What is crypto?

Investopedia defines the term cryptocurrency as “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.” Cryptocurrencies aren't held physically like gold, nor are they printed or minted at central banks like the traditional forms of currency, i.e. paper bills and coins.

Instead, cryptocurrencies are digitally "mined" using computer hardware and software programs that employ blockchain technology via a network of powerful computers called nodes. The nodes in the blockchain network generate cryptocurrencies while maintaining a transparent and verifiable transaction record. Each coin produced is transferable between crypto accounts, and can thus be used to pay for goods and services.

Bitcoin, the first crypto on the scene, was created by software developer Satoshi Nakamoto in 2009. There is not an infinite supply of bitcoins; rather, the total number of mineable tokens in the bitcoin network is 21 million. This limited supply makes the cryptocurrency more valuable to bitcoin miners and more compelling for investors.

If you're interested in learning more about bitcoin mining, check out INN's guide "What is Bitcoin Mining?"

How to invest in crypto?

Cryptocurrencies

Bitcoin might be the first cryptocurrency, but over a decade after its inception it's far from the only digital currency available. Other popular options include bitcoin cash, dashcoin, ethereum, litecoin and ripple.

Investors wanting to buy cryptocurrency can purchase or sell individual crypto coins, or even portions of crypto coins, directly from numerous cryptocurrency exchanges and peer-to-peer crypto trading apps. These include Coinbase (NASDAQ:COIN), CoinSmart Financial (NEO:SMRT), BlockFi, Binance and Gemini.

Crypto stocks

Cryptocurrency mining stocks offer another great entry point into this developing market, providing access for those who don't want to actually own a cryptocurrency itself. Cryptocurrency mining companies use super-powered computers to mine new crypto coins, as outlined above. The cryptocurrency mining market is projected to grow at a compound annual growth rate of 28.5 percent from 2021 to reach nearly US$5.3 billion by 2028.

A few of the largest crypto mining stocks are Marathon Digital Holdings (NASDAQ:MARA), Riot Blockchain (NASDAQ:RIOT), Hut 8 Mining (TSXV:HUT,NASDAQ:HUT) and HIVE Blockchain (TSXV:HIVE,NASDAQ:HIVE).

The opportunities in crypto stocks also include crypto hardware companies such as China-based Canaan (NASDAQ:CAN), a pioneer in ASIC-powered bitcoin mining machines and one of the world’s largest crypto mining hardware providers. Aside from that, the gaming industry is also adopting blockchain technology through crypto gaming, which allows gamers to earn cryptocurrencies while playing digital games. One of the most notable crypto gaming stocks is Axie Infinity (NASDAQ:AXS).

Crypto funds, trusts and ETFs

Crypto funds and crypto trusts represent an emerging avenue to investing in the crypto market. Below is a selection of crypto investment products available for investor consideration:

• Bitwise 10 Crypto Index Fund (OTCQX:BITW) — The Bitwise 10 Crypto Index Fund tracks the performance of the Bitwise 10 Large Cap Crypto Index, which in turn tracks the 10 largest cryptocurrencies.

• The Bitcoin Fund (TSX:QBTC) — The Bitcoin Fund is operated by 3iQ, the first in Canada to offer crypto exposure to accredited investors. This closed-end fund is designed to invest solely in bitcoin.

• Ninepoint Bitcoin Trust (TSX:BITC,TSX:BITC.U) — This low-fee trust trades in both US and Canadian funds. Investors can buy shares of the trust, which closely tracks the underlying asset.

• Grayscale Ethereum Classic Trust (OTCQX:ETCG) — This trust tracks the price of the ethereum classic token. Investors can purchase and sell shares through traditional brokerage accounts.

Crypto exchange-traded funds (ETFs) are another investment vehicle through which investors can gain exposure to cryptocurrencies. To learn more about cryptocurrency ETFs — such as the Purpose Bitcoin ETF (TSX:BTCC), the CI Galaxy Ethereum ETF (TSX:ETHX.U) and the Evolve Cryptocurrencies ETF (TSX:ETC.U) — read INN’s guide "Investing in Cryptocurrency ETFs."

Why is crypto down in 2022?

Since reaching all-time highs in late 2021, digital currencies have plunged in 2022 as investors exit riskier assets in a world that's gripped with rising inflation and increasing economic uncertainty. The crypto market has also been impacted by the turmoil in global finance caused by the Russia-Ukraine war.

Will crypto go back up?

Veteran investors know that predicting price action in any market is a challenge, and with digital currencies it’s nearly impossible — especially right now. However, some market watchers believe cryptocurrency prices will get a boost once the US Federal Reserve and other central banks back off on the current rate hike cycle.

What is the future of cryptocurrency?

With so much volatility in the global markets, it’s hard to formulate projections about the crypto space.

However, Bitstamp notes that one of the most significant findings from the survey underlining its Crypto Pulse report is that digital assets are anticipated to overtake traditional investments. The crypto exchange surveyed 5,502 institutional investment decision-makers and 23,113 retail investors from across 23 nations, and most respondents believe this will happen within the next decade.

In an interview at the start of 2022, Justin Hartzman, CEO and co-founder of CoinSmart Financial, told INN that he believes the crypto market can be rewarding for investors who take a long-term strategy. “There may be some bumps along the way, but the crypto market tends to reward investors who hold with conviction, and we expect this trend to continue in the future as the digital economy’s user base grows and new use cases continue to be built,” he said.