Crypto Investments Carry Different Risks Across Three Forms of Exposure

Crypto exposure is not one investment: U.S. investors can hold digital assets directly, buy shares in publicly listed crypto-related companies or use funds and exchange-traded products, with each route carrying distinct risks.

The form of exposure determines what an investor owns. Buying a company’s shares does not give the shareholder direct ownership of crypto, and those shares can move independently of crypto prices. Funds and exchange-traded products also differ in structure and obligations; their prospectuses provide details about the products.

People holding crypto directly also face custody considerations. A compromised custody arrangement can permanently cut off access to assets. Taxes are another issue for people buying crypto.

Historical prices show the scale of crypto’s volatility. Bitcoin was about $7,000 in March 2020, about $69,000 in November 2021 and about $17,500 in June 2022. Ether was about $120 in March 2020, $4,867 in November 2021 and $880 in June 2022. These are rounded, month-level examples, not precise market closes or indications of future prices.

“The risk of loss for individual investors who participate in transactions involving crypto assets, including crypto asset securities, remains significant,” the SEC’s Office of Investor Education and Advocacy said in a March 23, 2023, investor alert.

Whether crypto exposure fits a portfolio depends on an investor’s goals and risk profile. The three forms differ in what they represent: a digital asset, shares in a crypto-related company, or a fund or exchange-traded product. TokenPost has previously examined risk discipline in crypto investing.