I'd never even heard of cryptocurrency until about four years ago when the 2017 Bitcoin boom made it virtually the only topic of discussion at my family's Christmas gathering that year. I bought in because I was curious and willing to take a risk. But there are many others who still aren't willing to invest, despite some popular coins hitting record highs this year. And that's totally OK.
If you're wary about losing money, there is a way you can profit off of cryptocurrency's success without actually taking a huge gamble on this still largely speculative technology.
Nothing exists in a bubble
We tend to group investments into distinct categories — financial stocks are different from energy stocks and consumer staples stocks are different from industrial stocks. But there's a degree of interdependence there. For example, as consumers began purchasing more of their everyday essentials online during the COVID-19 pandemic, online retailers made a huge profit. But so did companies like UPS and FedEx that were responsible for delivering a lot of those packages.
Cryptocurrency experiences this same type of interdependence. You purchase cryptocurrency through dedicated cryptocurrency exchanges, and some popular digital payment platforms offer crypto trading now as well. And if you intend to mine cryptocurrency, you need a lot of computing power. It's virtually impossible to invest in cryptocurrency without relying upon businesses in other sectors, and that's the secret you can use to capitalize on cryptocurrency's potential success without actually investing in it.
If cryptocurrency takes off like its investors hope, the cryptocurrency exchanges and the digital payment platforms people use to buy it are also going to profit, as are some of the companies that manufacture the graphics processing units (GPUs) essential to mining crypto. If you have your hand in these companies, you'll be able to enjoy some of the profits from their rising stock prices due to increased cryptocurrency adoption.
But what's great is that you could still turn a profit even if cryptocurrency doesn't ever change the world. We use digital payment platforms and computers for other things, and as we move toward an increasingly digital world, the companies in these industries are likely going to turn a profit, regardless of what happens with cryptocurrency.
How to cash in on crypto without buying any crypto
We refer to the stocks of companies that stand to benefit from widespread cryptocurrency adoption as cryptocurrency stocks. While there are many to choose from, here's a small sampling of some of the best:
Coinbase Global (NASDAQ: COIN): Coinbase is one of the most popular cryptocurrency exchanges out there. It makes a profit every time someone purchases cryptocurrency through its platform. That makes it an obvious winner if cryptocurrency ever sees widespread use.
PayPal (NASDAQ: PYPL): PayPal is a digital payment platform and it owns the peer-to-peer payment app, Venmo. Venmo also allows customers to trade cryptocurrency.
NVIDIA (NASDAQ: NVDA): NVIDIA is one of the top designers of GPUs. These are essential for mining cryptocurrency, and they're a part of every computer.
Investing in a few of these companies is a great alternative to investing in cryptocurrency if you're unwilling to take a huge risk. But you're unlikely to become an overnight millionaire investing in them. Larger, more established companies typically don't see their share prices rise as quickly as some more speculative investments, like cryptocurrency, can. But if you're willing to buy and hold your investments for the long term, cryptocurrency stocks can be a valuable addition to your portfolio.
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Kailey Hagen owns shares of Bitcoin. The Motley Fool owns shares of and recommends Bitcoin, FedEx, Nvidia, and PayPal Holdings. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.