Buy Bitcoin certificates: sensible alternative or not?

Many investors do not want to invest directly in Bitcoin, for example because they are not familiar with wallets or the crypto exchanges are new territory.

For these more traditional investors, there is the possibility to participate in the price development of Bitcoin via certificates.

BTC certificates, similar to common certificates, track the price performance of an underlying asset. In this case, that of Bitcoin. So far, Bitcoin certificates are a fairly young asset class.

Therefore, the number of certificates on Bitcoin Compass and other cryptocurrencies is still quite small. And is this financial product worthwhile at all? Here you can learn more.

What is Bitcoin?

Bitcoin is a cryptocurrency and the name for the peer-to-peer payment network based on the blockchain. It is a purely digital currency. All Bitcoin transactions are recorded on the decentralized blockchain in a way that is both tamper-proof and transparent.

Bitcoin was created in 2009 as a reaction to the financial crisis at the time. The goal was to develop an independent, decentralized digital currency that did not rely on banks and states.

Bitcoin has not yet become an everyday means of payment. However, due to the development of the BTC price, the interest in cryptocurrencies as a speculation object increased. No other asset has performed as well as Bitcoin in recent years.

What is a Bitcoin certificate?

Certificates are securities that are traded on the stock exchange. More precisely, they are derivatives which are based on a certain underlying asset. In this respect, they can be compared to CFDs.

Index certificates are particularly popular with private investors. Stocks, securities, commodities or currencies can serve as the index. This also includes cryptocurrencies such as Bitcoin.

By buying a Bitcoin certificate, investors can indirectly profit from the development of the Bitcoin price. More precisely, the certificates track the value of the US dollar 1:1. If the Bitcoin price rises against the dollar, then returns beckon.

Certificates can either have a fixed term or run indefinitely. There are also certificates that allow participation in price losses. This means you earn if Bitcoin loses value.

Certificates are debt instruments of the issuer. In this case, the issuer is the bank where you can buy the certificate. Debenture means that the bank owes you something after you buy the certificate.

Therefore, certificates always carry the risk that the issuer might not be solvent. However, this happens quite rarely. Ultimately, the safety of a certificate depends on the creditworthiness (credit rating) of the bank.

BTC certificates can be purchased in addition to a securities deposit. They offer the opportunity to earn money from Bitcoin without having to actively trade the cryptocurrency.

With a Bitcoin certificate, one receives a share in the cryptocurrency. For example, one share can securitize 0.1 BTC. The returns then behave as if you owned exactly 0.1 BTC.

Unlike a bond, certificates do not offer fixed interest rates. So profits are not preprogrammed. If you want to buy a Bitcoin certificate, you have to be aware that the prices of the volatile cryptocurrency do not always rise.

Keep in mind that there can be no classic bonds or shares on Bitcoin. This is because there is no company behind the cryptocurrency in which shares can be purchased. You can only speculate on the price of Bitcoin, for which the principle of supply and demand applies.

Certificate vs. CFD

An alternative to the certificate is the contract for difference. Both are derivatives, yet trading them is quite different.

“CFD” stands for “contract for difference” or “contract for difference.” Contracts for difference are traded over the counter on so-called brokers. Here you must first register, deposit a balance and then actively participate in trading.

In most cases, the brokers are regulated providers. You still have to leave your bank’s comfort zone, register, identify yourself and transfer your money via various payment service providers.

With a contract for difference, you can speculate on rising and falling prices. You either go “long” (rising prices) or “short” (falling prices). Contracts for difference are time-limited, as soon as the price does not move in the desired direction, you can get out.

At the end, you will receive the return from the price development as if you had actually owned the bitcoin for that period. However, this also applies to the losses. If you are wrong with your speculation, then you must

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