Cryptocurrency has established itself, if not as an actual currency then as a viable asset for investment. There are by now well over a dozen specific cryptos that have sustained high values and/or market caps for long enough to be taken seriously. On top of that, cryptocurrency has for the most part performed very strongly in 2020, when so many other assets have faced significant difficulties. Despite all of this though, the prospect of trading cryptocurrency direction remains daunting to many.
This may be explainable by the simple fact that most day traders don’t succeed in the crypto market — or at least with bitcoin specifically. It’s simply a difficult business to get into, despite the fact that a constant barrage of stories about “bitcoin millionaires” makes it a very tempting one for a lot of people. Rather than taking this purely as an indication that cryptocurrency investment should be avoided though, we’re asking a slightly more complex question: Can you profit off of cryptocurrency without purchasing it and trading directly?
In a word, the answer is yes. It is possible, though still difficult in some circumstances, to successfully invest in cryptos without ever buying a coin (or a portion of one). This can be done in a few different ways:
Crypto futures trading hasn’t always been an option. However, it is now the main element of a growing popularity of crypto derivatives that we’ve seen in recent years. And it’s a little bit of a grey area in terms of whether or not it actually requires the purchase of crypto coins.
In fact, it does — but we’re still including it here because it does not require purchases in the same way that day trading does. When you trade cryptos, the idea is to buy and sell them consistently, simply trading coins in an attempt to capitalize on changes in value. In futures trading, the idea is instead to make an educated digital currency prediction regarding where an asset is heading. If bitcoin is at $10,000, and you expect it to rise to $12,000, you can secure a contract to buy it at $10,000 at a later date. Thus, if it is worth $12,000 at that later date, you’re effectively able to purchase it at a discounted $10,000, and then — if you wish — instantly sell it for $12,000, and a $2,000 profit.
So, to be clear, there is some buying and selling going on. But the actual challenge of futures trading is the initial prediction. The buying and selling can be more or less instantaneous if you like, with the result largely predetermined.
Contracts for Difference
Contracts for difference can be described somewhat similarly to futures, though in this case there is no purchase made whatsoever. Trading cryptocurrency CFDs also involves predicting future value. But in this case, you profit based on the correctness of your prediction, as opposed to based on a purchase you’re entitled to make because of it.
Using the same example we used regarding futures trading, if bitcoin is trading at $10,000 and you expect it to go up, you can arrange a CFD that solidifies that prediction. If bitcoin is then at $12,000 by the time the contract is set to conclude, you will profit at a set rate proportional to the amount you invested in the contract. Importantly, it also needs to be pointed out that you can profit off of a drop in value too, so long as you correctly predict it. In other words, if bitcoin starts at $10,000 and your CFD supports a loss, an $8,000 mark by the conclusion of the contract will result in profits.
This is something of a fringe concept if we’re talking strictly about cryptocurrency investment. But it’s undoubtedly related, it’s getting more popular, and it’s something you can do without having to purchase or trade any cryptocurrency directly, if you’d rather steer clear.
Basically, the idea is that investing in blockchain stocks has become a fairly mainstream activity. These stocks represent a variety of companies that, in different ways, are built on (and help promote) the same blockchain technology at the heart of cryptocurrency. These primarily include companies that facilitate blockchain connections for purposes ranging from banking practices to cryptocurrency mining, and so on. The stocks do not move with exact correlation to cryptocurrencies by any means. But because positive news on the crypto front can increase confidence in blockchain, and thus related businesses, there is some relationship. Blockchain stock investment can loosely approximate crypto trading.
Given these methods, we’d suggest that it is possible to profit off of cryptocurrency while still avoiding direct investment. Whether or not this is a strategic idea is up to you to decide, but it’s certainly an option for those curious about the crypto markets.