In this post:
- Bitcoin ETFs – A Background
- Definition: What is a Bitcoin ETF
- Advantages of Bitcoin ETFs
- Disadvantages of Bitcoin ETFs
- Is a Bitcoin ETF a Right Investment for YOU
The newest investment craze is here: Bitcoin ETFs!
Are they YOUR ticket to becoming a millionaire, or a complete scam you need to avoid at all costs?
Watch this video to find out.
Bitcoin ETFs – A Background
The SEC approved a new product, Spot Bitcoin ETFs, on Jan 10, 2024. 11 Bitcoin ETFs have been launched by big names like Fidelity, Blackrock, etc.
And just on the first day, Billions of dollars have been invested in these ETFs!
But what exactly is a Bitcoin ETF, and should YOU invest in it? Let’s find out!
What is a Bitcoin ETF?
Bitcoin is the most popular cryptocurrency.
And an ETF or Exchange Traded Fund is an investment vehicle that pools money from investors, and invests it on their behalf. It is traded on stock exchanges, and can be bought and sold just like stocks.
Bitcoin + ETF = Bitcoin ETF
A Bitcoin ETF is an Exchange Traded Fund that invests in Bitcoin. The price of the ETF goes up or down based on the price changes in bitcoin.
So, investing in a Bitcoin ETF is equivalent to investing in bitcoin itself – the returns you get from both investments will be similar.
It’s that simple!
Advantages of Bitcoin ETFs
But why so much excitement about Bitcoin ETFs? That’s because they come with a lot of benefits!
1. Simplicity
Until now, if you wanted to invest in bitcoin, you had to enter its own ecosystem which involved a lot of hassle: buying digital tokens from a crypto exchange, having a digital wallet for storing them, setting up a private key, and more.
These new Bitcoin ETFs bring bitcoin investing to the traditional financial ecosystem: they make buying and selling bitcoin much simpler, just like trading in stocks.
2. More Avenues for Investing
It also means that you can now buy bitcoin from most accounts: a traditional brokerage account, an IRA or a Roth IRA, and even your 401k if it has brokerage capability.
3. Safety
Bitcoin ETFs also significantly reduce the risk of investing in bitcoin: no risk of losing your investment because you lost the private key or forgot your password, and no risk of hacking or fraud that’s prevalent in the crypto world.
4. Reporting and Tax Filing
Bitcoin ETFs will also make your tax filing simpler – you’ll get the year-end paperwork like form 1099 from your brokerage, just like you get for your other stock and ETF investments.
5. Reduced Volatility
Some Bitcoin ETFs might also use derivatives like futures or options to reduce the ETF’s price volatility. So these ETFs may be more stable than actual bitcoin. But these are very early days and we don’t know enough about this aspect as of now.
Disadvantages of Bitcoin ETFs
So is it all rainbows and sunshine? Not exactly!
Expenses
Like all other ETFs, Bitcoin ETFs also have expenses. The expense ratio of the 11 funds launched so far ranges from 0.2% to 1.5%, although many of them have lowered or even waived it for a limited period.
The expenses of an ETF come out of your pocket, and reduce the return you ultimately get from your investment.
Is a Bitcoin ETF a Right Investment for YOU?
This brings us to the million dollar question: Should YOU invest in a Bitcoin ETF?
Well, if you are a regular, you know that I firmly believe Bitcoin is not a good investment for common investors like you and me: it is extremely volatile with wild price fluctuations, and it has nothing real, tangible backing it and no real use, like stocks or Gold.
And scandals like the crypto exchange FTX shutting down only reinforce this belief!
In fact, Vanguard – which is a brokerage firm primarily catering to long-term, buy-and-hold investors – has announced that you would not be able to buy or sell Bitcoin ETFs on its brokerage platform!
However, if you’ve decided that Bitcoin is right for you and want to invest in it, a Bitcoin ETF could be a good way to make that investment instead of buying Bitcoins directly, since it is way simpler, can be done from almost any account, and it simplifies reporting and tax filing.
If you decide to invest in a Bitcoin ETF, just make sure to pick one that has a low expense ratio!
But don’t invest in a Bitcoin ETF just because you see your friends or family investing in it. In fact, the SEC explicitly advised against this before it approved Bitcoin ETFs through its “No Go to FOMO” warning!
The SEC chair also said that just because they have approved Bitcoin ETF as a product, it doesn’t mean they have approved or endorsed Bitcoin itself.
Whether or not you decide to invest in Bitcoin ETFs, it’s crucial to start the New Year strong and create a better financial future for yourself. Check out “Get Ahead of 99% of People in 2024: 3 Life Changing Money Habits” to make this year your best year ever.
