How to Invest in Bitcoin Without Buying BTC

Regulated derivatives products allow investors to gain exposure to bitcoin without the hassle of dealing directly with crypto.
Updated Oct 24, 2022 at 1:37 p.m. UTC
Crypto Explainer+

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

“Digital gold” can sometimes feel as hard to get your hands on as the real thing. Tax-sheltered accounts or certain banks might not let you invest in bitcoin directly, crypto exchange accounts aren’t insured by the government and it’s easy to get overwhelmed by the daunting visage of an exchange order book.

There are, however, plenty of ways to invest in bitcoin without buying BTC directly.

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Derivative traditional financial instruments

When you hear terms like exchange-traded funds (ETFs), trusts, options and futures, they might sound complex and off-putting but don’t panic. Derivatives are essentially tradable contracts or shares that track the price of an underlying asset – in this case, bitcoin. So instead of having to go out and buy bitcoin directly on an unregulated crypto exchange, you can effectively trade paper that represents it instead. Contracts or shares can be settled in either cash (cash-settled) or actual bitcoin (physically delivered.)

These financial products have the benefit of being regulated, meaning investors are safeguarded by a number of consumer protections. Not to mention, tax guidance on regulated instruments is far clearer than when dealing directly with cryptocurrency, and there’s no need to set up a bitcoin wallet or navigate an unregulated exchange.

Bitcoin ETFs

A bitcoin ETF is an investment vehicle that trades on the stock market. Shares in the ETF are proportional to the price of bitcoin, which the ETF’s managers buy and sell. ETFs charge low fees and closely track the price of an underlying asset.

The catch is that "spot" ETFs – those that track the current price of bitcoin – are only offered in a handful of countries, such as Canada and Brazil. The U.S. Securities and Exchange Commission (SEC) has repeatedly denied applications for spot ETFs on the grounds that the bitcoin market is inherently manipulable, although some applications are outstanding. The SEC has, however, greenlighted several bitcoin futures ETFs, which track the value of short-term bets on the future price of bitcoin.

The main reason given by SEC Chairman Gary Gensler for the preference of futures-based ETFs over spot ETFs is that the former can be structured using the Investments Company Act 1940, which gives consumers greater protection.

Bitcoin closed-end funds or trusts

Since bitcoin spot ETFs aren’t legal in the U.S., the next best thing is a closed-end trust like the Grayscale Bitcoin Trust, which represents shares in a publicly traded fund. (Grayscale Investments, which manages the trust, is a unit of Digital Currency Group, which also owns CoinDesk.) Or it was the next best thing – until the redemptions became tricky to exercise because of SEC charges in 2016 and shares started to trade at a discount to bitcoin. Trusts like these may only exist until the SEC approves a spot bitcoin ETF; Grayscale is among the many applicants for one.

Bitcoin options and futures

Derivative products let you trade claims on the price of bitcoin rather than buying bitcoin outright.

A futures contract, for instance, lets you buy or sell bitcoin in the future at a price you decide today. It is, essentially, a bet on the future price of bitcoin. If your bet comes in, you could snag bitcoin at a bargain price or sell it for more than the market price. If it goes wrong, you could end up paying far more for your bitcoin or selling it at a loss when the contract expires.

Some bitcoin futures contracts are settled in cash – like those on the Chicago Mercantile Exchange (CME) – while those on, say, Deribit, are settled in bitcoin.

Perpetual swap contracts (known as perps) are futures contracts that never expire, and allow you to bet on bitcoin’s price … forever.

Another avenue is trading bitcoin options: This grants you the right, but not the obligation, to buy or sell bitcoin at the predetermined price (called a strike price) within a certain time period. In order to have this right to buy or sell, investors must pay an upfront cost known as a “premium.”

Both futures and options contracts are complicated products and in the U.S. come with additional requirements and approvals before you’ll be allowed to start buying calls or puts.

Alternative bitcoin investment options

Invest in companies that hold or trade bitcoin

Another way to gain exposure to bitcoin’s price is to purchase shares of publicly listed companies whose performance is tied to the price of BTC.

Coinbase, a publicly traded crypto exchange, makes most of its money through trading fees, and people tend to trade more frequently when bitcoin is performing well.

The most well-known company that keeps bitcoin on its books is Tesla, but there are many others who keep it in their portfolios. MicroStrategy has billions of dollars worth of bitcoin held in its treasury, causing some analysts to liken it to a quasi-bitcoin ETF. You can find a full list of companies that hold bitcoin in reserves here.

Mining stocks like Hut 8 Mining and Riot Blockchain, too, slump when bitcoin crashes and rise when the it performs well. This is because many bitcoin mining companies hold onto their bitcoin instead of selling it, or use their holdings to finance investments.

Invest in companies that support Bitcoin infrastructure

A further step away, but still a good one to consider, is to invest in companies that create the chips and other key components required by mining operations to succeed. Bitcoin relies on ASIC mining machines and cloud computing power, so you can investigate where the chips are made and how the mining is powered and invest in those companies.

Trade synthetic bitcoin

One limitation of bitcoin is that it is based on the Bitcoin blockchain which isn’t interoperable with other blockchains.

For example, you can’t trade bitcoin directly on any other blockchain such as Ethereum or Solana. However, it has become possible over the last few years to trade synthetic bitcoin on these blockchains. These tokens are minted on another blockchain and are pegged to bitcoin’s price.

Wrapped bitcoin is the most popular version of this. It’s an ERC-20 token tied to bitcoin locked up in vaults secured by crypto custodian BitGo. You can stake the token, called wBTC for short, into Ethereum-based decentralized finance (DeFi) protocols. Similar synthetic assets exist for other blockchains, like renBTC, or Sollet’s wrapped bitcoin for Solana.

You can find out how to mint your own wBTC here.

Bitcoin mining

If you can’t trade bitcoin directly, nothing’s stopping you from earning it.

One way to earn bitcoin is to set up a bitcoin mining rig. However, this is far more likely to be lucrative if you spend a lot of money on mining hardware, and it might take a while until you earn your money back – and all the while you’re exposed to bitcoin’s volatility. There are easier options, however, for less technical users such as,

Still, some of the mining companies have market capitalizations in the billions of dollars. Read how to work out whether bitcoin mining is profitable here.

This article was originally published on Feb 4, 2022 at 3:06 p.m. UTC

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CoinDesk - Unknown

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.

CoinDesk - Unknown

Robert Stevens is a freelance journalist whose work has appeared in The Guardian, the Associated Press, the New York Times and Decrypt.


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