Catch the Next Bitcoin Rally With These 3 ETFs
Cryptocurrency might still be synonymous with degenerate gambling in the eyes of the public, but Wall Street has never let a degenerate gambling opportunity go to waste. Speculation in crypto markets is beginning to pick up again following a mostly quiet summer, with major tokens like Bitcoin, Ethereum, and Solana hovering near new all-time highs.
But this time, traditional investors have ways to access these markets without a crypto exchange and or digital wallet. Much like the gold funds before them, crypto ETFs take care of the hassle of storage for you, providing exposure to an alternative asset class right from your traditional brokerage account. If you’re crypto-curious and looking to take advantage of the next rally, you may want to consider one of the ETFs we’ll discuss here today.
Advantages of Owning Bitcoin in an ETF Wrapper vs. Crypto Wallet
Despite gaining more acceptance amongst the investment community, cryptocurrency is still much like the Wild West. Hacks are prevalent, and crypto scammers frequently attempt to gain access to the seed phrases and passwords of unsuspecting investors. Much like gold, digital assets must be stored securely. And as we’ve seen in the past, a cryptocurrency exchange does not guarantee 100% safety.
To safely store Bitcoin or other tokens, you’ll need a secure digital wallet that’s unconnected to the internet. Basically, your assets will be stored on a flash drive that only you know the password to open. If you lose the drive (or the password), your assets will be off to Narnia, and you’ll have little recourse for retrieving them.
Proper self-storage isn’t a difficult concept to understand. Still, it can be tedious and cumbersome for less tech-savvy investors who prefer assets in their SIPC-insured brokerage or FDIC-insured bank account. Some of the primary advantages of Bitcoin ETFs over exchanges or wallets include:
- Straightforward Regulation - Bitcoin ETF providers offer regulated products on traditional U.S. exchanges, making it easy for institutions and retail brokerage clients to buy and sell. These ETFs are required to make timely filings with the Securities and Exchange Commission (SEC) and adhere to compliance standards.
- Easier Tax Planning - The profits and losses of your Bitcoin ETF holding will be tracked by your brokerage account, and you’ll receive a 1099 for your tax obligations at the start of each year. Crypto exchanges also often send 1099s, but if you use self-custody, you’ll need to report these figures on your own.
- Security Through Institutional Custody - Some crypto ETFs utilize futures contracts to construct their products, but many simply purchase and store Bitcoin or other tokens directly. Large institutional custodians employ a range of security measures and accounting procedures to safeguard client assets and maintain accurate documentation.
Of course, Bitcoin ETFs do have some drawbacks. You’ll pay expense fees just like traditional ETFs (which can get pricey), and you’ll lose control over the composition of your crypto holdings. You can also only trade during open market hours, while crypto exchanges operate 24/7.
Three Bitcoin ETFs to Add Exposure to Your Portfolio
If Bitcoin ETFs make more sense for your portfolio than self-storage, you still need to evaluate different offerings and pick the assets that suit your investment plan. While all the ETFs listed here hold cryptocurrency (or stocks) directly, they all have unique features that make them appealing to different risk tolerances.
IBIT: Lowest Fees With Highest Liquidity
Crypto volatility is a concern for many investors. Like the tech sector, crypto experiences nosebleed-inducing highs and stomach-churning drawdowns. You can’t avoid volatility with crypto, but you can make it easier to endure with a highly liquid, low-fee product like the iShares Bitcoin Trust ETF (NASDAQ: IBIT).
IBIT is one of the largest crypto ETFs, with nearly $100 billion in assets under management (AUM), and trades almost 60 million shares daily on average. This high volume produces tight bid-ask spreads and minimizes slippage for institutional block trades.
In addition to the security of BlackRock's custodial infrastructure, the expense ratio is also just 0.25%, one of the lowest fees in the industry.
FBTC: In-House Custody and Institutional Support
The Fidelity Wise Origin Bitcoin Fund (NYSEARCA: FBTC) also provides a low expense ratio and the security of in-house custody through Fidelity’s Digital Asset Services.
Like IBIT, FBTC carries a 0.25% expense rate, but with a smaller AUM at just under $26 billion.
Spreads tend to be slightly wider with FBTC compared to IBIT, but they’re still minimal, and the fund tracks the spot price of BTC with precision.
If you’re already a Fidelity account holder, FBTC offers more convenience than other crypto funds.
BITQ: Diversified Cryptocurrency Exposure via Equity
If you want a diversified crypto portfolio and don’t mind paying higher fees for it, consider the Bitwise Crypto Industry Innovators ETF (NYSEARCA: BITQ). Instead of buying and holding tokens, BITQ has built a portfolio of 38 crypto-related companies, including private stocks like Galaxy Digital and MetaPlanet.
The fund charges a 0.85% expense ratio and only has about $500 million in AUM. However, it provides exposure to a basket of companies employing various strategies, including crypto treasuries, public crypto exchanges, and Bitcoin miners.
A diversified basket might cost more and not track crypto prices as closely, but there’s more upside in bull markets than spot Bitcoin ETFs.
Learn more about IBIT
