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The Future of Crypto: Why Smart Investors Are Backing the Ecosystem

Are you a crypto enthusiast who’s already taken the plunge into the world of digital currencies? Want to enhance your crypto portfolio? Here’s why backing the entire crypto or digital asset ecosystem could position you for growth.

September 26, 2024 6 min read

What Is the Crypto Ecosystem, Anyway?

The crypto ecosystem is much bigger than you might think. It's not just about cryptocurrencies and the exchanges they trade on. An entire world of technology and services makes the crypto revolution possible. Let's break it down:

Blockchain Technology: Building the backbone of crypto or the tech that makes digital currencies work.
Miners and Validators: Firms providing the energy and/or capital required to validate transactions and secure various blockchains.
Exchanges and Trading Platforms: Where you buy and sell your favorite coins.
Security and Custody Solutions: Seeking to keep your digital assets safe.
Payment Processors: Making it easier to use crypto in the real world.
Fintech innovators: Think crypto banks, decentralized finance platforms, and more.
Hardware Manufacturers: Creating the physical technology, like semiconductors, needed for mining and security.
Regulatory and Compliance Tools: Helping the crypto world stay compliant and play by the rules.

Digital Asset Ecosystem

Why Care About the Broader Ecosystem

When you invest in the crypto ecosystem, you're not just investing in another coin. You’re helping to build the entire foundational technology that makes all cryptocurrencies, including bitcoin and ether, stronger and more useful. It's like investing in the whole forest — not just a single tree.

Stronger Ecosystem, Brighter Tomorrow for Crypto

As the digital asset ecosystem grows, your existing crypto investments may potentially grow more valuable. Here's how:

Improvements to blockchain technology could lead to the development of more blockchain-based applications, expanding the use cases for crypto.
More blockchain-based applications may result in greater demand for the cryptocurrencies that enable activity on the blockchain.
Greater demand for these cryptocurrencies may drive prices higher, creating more value for investors.
Greater value creation for investors may drive more capital to the ecosystem leading to new developments and expanded use cases.

It's a virtuous loop. Your ecosystem investments help your coin investments, and vice versa.

Finding Stability in a Stormy Sea

Whether or not you’re already a crypto investor, it’s no surprise that cryptocurrencies can be a wild ride.

While investments in crypto have become more widespread since crypto’s inception — 40% of Americans now own crypto¹ — it’s still a highly volatile asset class.²Investing in enabling technologies and the ecosystem overall could help anchor your crypto portfolio when the coin waters get choppy through increased diversification and liquidity.

After all, companies that make up the broader ecosystem cut across a breadth of industries and sizes and potentially have more diverse revenue streams themselves. They don’t make money just from coin prices, but rather from the technology, hardware, or services they provide.

Quick Quiz

What is the foundational technology that underlies a cryptocurrency like bitcoin?

Cloud Computing

AI

Blockchain

Right! Blockchain technology is the digital ledger technology that enables the immutable record-keeping underlying cryptocurrency.

Not quite. While AI and cloud computing may help accelerate advancements in digital assets, blockchain is the digital ledger technology that enables the immutable record-keeping underlying cryptocurrency.

How Can You Invest in the Crypto Ecosystem?

When investing in the digital asset ecosystem, it’s important to know your options.

The Do-It-Yourself Approach: Do Your Own Research and Analysis

If you love doing your own research and diving deep into the details of individual companies, technologies, and industry regulations, this route might be for you. You can:

Research companies and investment vehicles that make up the broader crypto and blockchain ecosystem.
Analyze financial reports and technology developments of potential investment prospects.
Keep up with the regulatory landscape for cryptocurrencies and digital assets.
Manage buying and selling of individual securities via your own brokerage account.

DIY Pros:

Full control over your investments
By researching investments, you can gain knowledge on assessing companies
More individual customization of your portfolio

DIY Cons:

Time-intensive research required
Higher risk if you're not well-diversified
Constant monitoring needed to keep pace
You’ll have to regularly rebalance on your own

Professional Management: Invest in Crypto and Blockchain ETFs

If you want exposure to the ecosystem without having to manage investments on your own, exchange traded funds could be a game-changer for you:

Research crypto and blockchain or digital assets funds focused on the broader crypto ecosystem or value chain.
Check the fund’s holdings to ensure they align with your investment goals.
Understand the fund’s fees and expenses before investing and compare funds that offer similar exposure.
Buy ETF shares through your regular brokerage account.

