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Will Holding Bitcoin in an ETF Be Safer?

By Evan Jones12/20/2023

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With all of the excitement surrounding the seemingly impending approval of spot Bitcoin ETFs, you may be wondering if you should be interested as well. If you’ve never purchased digital assets like Bitcoin before, then this may be a good time for you to buy in through your traditional investment avenues. However, buying Bitcoin through an ETF isn’t as beneficial as its being made out to be, though it may indeed be a safe way to hold it. 

In this guide, we’ll discuss ETFs in the context of spot Bitcoin ETFs, its pros and cons, and come to a conclusion as to whether it’s how you should be holding ‘digital gold’. 

What is an ETF?

An exchange traded fund, or ETF, is a basket of investments generally made up of stocks or bonds. ETFs let you invest in a variety of securities at one time, and they often have lower fees than other types of investments such as mutual funds while also being easier to trade. ETFs have varying management costs and commissions (if any), both of which are factors you’ll need to consider before buying into any ETF. 

For crypto ETFs, the fund provider owns the underlying assets (such as Bitcoin), designs a fund to track their performance, and then sells shares in that fund to investors. This can be done as an open-ended ETF, like all those currently looking to be approved, or closed, like Grayscale’s current GBTC product that they’re looking to convert to open-ended.

Advantages of Investing Through an ETF for Crypto

Diversification

ETFs let you diversify across entire industries such as crypto. It would take a lot of time and effort to buy some of the entire top 10 crypto market by market cap. However, a crypto ETF  of the top 10 assets by market cap would automatically diversify your portfolio. This can help safeguard your portfolio against market volatility since there are multiple assets included.

This advantage isn’t very beneficial for Bitcoin ETFs however, since it’s just one asset.

Less Technical

If you’re older or less technically inclined and interested in crypto assets, it can be a fairly big learning curve. You’d have to figure out how wallets work, set one up, send transactions, and so forth. You could instead, just buy an ETF that follows the crypto assets you’re interested in,and get price exposure without having to learn any of the above.

However, again with Bitcoin, it’s not very complicated, you can buy it with one or two clicks through services like PayPal, Robinhood, Cash App, and many more traditional finance apps.

Legitimization

Perhaps the biggest advantage of investing in crypto through an ETF would be the air of legitimization it would provide to the assets included because they would have SEC approval. There would be audits of the fund, and they’d be tracked and transparent. 

Bitcoin, however, is the one asset that is already considered legitimate by the SEC.

Disadvantages of Investing Through an ETF for Crypto

Trading costs

ETFs are often exchange-traded, meaning they may be subject to commission fees from online brokers. There are many zero-fee commission platforms available, but you probably have to pay an expense ratio to the fund manager anyways or spreads on the purchase.

Furthermore, when owning Bitcoin through an ETF rather than holding it yourself, you’ll be paying them management fees for holding the Bitcoin you could be holding yourself.

Don’t Own the Actual Asset

Though you get price exposure to Bitcoin through a spot ETF, you certainly don’t get the advantages that actually holding it provides. You can’t use ETF shares as collateral like you can Bitcoin, you can’t spend the ETF at a place that accepts Bitcoin, etc. 

Reminder: Buying Bitcoin Isn’t Complicated 

The reality is that while in the past it may have been somewhat complicated to buy and manage your own Bitcoin holdings, especially for those less tech savvy, this is no longer the case. Buying Bitcoin is extremely simple to do through a variety of services that you might already have accounts with. 

“Safe” is a relative term when it comes to crypto assets, though you’re certainly safe in holding Bitcoin in a spot ETF share form, you’re not actually holding Bitcoin itself. Crypto wallet management isn’t that complicated anymore, and you can easily allow an app like Robinhood to just be your wallet anyways. There really just isn’t much of an excuse for not just buying Bitcoin yourself.

Closing Thoughts

A spot Bitcoin ETF will certainly be a good thing for the cryptocurrency sector. It will allow all sorts of new money to come into the space and could start a huge bull run. It would be understandable if you wanted to buy shares in a spot Bitcoin ETF if buying Bitcoin were complicated or if the ETF was a basket of assets. However, it’s just one asset that is easily accessible by you, and you have a bigger advantage if you buy Bitcoin instead of an ETF. 

Article tags

Beginner
bitcoin
etf
Evan Jones

Author

Evan entered the crypto scene in 2017, attracted to the many disruptive possibilities that blockchain could have on current world systems. He has a keen interest in decentralized services, payment processing, and viable NFT use cases such as event ticketing. He spends his days writing with his dog Kobe under his feet, if not on his lap.

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