How to invest in cryptocurrencies without buying cryptocurrencies: 5 stocks to consider

Imagine your country banning cryptocurrency investments tomorrow. How can you legally gain a foothold in the market now?

Well, you can do this through publicly traded companies involved in the crypto industry. These companies act as proxies as their financial health is directly linked to the crypto markets.

We’ve listed five such stocks that can help you invest indirectly in Bitcoin (BTC), Ether (ETH), and more. You can even invest in these companies to circumvent tax issues and poor user experiences that many face when investing in cryptocurrencies.

Please note that this article is not intended as financial advice. Always do your own research before investing.

5 stocks for indirect crypto exposure

Coinbase (COIN): Not just a crypto exchange

Coinbase is arguably the best proxy for cryptocurrency markets. As a global crypto exchange, Coinbase earns a fee every time a customer buys, sells, or trades crypto tokens on its platform.

Historical data has shown Coinbase thriving during the crypto bull market. When asset prices rise, the market is always excited. Fear of missing out (FOMO) brings thousands of new traders into the market at times like this. We saw this in the 2021 crypto bull market, when retail trading exploded as Bitcoin surged to an all-time high above $68,000.

In 2021, Coinbase reported net sales of around $7.84 billion for the full year, of which the company pocketed $3.62 billion in net income (46% profit margin). In the same year, the company’s share price hit an all-time high of $429.

However, as 2022 entered the crypto winter and public excitement subsided, Coinbase’s full-year revenue fell nearly 50% year over year to about $3.15 billion. The decline in crypto trading volume in 2022 caused Coinbase to post an annual net loss of $2.62 billion.

Although Coinbase derives a large portion of its revenue from trading, it would be a mistake to view Coinbase as “just a crypto exchange.” The company is constantly innovating and diversifying outside of its trading business.

Coinbase offers staking-as-a-service for retail and institutional customers. The Company offers custody services such as cold storage solutions to its customers. Coinbase also earns interest income from crypto lending and interest on customer deposit funds. In 2023, Coinbase acquired an undisclosed equity interest in stablecoin USD Coin (USDC) issuer Circle.

The company launched an Ethereum Layer 2 rollup called Base in 2023, which is expected to be the spearhead of its decentralized finance (DeFi). Meanwhile, the Coinbase wallet remains a popular non-custodial wallet that allows users to leverage DeFi and other Web3 applications.

MicroStrategy (MSTR): Bitcoin Whale

MicroStrategy is an enterprise software company known for its Bitcoin acquisition strategy.

Over the past decade, the company has used free cash flows from its software business to acquire BTC and hold it for the long term. As of July 2023, MicroStrategy held 152,800 BTC acquired at a total cost of $4.53 billion, making the company one of the largest Bitcoin whales in the world.

MicroStrategy’s Bitcoin acquisition strategy sees the company using remaining funds to buy BTC. The company also hasn’t shied away from using debt and fundraising transactions to buy BTC when it sees market conditions as favorable.

Michael Saylor, co-founder and chairman of Microstrategy, is a popular figure in the crypto community who has always championed BTC’s store of value properties. The company views BTC as a hedge against government monetary policy and inflation due to its public open-source nature and limited supply.

The Nasdaq-listed company is currently exploring ways to apply Bitcoin and Lightning network technologies to its software offerings.

Microstrategy reported full-year revenue of $86.5 million in 2022, down from $101.8 million in 2021. The company reported a loss of approximately $1.28 billion for full-year 2022. Digital asset impairments totaled $1.28 billion for the year.

Marathon Digital Holdings (MARA): Largest bitcoin miner

Marathon Digital Holdings was the largest bitcoin mining company in the world with a market cap of $2.32 billion as of August 31, 2023.

Marathon Digital’s business strategy is to mine Bitcoin and hold the tokens as a long-term investment. The company is not as strict about its BTC as MicroStrategy, as it sells BTC on the open market to cover its monthly expenses. The bitcoin miner is also not actively buying BTC on the open market to increase its holdings.

As of June 30, 2023, the company held 12,538 BTC worth $330.93 million.

