How to Invest in Crypto Exchanges: Top 3 Options
If you want to gain investment exposure to the burgeoning digital asset industry, you could invest in cryptocurrency exchanges.
Crypto exchanges are at the center of the global crypto markets and are among the most profitable and fastest-growing companies in the industry, making them a potentially lucrative investment if you can pick the right one(s).
Read on to discover three ways you can invest in crypto exchanges.
1. Buy Publicly Traded Stock in Exchanges
Arguably the easiest way to add crypto exchange exposure to your investment portfolio is by buying shares in publicly-traded crypto companies that offer exchanges services.
Provided you have an account with an online stock brokerage, you should be able to buy shares in publicly traded crypto exchanges with ease.
For example, you could purchase shares in Coinbase, a US-based crypto trading platform listed in the Nasdaq exchange under the ticker COIN. The company boasts a market capitalization of over USD 65bn, making it the largest publicly traded crypto exchange in the US.
In addition to Coinbase, you could also buy shares of publicly-traded fintech companies that provide crypto trading services in addition to traditional capital markets investments. For example, you buy shares in Robinhood, which allows for crypto trading on its app, or shares in Block (formerly Square), which allows users to buy and sell bitcoin (BTC) on its highly popular Cash App.
2. Buy Exchange Tokens
Another way to invest in crypto exchanges is to buy and hold exchange tokens that act as indirect exposure to the performance of the issuing exchange. You can purchase exchange tokens on the crypto exchanges that have issued them and, in most cases, on major global trading platforms.
For example, you could purchase Binance’s BNB token as a proxy investment in the success of the crypto behemoth. While exchange tokens, like BNB, aren’t the same as stocks, their prices tend to correlate with the success or failure of the issuing company.
Binance is not the only exchange that has issued exchange tokens. Numerous leading crypto exchanges have issued their own tokens to fund their developments by offering token holders discounts and other benefits on their trading platforms.
Crypto.com, FTX, Huobi, and KuCoin have also issued exchange tokens that have experienced substantial uptake among crypto traders and investors.
Below is a list of exchange tokens you could buy, ranked by market capitalization (as of December 31, at 9:20 UTC).
Buy Shares in Exchanges in the Private Markets
Finally, you could also invest in exchanges by buying crypto exchange shares in the private markets through direct private placement or via a counterparty that specializes in private placements.
For example, you can also invest in an exchange through pre-IPO placements. This happens when initial public offering (IPO) underwriters avail discounted stocks to a select group of investors before an IPO. To participate in a pre-IPO placement, you have to find a broker who specializes in pre-IPO sales.
Arguably the easiest way to purchase shares in private crypto exchanges is through private share trading platforms like BnktotheFuture.
On BnktotheFuture, you can invest in private shares of crypto companies such as BitFinex, Blockchain, Circle, and Kraken. While the fintech startup investment platform is only available to Qualified Investors, it does allow you to start investing in crypto exchanges with as little as USD 1,000.
If you believe that the crypto markets will continue to grow and become an integral part of the global capital markets, adding some crypto exchange exposure to your portfolio probably makes sense, as exchanges are the first in line to profit from increased crypto trading activity.
However, there are clear differences between buying shares in a publicly-traded exchange like Coinbase, buying exchange tokens as BNB or FTT, and buying shares in a private company. Each comes with different risks and pay-off profiles, making it crucial to conduct thorough research on and fully understand what exactly you’re buying before you make a foray into crypto exchange investments.
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