Bitcoin’s value could reach $150,000 by the end of the year thanks to spot ETFs that witnessed substantial inflows for the second quarter in a row, so in case you were interested, now is the time to buy the most prominent cryptocurrency by the total dollar value of the coins in existence. Bitcoin ,you ask? Online, of course.
Buying low and selling high is a clear-cut way to make money: you don’t care how cryptocurrency will perform in 10 years. You’re just concerned with how the price moves in the short term. In an industry marked by volatility, savvy traders who work tirelessly can take advantage of profit opportunities, securing lucrative investments.
According to CoinDesk, spot Bitcoin ETFs surpassed $800 million in inflows, with Fidelity’s FBTC taking the lead, offering exposure to the cryptocurrency’s price in familiar investment structures that passively invest in Bitcoin. Prominent figures in the business and investment worlds are confident Bitcoin is on the verge of a bullish breakout, as more and more investors are getting in on the action because stocks fell while the dollar weakened.
If price performance is your only investment goal, investing in a spot Bitcoin ETF makes sense. Still, at the end of the day, you don’t own Bitcoin.
A Spot Bitcoin ETF Invests Directly into Bitcoin
You can buy Bitcoin via an online exchange or invest in stocks that offer direct exposure to the digital asset. Better yet, you can buy a spot ETF that tracks the performance of Bitcoin – it’s an SEC-registered investment that lets institutional and retail investors buy into a fund that holds Bitcoin as the underlying asset.
You don’t have to deal with storing your own coins or worry about losing your private keys because the cryptocurrency is held by a custodian in a Bitcoin wallet. By contrast, a futures Bitcoin ETF tracks the price of Bitcoin, not the actual token.
Ten years after the first application was filed in the U.S., the SEC finally approved spot Bitcoin ETFs in January 2024 but emphasized the need for comprehensive surveillance-sharing agreements with the CME to detect fraud and manipulation.
An ETF buys coins from other holders via an authorized cryptocurrency exchange, which are stored in a digital wallet with various layers of security (e.g., offline storage) to reduce the risk of hacking. You can buy and sell shares in a spot Bitcoin ETF, the price of which reflects Bitcoin’s market price. Consider the expense ratio, liquidity, and the fund’s age when choosing an ETF – it’s up to you if you want to take this criterion into account.
Despite Their Popularity, Spot Bitcoin ETFs Have Some Drawbacks
Undoubtedly, spot Bitcoin ETFs represent an innovation that offers increased choice to investors who want to engage with cryptocurrency and eliminate the need to understand the technical complexities, but they’re not suitable for everyone. It’s not recommended to buy (or sell) unless you’re willing to lose your investment or hold it for long periods.
Spot Bitcoin ETFs aren’t anything less than brilliant, but direct investing offers many more benefits, such as:
- Diversification: Having exposure only to Bitcoin limits your performance potential in the cryptocurrency market. Consider investing in several assets to create a balanced, comprehensive portfolio with varied use cases and risk levels, having an 80/20 blend of large-cap and mid- & low-cap coins. It’ll help minimize any liquidity issues.
- Access to the ecosystem: DeFi eliminates intermediaries, boosts on-hand liquidity, and creates global connectivity. Bitcoin catalyzes DeFi’s comeback, which is becoming bigger and more prosperous. Besides Layer 2 developments like Stacks and DeFiChain, Bitcoin has undergone important Layer 1 upgrades: Schnorr signature and Taproot. They’ve generated multiple innovations, including Ordinals and BRC-20 tokens.
- Tax harvesting: Holding Bitcoin isn’t taxable until it’s traded, spent, or sold. The cryptocurrency market volatility can be helpful in tax harvesting – you sell at a loss and then use it to lower or even eliminate the taxes you must pay. By investing indirectly via an ETF, you lose the ability to leverage volatility.
Months after the launch of spot Bitcoin ETFs, financial advisors are just as opposed to the digital asset as before, which doesn’t necessarily mean that ETFs are a failed experiment. With any luck, we’ll see spot Ethereum ETFs launch this year, but it depends on how fast issuers move.
Solving The Dilemma of To Buy or Not to Buy
The decision of whether or not to buy a spot Bitcoin ETF depends on what’s best for you, so it’s difficult to determine what the ideal option is if you have no idea what you want (or need).
Many cryptocurrency enthusiasts will agree that it’s better to buy Bitcoin than an ETF, which offers advantages like unlimited trading hours and lower fees but also increased responsibility for securing the funds. If you want to use the coins to secure an upcoming trip or pay your credit card bill, for instance, you can’t do that if you hold your Bitcoin in an ETF.
Not your keys, not your crypto. Having control of your private keys translates into having ownership of your coins – in the case of a spot Bitcoin ETF, the keys belong to the issuer, not you. As a result, if anything happens to Bitcoin, you’ve got limited options. As opposed to the cryptocurrency market, which is always open (24 hours a day, 365 days a year), the stock market has opening and closing hours, resulting in missed opportunities.
If you want, you can buy the new spot Bitcoin ETF. Brokerage accounts offer access to a bunch of investment options, so compare and contrast to understand what you’re paying for, bearing in mind performance, technical indicators, and descriptive information. Don’t count on the crypto brokerage to work with your tax software.
Being able to invest via an SEC-regulated ETF may be tempting, but the price of Bitcoin is just as volatile, which can lead to significant financial loss. Investment firms that have received the green light to offer spot Bitcoin ETFs are competing for customers’ dollars, even waiving some of their fees, but that shouldn’t influence your decision of whether or not to invest.
