How to Invest in Bitcoin Without Buying It Directly: A Guide to Indirect Bitcoin Investment

Buying and selling Bitcoin directly has long been the most popular way of investing, and most traders have made fortunes out of it. However, some investors don’t find it ideal. This guide explores a number of alternative methods to invest in Bitcoin without buying the digital asset.

Investing in Bitcoin directly by buying and selling the digital asset has remained the most popular method for many years, with several traders making fortunes out of it. However, some investors prefer not to buy Bitcoin directly. This guide explores several alternative methods to invest in Bitcoin without buying the crypto.

If you want to invest in Bitcoin and take advantage of its potential but don’t want to do so directly, you can use several alternative financial products to forget the hassles of buying and storing the asset. Among the indirect Bitcoin investment options available, they don’t require purchasing the crypto or opening an account on a cryptocurrency exchange. Every one of these alternative methods has its distinctive features, pros, cons, and costs you need to consider before you decide to select any of them.

What is Indirect Bitcoin Investment?

Indirect Bitcoin investment involves using traditional Bitcoin investment strategies like mutual funds, stocks, and ETFs. Alternative crypto investment methods are relatively cheaper and perhaps less risky than buying Bitcoin outright. The following are among the most popular ways to invest in Bitcoin without buying it outright.

Bitcoin ETFs and ETPs

If you want to avoid buying it outright, Bitcoin exchange-traded funds (ETFs) are among the most popular ways to invest in Bitcoin. Also called a Bitcoin exchange-traded product (ETP), the investment vehicle allows you to be exposed to the price of Bitcoin without buying it directly or owning the crypto. Bitcoin ETFs track the value of BTC through owning Bitcoin derivatives. The product gained popularity in January 2024 after the US Securities and Exchange Commission (SEC) approved spot Bitcoin ETFs, after which Bitcoin has shattered all its previous price records.

Many institutional investors have since adopted Bitcoin ETPs as they find buying them less risky than buying Bitcoin directly. Moreover, you don’t need technical crypto knowledge to invest in a crypto ETF.

Bitcoin CFDs

A Bitcoin contract for difference (CFD) is an indirect Bitcoin investment tool that allows you to speculate on the price of Bitcoin’s fluctuation while using leverage to enhance the size of your position. You don’t have to own the underlying cryptocurrency, meaning the CFD will track the price of Bitcoin on your behalf. Trading Bitcoin as a CFD involves buying or selling BTC’s price behavior to increase your chance of benefiting from the asset’s price fluctuation. Take note, though, that trading via Bitcoin CFDs, like with futures, involves leverage, which increases the potential for the profit or loss you can make. High leverage levels increase the risk for a margin call, where the investor must increase the amount of deposited funds to mitigate potential losses or risk getting their position closed forcibly.

Bitcoin Futures and Options

Bitcoin derivatives, such as futures and options, are another indirect Bitcoin investment method for adding BTC exposure to your portfolio.

Bitcoin futures contracts are derivative products that allow buyers and sellers to exchange BTC at predetermined prices on specific dates in the future. This will enable users to speculate on the cost of an asset they don’t own or hold. Users can also leverage to trade in the futures market. Leverage allows an investor to trade in Bitcoin futures without paying for the contract’s total value in advance.

On the other hand, Bitcoin options are derivative contracts that enable an investor to buy a cryptocurrency at a pre-agreed price on a specific future date. The options provide an avenue for traders to benefit from price fluctuations. They are mostly cheaper than futures contracts since the investor only has to pay the option premium to wager on the price of BTC.

Bitcoin Stocks

Bitcoin stocks provide another indirect Bitcoin strategy you can consider. The method comprises buying stocks in companies that leverage Bitcoin in their businesses. Among the leading companies are Tesla and MicroStrategy, which hold colossal amounts of Bitcoin on their balance sheets. Such companies operate and lay down terms and conditions, making investing in them accessible even for the average investor.

You could also buy stocks from other companies that offer Bitcoin-related services or Bitcoin mining, such as PayPal and Riot Blockchain. However, when dealing with firms that provide other services besides crypto, you want to carefully evaluate their different products to gauge their overall performance since the performance of their stocks will be affected by many other factors besides the price of BTC.

Conclusion

It would help if you remembered that the cryptocurrency market remains notoriously volatile whether you make a direct or indirect Bitcoin investment. Prices can fluctuate dramatically at a moment’s notice. There’s no doubt that this volatility creates profit-making opportunities. However, the flip side is that it can also expose you to the risk of substantial losses. Therefore, every investor must stay alert, prepare for price swings, and implement a risk management strategy to mitigate any attendant risks. As usual, it is essential to do your own research (DYOR) about any indirect Bitcoin investment method you want to employ and learn about its particular risks and profit potential.