Of course, you can always work with a financial advisor, who can help conduct the research and due diligence. They also can help you buy and sell as efficiently and cost-effectively as possible.

ETF Pros:

Diversification: One ETF can provide exposure to dozens of companies.
Expert Management: Fund managers do the research and portfolio rebalancing for you.
Risk Management: Your investment is spread across many companies, industries, and market caps.
Cost-effective: ETFs tend to be cost effective ways to gain diverse exposures. The median expense ratio of an ETF is 0.52.³
Keep Pace: ETF managers can add new promising companies as they emerge.

ETF Cons:

No control over the ETF’s underlying holdings
Research required to choose the right ETF

While ETFs may make it easier to invest in the crypto ecosystem relative to selecting individual stocks, it's still valuable to spend time learning about the ecosystem’s major players and trends. This knowledge can help you choose the right investments for your goals and understand how the digital asset ecosystem’s growth may impact the value of your crypto holdings.

Your Role in Shaping the Future of Crypto

The bottom line is, by investing in the crypto ecosystem, you're doing more than diversifying your portfolio. You're actively supporting the entire digital assets revolution.

Think of it as tending to the soil of an entire crypto garden, instead of just a single plant. Those who support the entire crypto ecosystem, beyond just the coins themselves, may potentially reap the biggest rewards.

Whether you choose the DIY route or the ETF lane, investing in the crypto ecosystem could lead to growth.

Get Digital Assets Exposure with SPDR® Galaxy ETFs

The astounding pace of innovation in the digital assets space supports taking an active approach to this burgeoning industry. SPDR Galaxy Digital Asset ETFs offer exposure to the return potential of crypto, blockchain technology, and companies poised to lead or benefit from revolution in digital assets — and they are actively managed to keep pace with the industry’s evolution and effectively manage risks.

Frequently Asked Questions

Why should crypto investors consider investing in the digital asset ecosystem in the future?

Are there digital asset investments that provide diversification beyond cryptocurrencies?

What types of digital assets exist beyond cryptocurrencies?

Does a portfolio focused on the digital asset ecosystem have greater growth potential than cryptocurrencies alone?

Glossary

Blockchain
A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via an algorithm. This public ledger records all transactions that have ever been executed on that blockchain. Blockchains are constantly growing, as completed ‘blocks,’ or transactions, are added in a linear, chronological order. Every computer connected to the Bitcoin network gets a copy of the blockchain which, in theory, makes the whole system more secure as more computers, or “nodes”, become part of the blockchain.

Cryptocurrency
Cryptocurrency, or crypto, is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

Exchange
The marketplace where securities, commodities, derivatives and other financial tools such as ETFs are traded. Exchanges, such as stock exchanges, allow for fair and orderly trading and efficient circulation of securities prices. Exchanges give firms looking to market publicly listed securities the platform to do this.

Exchange Traded Fund (ETF)
An ETF is an open-ended fund that provides exposure to underlying investment, usually an index. Like an individual stock, an ETF trades on an exchange throughout the day. Unlike mutual funds, ETFs can be sold short, purchased on margin and often have options chains attached to them.

Fintech
Shorthand for “financial technology” — a term used to describe technological innovation in the financial world, including the peer -to-peer digital currency Bitcoin or even the exchange-trade fund.

Non-fungible Token (NTF)
A unique digital identifier that is recorded on a blockchain and used to certify ownership and authenticity. It cannot be copied, substituted, or subdivided. NFT ownership is recorded in the blockchain and can be transferred by the owner, allowing NFTs to be sold and traded.

Stablecoin
A type of cryptocurrency whose value is pegged to that of another currency, commodity, or financial instrument. Stablecoins aim to reduce volatility by maintaining reserve assets as collateral or through algorithmic formulas that are supposed to control supply.

Footnotes

Disclosures

Important Risk Disclosure

Investing involves risk including the risk of loss of principal.

Diversification does not ensure a profit or guarantee against loss.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs’ net asset value. Brokerage commissions and ETF expenses will reduce returns.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

Derivative investments may involve risks such as potential illiquidity of the markets and additional risk of loss of principal.

Financial Services Sector concentration are subject to government regulation, deterioration of credit markets, losses resulting from financial difficulties of borrowers and losses resulting from investment activities.

