How to 'Safely' Trade Crypto/Blockchain Assets

One of the hottest topics discussed around the “watercooler” lately has been Bitcoin, blockchain and cryptocurrency related assets (heretofore deemed as “crypto”). Many have asked about how to participate in some of the outsized gains that crypto products have seen as of late. Others have noted a strong desire to take a short position against this industry as they feel it’s akin to the tulip bulb mania of the past markets. 

There are many paths to follow in order to profit from this new and emerging industry, as I’ve come to find out. Most are wrought with considerable risk that does not exist with traditional assets regulated by FINRA, SEC, OCC, FDIC or SIPC. I will share with you some direct and indirect ways to trade the crypto sector. All the products listed below can be accessed via traditional and regulated trading accounts. Some even have viable options markets through which you may consider expressing an opinion.

First things first, let me define this “crypto” sector as it is referred. Blockchain is the technology behind all the crypto innovation you’re hearing about in the news. Blockchain is a decentralized, incorruptible digital ledger that facilitates and records a multitude of different transactions. The public ledger gets updated when a transaction occurs. The data then are synchronized across the entire network of participants in that particular blockchain. This information sharing to all is a central theme that ensures trust and transparency. Since this information is not being stored at one central location (like a bank), every transaction that is posted on the blockchain is verifiable and accessible.

Bitcoin was the first and remains the single most identifiable result of the onset of blockchain technology. As adoption of this tech increased across multiple industry sectors, several new and innovative products emerged (think Ethereum, smart contracts, NFTs, etc.). 

I’ve been involved in the crypto space for a couple of years, actually. I jumped in during the last hyperbolic runup and then weathered Crypto Winter...the sustained time after the last mania when activity considerably slowed down. I’ve learned a lot along the way including how trading on some crypto trading venues are much like I envision things back in the Wild West. All in all, it definitely is a little dangerous to trade crypto products, and danger is not my middle name. 

My natural risk-averse nature has led me to find traditional assets that still allow me to trade and invest in crypto-related assets. I’m happy to share with you, my fellow traders, some of the different ways you can play this hot sector from the safe confines of your existing trading account. While this list is by no means complete, it provides several ideas for you to consider. None of this should be construed as investment advice. Buyer (and seller) beware.

First the direct plays: 

Symbol           Type                Options?        1-Yr Performance

BLOK              ETF                 Yes                  +193%

BLCN              ETF                 Yes                  +100%

LEGR              ETF                 No                   +58.3%

Amplify Transformational Data Sharing ETF (BLOK) is an actively managed ETF that invests a minimum of 80% in companies that engage in the development and utilization of blockchain technologies. While the options chain reveals only small volumes and open interest, the market width is well-within the level of what I would consider reasonable to trade.

Siren Nasdaq NexGen Economy ETF (BLCN) tracks the NASDAQ Blockchain Economy Index, which gauges the performance of companies involved in developing, researching, supporting, innovating or utilizing blockchain technology. Listed Options are available; however, market widths are at or exceed the limits of what I would consider reasonable to trade.

First Trust Indxx Innovative Transaction & Process ETF (LEGR) tracks the Indxx Blockchain Index, which gauges the performance of companies that either actively utilize, invest in, develop or have products positioned to benefit from blockchain technology. No options are offered but there are plans to list in the future. 

Next the indirect plays:

Square (SQ) is a mobile payments company that provides merchant transaction processing services and peer to peer money transfers via its Cash app. Square has been allowing its customers to trade bitcoin since 2018. In October 2020, Square bought $50 million worth of Bitcoins.  How about those apples? Options markets in SQ are tight and robust which make it an enticing product to express an opinion.

IBM (IBM) has seemingly been left behind during the last runup in asset prices. Shares have remained flattish over the past year. This is due, in part, to the decision to build out a suite of blockchain services. The board members took a hard look at blockchain a couple of years ago and decided to go “all in.” IBM has been quietly building 500 blockchain projects around the world. Some of these involve big corporations like Walmart, among others. Will the gamble pay off? Stay tuned! Options are available and beckon all who wish to play.

Visa (V) has been quick to recognize the potential of blockchain technology. It also was one of the first major corporations to do something about it. Since 2016 the company has been involved with several blockchain infrastructure companies. Visa is behind much of the technology that connects debit and credit cards to cryptocurrency wallets at exchanges like Coinbase. Latest reports show Visa has connected 25 of these wallets making it one of the biggest players in the growing blockchain industry. Visa’s options markets are alive and flourishing. C’mon in…the water is warm!

I hope that this article was informative and helped satiate your desire to participate in the booming crypto/blockchain industry. It’s definitely still a little early in the adoption cycle, I’d say. But then again, we all know who actually gets the worm.

Joe Leska, Market Taker Mentoring

Trader Education