The majority of Marathon Digital’s bitcoin mining capacity comes from third-party operators who manage and maintain the company’s bitcoin mining rigs. The company participates in bitcoin mining pools and receives a share of the bitcoin block rewards and transaction fees received by the third-party operator. Marathon Digital also operates self-hosted mining pools.

In addition, Marathon Digital aims to contribute to every aspect of the Bitcoin mining technology stack by creating custom firmware, investing in ASIC hardware, and developing mining infrastructure such as immersion cooling systems.

Marathon Digital reported full-year revenue of approximately $117.8 million in 2022, compared to approximately $159.2 million in 2021. Net loss in 2022 was $686.7 million .

Note that we mentioned Marathon Digital in the article because it was the largest bitcoin miner by market cap at the time of writing. Other well-known mining companies that can give you access to cryptocurrencies include Riot Blockchain, Cipher Mining, Hut 8 Mining, and Hive Blockchain, among others.

Block (SQ): Bitcoin champion in the fintech space

Block is a fintech company co-founded by Twitter co-founder and Bitcoin advocate Jack Dorsey.

The company’s main business units are Square, Cash App, Spiral, TIDAL and TBD. Square is a payment solutions company for small and medium-sized businesses. Cash App is a platform that allows individuals to make payments and investments. TIDAL is a music streaming platform.

Spiral and TBD make up Block’s bitcoin-focused businesses. Spiral is an independent team that contributes to bitcoin open source work, while TBD develops bitcoin and blockchain technologies for individuals and businesses.

Block gets the majority of its revenue from Square and Cash App. The Cash App allows users to store, buy and sell bitcoins.

The company classifies “bitcoin earnings” in its earnings report as the total sales amount of bitcoins sold to customers. In the first six months of 2023, Block’s Bitcoin earnings contributed 43% of its total net earnings. However, gross profit from bitcoin transactions contributed just 3% to half-year gross profit.

The company has bought $220 million worth of Bitcoin as of June 2023. The company stated that it expects to hold bitcoin for the long term, but will continue to revalue its bitcoin investment relative to its balance sheet.

Block reported full-year revenue of approximately $17.53 billion in 2022, compared to approximately $17.66 billion in 2021. Net loss in 2022 was $553 million.

Ether Capital (ETHC.NE): Ethereum Pureplay

Unlike other stocks mentioned in this article, Ether Capital is not listed on any major US exchange. Instead, it’s listed on a Canada-based exchange called CBOE Canada, formerly known as the NEO Exchange.

Ether Capital is a Toronto-based company that invests in the second most valuable blockchain in the world, Ethereum’s native token ETH. The company generates revenue by staking more than 95% of its ETH balance.

The company invested in Ethereum-based protocols before changing its strategy and focusing solely on ETH and ETH staking. As a result, Ether Capital sold its token holdings to Maker (MKR) and Uniswap (UNI) in 2022.

Ether Capital’s current business strategy is to hold and participate in ETH, build intellectual property related to the stake and the Ethereum infrastructure, and provide advisory and sub-advisory services.

As of June 2023, the company had 10,053 unhedged ETH tokens and 36,000 staked ETH tokens. The market value of ETH holdings was around $76.35 million as of August 31, 2023.

Ether Capital reported full year revenues of CA$3.74 million in 2022, up from CA$1.5 million in 2021. Net loss for the full year was CA$128.7 million compared to a profit of CA$141 CAD$.4 million in 2021.

The conclusion

While there were several honorable mentions such as Nvidia (crypto mining chip maker), PayPal (recently launched stablecoin), CME Group (BTC and ETH futures provider), and Robinhood (crypto exchange), we agreed that the above companies were more appropriate to be listed as “crypto stocks” in our opinion.

We must reiterate that this article is not intended as financial advice. Always do your own research and remember that past performance is no guarantee of future returns.

Finally, we would also like to highlight that cryptocurrencies are highly volatile assets, which makes them difficult to factor into company earnings reports. Businesses are also required to recognize impairments when the market value of the cryptos they hold falls below their cost, which can impact earnings results.

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