How to trade and invest in cryptocurrency shares

What are cryptocurrency stocks?

Growth in digital assets has created a dynamic new sector of shares, offering traders and investors a regulated route into the crypto boom. Much like the dotcom era transformed technology shares, cryptocurrency has spawned a new generation of listed companies.
These shares provide exposure to the crypto ecosystem while operating within established market frameworks. Trading platforms like ours offer various ways to access this rapidly evolving sector.

The sector has matured considerably, with major players like Block and Coinbase now commanding significant market capitalisations. Their share prices often show correlation with cryptocurrency prices, though this relationship can break down during periods of market stress.

Traditional financial institutions have also moved into the space, creating a broader ecosystem that extends well beyond pure-play crypto companies.

What moves the prices of crypto shares?

Crypto shares typically display higher volatility than both the broader market and cryptocurrencies themselves. This characteristic creates opportunities for nimble traders while offering longer-term investors growth potential, though it also makes crypto stocks a riskier investment, with the possibility of rapid losses.

Market depth has improved markedly, with daily trading volumes now routinely exceeding those of many traditional sectors. This liquidity makes these shares increasingly attractive.

The sector remains highly sensitive to regulatory developments and broader crypto market sentiment. A single announcement from a major industry figure can trigger substantial price moves.

Institutional involvement has deepened the market, though retail traders still drive much of the day-to-day price action.

Investing vs trading in crypto stocks

Long-term investors often favour share dealing for direct ownership of crypto shares. This approach provides participation in any potential dividend payments and shareholder rights.

Short-term traders might consider spread betting or CFD trading, particularly given the sector's volatility.

These methods allow you to trade with leverage - meaning you only need to deposit a small percentage of the full trade value - and offer tax-efficient ways to exploit price movements in both directions. However, while leverage can amplify potential profits, it also means your money can be lost much more quickly than when investing directly.

The choice between investing and trading often comes down to time horizon and risk appetite. Investing provides a more straightforward way to capture long-term sector growth, while trading offers greater flexibility and leverage.
Your choice of approach should reflect your view on the sector's longer-term prospects versus short-term trading opportunities.

Risk management considerations

Long-term investors using share dealing should consider portfolio diversification carefully. Crypto shares might form part of a broader technology sector allocation.

Position sizing becomes crucial given the sector's volatility. Even experienced investors and traders should consider smaller position sizes than they might use in traditional markets.

Stop losses are particularly important when trading crypto shares through spread betting or CFDs. The sector's tendency for gap moves means risk management should be a priority.

Trading on leverage requires a comprehensive risk management strategy. With leverage, you only need to put down a percentage of the total trade value as margin. For example, if Coinbase shares have a margin requirement of 20%, a £1000.00 position would only require £200.00 as initial margin.

While leverage can magnify potential profits, it also dramatically increases risk exposure. A significant market swing against your position could result in losses exceeding your initial deposit.

For instance, if Coinbase shares fell 25% overnight due to a major crypto market selloff or regulatory announcement, a £1000.00 leveraged position would lose £250.00 – more than your £200.00 initial margin.

This scenario isn't merely theoretical; crypto shares have historically shown the potential for substantial gap moves, particularly during periods of market stress. While your initial deposit is protected from going negative, adverse price movements could quickly deplete your trading capital.

How to start investing and trading in cryptocurrency stocks

1. Determine your approach: Choose between longer-term investing through share dealing or active trading via spread betting or CFDs. Consider your risk tolerance and time commitment.
2. Research the market thoroughly: Analyse both company fundamentals and technical indicators. Monitor crypto market trends, as these often lead share movements.
3. Open an account : Select a share dealing account for investing, or a trading account for spread betting or CFDs.
4. Choose your shares: Focus on larger, more liquid names initially. Look for companies with strong market positions and clear business models.
5. Execute your strategy: Place your first trade, ensuring appropriate position sizing and risk management.

Technical and fundamental analysis for crypto stocks

Chart analysis often proves particularly effective with crypto shares, given their well-defined trading ranges and trend patterns. Watch for correlation breaks with bitcoin.

Volume analysis can provide crucial insights, particularly during major market moves. Unusually high volume often precedes significant price action.

Fundamental metrics require careful consideration in this sector. Traditional valuations may seem stretched, but growth potential could justify premium ratings.

Keep a close eye on Bitcoin's technical picture, as it often leads moves in crypto shares. The relationship isn't perfect, but it provides useful context for both investment and trading decisions.

Cryptocurrency stocks to watch

The cryptocurrency stock sector includes several publicly traded companies across global exchanges. While we don't make recommendations, investors and traders often monitor companies such as Coinbase and Block in the exchange and payments space.
Mining companies like Marathon Digital Holdings and Riot Platforms represent the Bitcoin mining sector. These shares typically show high correlation with Bitcoin prices, though operational costs and mining efficiency also impact performance.

Traditional financial companies including PayPal and Robinhood have integrated cryptocurrency services into their offerings. These established firms often provide more diversified exposure, as crypto represents just one part of their business model.

Blockchain technology firms such as MicroStrategy, which holds significant Bitcoin reserves, offer another angle on the sector. As always, conduct thorough research into any company's fundamentals and market position before investing or trading.