Options investing entail a high degree of risk and may not be appropriate for all investors.

Investing in futures is highly risky. Futures positions are considered highly leveraged because the initial margins are significantly smaller than the cash value of the contracts. The smaller the value of the margin in comparison to the cash values of the futures contract, the higher the leverage. There are a number of risks associated with futures investing including but not limited to counterparty credit risk, basis risk, currency risk, derivatives risk, foreign issuer exposure risk, sector concentration risk, leveraging and liquidity risks.

Non-diversified funds that focus on a relatively small number of securities tend to be more volatile than diversified funds and the market as a whole.

Narrowly focused investments and investments in technology stocks may involve greater risk of capital loss and higher price volatility.

Because of their narrow focus, sector investing tends to be more volatile than investments that diversify across many sectors and companies.

TEKX, HECO, and DECO may emphasize a "growth" style of investing. The market values of growth stocks may be more volatile than other types of investments. The prices of growth stocks tend to reflect future expectations, and when those expectations change or are not met, share prices generally fall. The returns on "growth" securities may or may not move in tandem with the returns on other styles of investing or the overall stock market.

TEKX, HECO, and DECO may invest in companies within the cryptocurrency, digital asset and blockchain industries that use digital asset technologies or provide products or services involved in the operation of the technology. The technology relating to digital assets, including blockchains and cryptocurrency, is new and developing and the risks associated with digital assets may not fully emerge until the technology is widely used. The effectiveness of the Fund’s strategy may be limited given that the operations of companies in the cryptocurrency, digital asset and blockchain industries are expected to be significantly affected by the overall sentiment related to the technology and digital assets, and that the companies’ stock prices and the prices of digital assets could be highly correlated. Certain features of digital asset technologies, such as decentralization, open source protocol, and reliance on peer-to-peer connectivity, may increase the risk of fraud or cyber-attack. Restrictions imposed by governments on digital asset related activities may adversely impact blockchain companies and, in turn, the Fund. Companies within the cryptocurrency, digital asset and blockchain industries may also be impacted by the risks associated with digital asset markets generally.

TEKX, HECO, and DECO may invest in companies that rely on technologies such as the Internet and depend on computer systems to perform business and operational functions, and therefore may be prone to operational and information security risks resulting from cyber-attacks and/or technological malfunctions. Successful cyber-attacks against, or security breakdowns of, a company included in the Fund’s portfolio may result in material adverse consequences for such company, as well as other companies included in the portfolio, and may cause the Fund’s investments to lose value.

Concentrated investments in a particular industry tend to be more volatile than the overall market and increases risk that events negatively affecting such industries could reduce returns, potentially causing the value of the TEKX, HECO and DECO shares to decrease.

TEKX, HECO, and DECO are actively managed. The sub-adviser’s judgments about the attractiveness, relative value, or potential appreciation of a particular sector, security, commodity or investment strategy may prove to be incorrect, and may cause the fund to incur losses. There can be no assurance that the sub-adviser’s investment techniques and decisions will produce the desired results.

The value of certain of DECO’s and HECO’s investments in cryptocurrency ETFs and ETPs that invest in crypto assets and in publicly traded securities of companies engaged in digital asset-related businesses and activities are subject to fluctuations in the value of the crypto asset, which may be highly volatile. The market for crypto asset futures contracts may be less developed, and potentially less liquid and more volatile, than more established futures markets.

HECO’s use of options involves speculation and can lead to losses because of adverse movements in the price or value of the underlying stock, index, ETF, ETP or other asset, which may be magnified by certain features of the options. The Fund’s successful use of options depends on the ability of the Adviser to forecast market movements correctly.

Companies that provide products or services that are supporting or accelerating the disruptive potential of novel technologies (“Transformative Tech Accelerators”) are engaged in emerging industries and/or new technologies that may be unproven. Transformative Tech Accelerators are vulnerable to rapid changes in product cycles, and may have limited product lines, markets, financial resources or personnel. Companies that rely heavily on technology tend to be more volatile than the overall market and are subject to additional risks specific to their industries.

SSGA Funds Management, Inc. has retained Galaxy Digital Capital Management LP (“Galaxy Digital”) as the sub-adviser. State Street Global Advisors Funds Distributors, LLC is not affiliated with Galaxy Digital.

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