Crypto stocks have been on a tear since the beginning of the year.
Coinbase (NASDAQ:COIN) is up well over 250%.
Bitcoin mining stocks like Riot Platforms, Inc. (NASDAQ:RIOT) and Marathon Digital Holdings (NASDAQ:MARA) are up over 300%.
And NVIDIA (NASDAQ:NVDA), which produces technology for crypto mining, is at an all-time high.
So, while the numbers show that investing in high-quality crypto stocks can be quite lucrative, it’s also important to keep in mind that these assets tend to be volatile, and you stand to lose as much as you can gain.
Before getting further into that, though, let’s first define the term “crypto stock.”
What Is A Crypto Stock
A crypto stock is a security that represents a share in a Bitcoin, crypto or crypto-adjacent company.
These include Bitcoin miner and crypto exchange stocks like the aforementioned RIOT, MARA and COIN, as well as stocks like Applied Digital Corp. (NASDAQ:APLD) or Robinhood (NASDAQ:HOOD), which are shares in companies that provide crypto-related products or services alongside non-crypto-related products and services.
Is Now The Time To Invest In Crypto Stocks?
This is a challenging question to answer, largely because of how volatile crypto stocks are.
However, here is a handful of factors to consider if you’re looking to invest in them:
1. Understand Your Risk Tolerance
Before investing in crypto stocks, keep in mind that they tend to be as or more volatile than crypto assets themselves.
So, if you’ll lose sleep over an investment potentially losing 50% or more of its value in the short term, crypto stocks are not for you. Period.
2. Determine Your Investment Time Frame
Are you looking to hold this stock for years, or are you looking to flip it quickly? If you’re looking to invest in a crypto company over a long period versus just trading the company’s stock on a shorter time horizon, then you’ll want to more deeply consider the company’s fundamentals.
For example, if you’re looking to buy Coinbase (COIN), consider whether you think Coinbase will continue to be one of the largest crypto exchanges in the world in years to come. The company’s financials are public, so you may want to dive in to learn more about how profitable of a business Coinbase actually is.
3. Consider Your Investment Strategy
In 2021, “aping into” (placing a large short-term bet on) risky tech and crypto stocks was all the rage. But by early 2022, survival had come into style, and many were learning the hard way that what goes up must come down. That is, risky assets that had risen quickly in value lost a lot of that value in even less time.
Therefore, if you’re thinking about taking a position in a crypto stock, you may want to do so slowly over time. Dollar-cost averaging (DCA) — investing the same amount of money consistently — into a position over months is often a safer bet than investing all your available funds in one fell swoop. Doing so may help you mitigate some of the negative effects of the asset’s volatility.
4. Conduct Some Technical Analysis
Consider how well or poorly the stock has performed in recent months in efforts to figure out whether you might be buying the stock at a discount or a premium.
For example, if you’re looking to buy some stock in Advanced Micro Devices (NASDAQ:AMD), a company that manufactures hardware for crypto mining companies, you might look at a chart of the stock’s performance before buying it.
Looking at this chart, we see that AMD is trading at $115.98 as of August 7, 2023, about 29% down from its all-time high of just over $160.
While this might indicate that the stock is selling at a discount, the stock was trading at about $60 in January 2023 and is now trading for almost double that.
So, while the stock’s price may still have some room to climb, it’s already climbed quite a bit so far this year, which means that now might not be the best time to take a large position in the company.
5. Learn To Take Profits
If you do buy into a crypto stock now and the stock’s price increases quickly, you might consider taking some profits.
Again, crypto stocks are volatile. When you find yourself up 50%, 100% or even 200% on an investment, you could consider selling at least a small chunk to realize some of the gains you’ve made.
At the same time, there may be tax implications to selling a stock when you do so outside of a retirement account.
The Future Of Crypto Stocks
More and more crypto companies will likely go public in the years to come. While there will likely be a lot of hype around these companies as they go public, not all will survive. And even those that do, the price of their shares will likely be volatile for years after they go public.
So, whether you are considering investing in crypto stocks now or in the future, understand that holding these assets over longer periods will likely be a wild ride — much like holding a stock like Amazon (NASDAQ:AMZN) or Meta Platforms, Inc. (NASDAQ:META) (formerly Facebook: FB) in the first few years after these companies went public — and size your positions accordingly.
About the Author
Frank Corva is a cryptocurrency writer and analyst for digital assets at Finder. Frank has turned his hobby of studying and writing about crypto into a career, with a mission of educating the world about Bitcoin and other digital assets. As someone who’s lived and traveled all over the globe, he loves the idea of the world being connected by a neutral, apolitical and borderless network and digital currency like Bitcoin (BTC).
