For Mom-and-Pop investors, it’s getting easier to buy cryptocurrency as part of a traditional stock-and-bond portfolio.

But the costs can add up, and it’s key to prepare for a possible tax bill down the road.

Bitcoin, the most popular cryptocurrency, has posted an eye-popping rally—it increased in value more than 300% in 2020 and has more than doubled in price so far this year to top $59,000 on Friday.

If you’re comfortable purchasing crypto such as Bitcoin, Ethereum, and others, an exchange is the most direct way.

Anyone with a credit card and an email address can buy and sell on the many exchanges popping up, such as CoinDesk, Coinbase, Bittrex US, Kraken, Circle Financial and Genesis.

“It’s important to do you due diligence about which exchange” you use, said Stephen Stonberg, CFO and COO of Bittrex Global. The company was founded by former Amazon and Microsoft executives in 2014.

“Some do substantial know-your-customer due diligence. Others just let you open an account with an email address,” he said. The more background the exchange requires, the safer your account will be. Bittrex Global is a separate platform from Bittrex US based in Seattle. Bittrex Global operates outside the US and has no US customers.

But if that’s too risky, there are now a new crop of exchange-traded funds, or ETFs, and investment trusts that hold cryptocurrency as the main asset. These trade like stocks on Wall Street exchanges such as Nasdaq and the New York Stock Exchange.

But the cost is higher as banks and investment firms offer with high fees.

GBTC, the Grayscale Bitcoin trust, is one such quasi-ETF, which holds Bitcoin.

Brokerage firms generally allow only their wealthiest clients to buy GBTC. Grayscale also filed with regulators to offer other trusts holding cryptocurrencies such as Bitcoin, Ethereum, Horizen, Litecoin, Stellar Lumens and Zcash. Additionally, Grayscale Digital Large Cap Fund gives investors exposure to top digital currencies by market capitalization.

The Boston-based investment giant Fidelity plans to launch a Bitcoin ETF as well.

Fidelity Investments filed with regulators plans to launch an exchange-traded fund that tracks the price of Bitcoin called the Wise Origin Bitcoin Trust, with Fidelity Digital Assets serving as custodian. Shares would track an index of prices from varied Bitcoin markets.

Buying cryptocurrencies through your broker can involve paying your regular advisory fees, plus another fee for the exchange-traded fund, said Stonberg, a Philadelphia native and Penn Charter high school graduate.

“You’re paying fees already to have someone to do your portfolio allocation, and that’s ok. You’ll pay more, but you’ve chosen to pay more for a sense of safety,” he said.

Unlike Wall Street, with a highly regulated system of custodians, brokerages and clearinghouses, cryptocurrency platforms are still emerging.

Since 2018, Fidelity has held cryptocurrency for professional investors, and offers them access to the Grayscale Bitcoin Trust, the digital currency investment fund. But so far it’s limited to professional investors with high minimums (Fidelity requires $250,000 per investor), which are inaccessible to the average customer.

A low-fee, low-cost Bitcoin ETF would change all that.

But the U.S. Securities and Exchange Commission has so far rejected at least nine Bitcoin ETF applications. Other countries have moved ahead, with two Bitcoin ETFs launched in Canada.

Coinbase this month will debut its IPO, one way that Main Streeters could buy into the trend.

Coinbase was founded in 2012 and has grown to 1,200 employees and 43 million customers. In 2020, it brought in $1.3 billion in revenue and turned a profit of $322 million, mostly from trading revenue. One valuation put Coinbase’s worth at a minimum of $67.6 billion.

Phil Gocke and Bill Wu, partners in money advisor Opus Investment, said their clearing firm TD Ameritrade, doesn’t yet allow trades in Bitcoin.

However, their fund is buying shares in the underlying software building block to cryptocurrencies, known as blockchain.

“Last December we purchased several blockchain ETFs,” including BLOK, the symbol for Amplify Transformational Data Sharing ETF.

BLOK’s largest holdings include MicroStrategy (MSTR) a public company which holds a large amount of Bitcoin on its books. Its expense ratio, or the fee charged every year, totals 0.71%, more than the average mutual fund.

“As Bitcoin’s price rose, so too did the stock. In any case, this gave us a backdoor way of investing but with the instant liquidity of a listed ETF,” said Gocke, who is based in Swarthmore.

The fund managers bought BLOK in December at $31.84 and then again in February at $53.07.

Top holdings of BLOK include Galaxy Digital Holdings; Voyager Digital; and Marathon Digital Holdings;

Finally, even Facebook wants into the crypto game. Facebook-backed cryptocurrency Libra has been rebranded “Diem” in an effort to gain regulatory approval. David Marcus, the head of Facebook Financial, also known as F2, said he hopes the cryptocurrency called Diem will hit the market in 2021.

Donate your Crypto

Uncle Sam wants its cut of your crypto. The I.R.S. for the first time this year requires cryptocurrency owners to report on federal tax returns.

A “virtual currency” question on page 1 of the 1040 “is intentionally obvious. It asks if at any time during 2020 the taxpayer received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency,” said Michael Gillen, head of Daune Morris’s tax practice in Philadelphia.

“This highlights a push for compliance in this area, and the IRS is using the question as a reminder for taxpayers to properly report,” he said.

But there’s an upside to the big gains in Bitcoin and other currencies--you can donate your profitable crypto as you would any asset that’s grown in value.

The National Philanthropic Trust in Jenkintown specializes in setting up donor-advised funds for those who want to give to charity in a tax efficient way.

Since 2017, the outfit has been accepting crypto donations.

“At that time, the crypto market was booming and towards the end of 2017 donors approached us” about transferring their currency to charity, said Gil Nusbaum, general counsel at National Philanthropic Trust.

“Before we said yes, we had to understand the market. We developed a process of accepting and liquidating” cryptocurrencies, since any donation needs to be converted into cash quickly, he said.

“With crypto, we had a few big concerns, such as the volatility. We can’t hedge against that. Also, we had to understand the source of the crypto funds.”

Nusbaum developed a process for accepting cryptocurrency by accepting it via two digital “wallets” called Trezor and Ledger, two widely-used hardware wallets.

“They’re essentially thumb drives. Our legal department keeps those in a vault,” Nusbaum said.

To liquidate the holdings, National Philanthropic Trust trades on several exchanges, including Kraken, Coinbase, Circle Financial, and Genesis.

“We’re constantly exploring these, especially exchanges that can support different tokens” such as Bitcoin and Monero.

In 2017, they accepted 9 donations of cryptocurrency; in 2021, they’ve closed five so far this year, he said.

“Last week, a donor contributed $100,000 worth of Bitcoin, plus $300 worth of some other coin. We immediately sold both.”

National Philanthropic Trusts requires an affidavit and documentation about how donors acquired their crypto. That’s extra work, but the firm accepts other hard-to-sell gifts including partnerships in hedge funds; real estate; art work, even antique furniture.

The biggest gift of crypto so far? Around $3.7 million in Bitcoin in 2017.