liquid are they?
Buying shares in cryptocurrency
One idea floated for many years is the concept of a cryptocurrency-based exchange traded fund (ETF).
This would allow the convenience of just purchasing shares to gain exposure to the wild fortunes of the cryptocurrency world.
Kraken managing director Jonathon Miller said such a product would also have implications for authorities.
"Comments from institutional crypto fund managers such as Digital Asset Capital Management's Richard Galvin stress the benefits crypto-ETFs would bring for regulators – mainly due to transactions then flowing through traditional brokers, which regulators are familiar with," he said.
"ETFs have proven an incredibly popular investment vehicle, and their ability to minimise volatility by spreading risk across a given industry or asset class on paper would make it appealing in the hyper-volatile world of cryptocurrencies."
While in the US there are investment vehicles like Grayscale Bitcoin Trust (Btc) (OTCMKTS: GBTC) that act like a crypto-ETF, nothing has yet appeared in Australia.
So will we finally see a cryptocurrency ETF debut on the ASX in 2021?
"On balance, we think crypto ETFs on the ASX this year are unlikely," said Miller.
Incoming US Treasury secretary Janet Yellen has indicated that cryptocurrencies must be kept in check because of concerns that they're used for money laundering.
"Many nations will look to the [US Securities and Exchange Commission] for leadership, and it has a strong incentive not to rock the boat right now," Miller said.
"We will get there in the end, but it will be the growing understanding of cryptocurrency amongst progressive institutional investors that will make it happen."
Alternatives to an ASX-listed cryptocurrency ETF
If you have a share trading account that can access US markets, Australians wanting to dabble in cryptocurrencies do have some options.
The Motley Fool US' Rick Munarriz last month listed 3 ways he's dipped his toe in the water:
- Buy shares in Grayscale Bitcoin Trust
- Buy shares in MicroStrategy Incorporated (NASDAQ: MSTR)
- Take the plunge and buy cryptocurrencies directly
MicroStrategy is a business intelligence software maker that's been in decline the past 6 years. But it's been making headlines over that time by buying up lots of Bitcoin.
"MicroStrategy has purchased an additional 29,646 bitcoins for US$650 million at an average price of US$21,925 per #bitcoin and now #hodl an aggregate of 70,470 bitcoins purchased for US$1.125 billion at an average price of US$15,964 per bitcoin," said chief executive Michael Saylor last month on Twitter.
According to Munarriz, that US$1.125 billion is now worth US$1.9 billion for the company.
