Should you buy Bitcoin or a Bitcoin ETF? – Yahoo finance


It’s now been three months since the first spot Bitcoin (CRYPTO:BTC) Launch of exchange-traded funds (ETFs). During this period, they managed to accumulate over $30 billion in assets. They have become an easy and convenient way for new crypto investors to gain exposure to Bitcoin. Arguably, these spot Bitcoin ETFs have become the biggest new product launch on Wall Street in 30 years.

That being said, some crypto enthusiasts still say that it is better to buy Bitcoin than a Bitcoin ETF. Are they simply longing for a bygone era of crypto, or are they actually right? Let’s take a closer look.

How well do Bitcoin ETFs track the price of Bitcoin?

When Bitcoin spot ETFs began trading on January 12, I thought they would have trouble keeping up with the price of Bitcoin. After all, Bitcoin trades globally 24/7, while new ETFs trade on centralized exchanges with limited after-hours and pre-market trading. Additionally, Bitcoin is known for its historical volatility, which seems to make tracking its price action much more difficult.

However, when I did the calculations in mid-April, I was positively surprised. Using January 12 as a benchmark, I compared Bitcoin’s upward trajectory with that of the top two Bitcoin ETFs, ranked by their market capitalization. During this period, the value of Bitcoin increased from $46,656 to $62,206, a gain of just over 33%. On a comparative basis, the iShares Bitcoin Trust (NASDAQ:IBIT) was up 33%, and the Fidelity Wise Origin Bitcoin Fund (NYSEMKT:FBTC) was also up 33%.

Bitcoin/US dollar chart by TradingView.

As this three-month chart from TradingView shows, the two largest spot Bitcoin ETFs are up nearly 1:1 with the price of Bitcoin. So, if you are simply looking for exposure to Bitcoin’s price action and plan to hold it for the long term, there appears to be no benefit to purchasing Bitcoin directly. Keep it simple and buy the ETF.

What does “buy Bitcoin” actually mean?

However, just keep in mind that you are not actually buying Bitcoin when you buy a Bitcoin ETF. Instead, you buy exposure to the price of Bitcoin. Similarly, when you buy an ETF that tracks the S&P 500, you are not actually buying shares of all the companies in the S&P 500. You are buying exposure to the price of the S&P 500 through a reference asset that holds shares of these companies. businesses.

This may sound like semantics, but it has huge implications when it comes to cryptography. This is because Bitcoin is both a currency and a commodity. There may be times when you need access to Bitcoin as a currency. Say, for example, you want to use Bitcoin to pay for a plane ticket for your next summer vacation. If you held Bitcoin through an ETF, you would not be able to do this. You will need to sell your ETF and ask to pay in dollars instead. So, have you really bought Bitcoin or just been exposed to Bitcoin price action?

Gold coin with Bitcoin symbol on it.Gold coin with Bitcoin symbol on it.

Image source: Getty Images.

There is a well-known aphorism in the crypto world: “Not your keys, not your crypto.” The keys referenced here are cryptographic keys, and possessing them is the only way to actually own Bitcoin (or any other cryptocurrency). In the case of Bitcoin ETFs, the cryptographic keys belong to the issuers of the ETFs and not to you.

So if something happens to Bitcoin – like if the government decides to change its legal or regulatory approach to crypto – your options are very limited. ETF issuers, not you, will decide what to do with your Bitcoin. With governments around the world regularly changing their minds about Bitcoin, this is a major concern for many crypto investors with a large position in Bitcoin.

Do Rich Dads Buy Bitcoin ETFs?

That’s why whenever someone says how “easy” and “convenient” it is to own the new Bitcoin ETFs for cash, I’m always a little skeptical. Yes, they are easy. Yes, they are practical. Yes, they do a very good job tracking the price of Bitcoin. But ultimately, you don’t own Bitcoin; Wall Street does it.

A number of influential investors are also beginning to recognize this fact. For example, bestsellers Rich dad, poor dad Author Robert Kiyosaki recently endorsed buying Bitcoin instead of the new Bitcoin ETFs. From his perspective, “rich dads” buy Bitcoin, while “poor dads” buy Bitcoin ETFs. As Kiyosaki points out, direct ownership of assets is the key to wealth. Kiyosaki says he buys gold, not gold ETFs, and real estate, not real estate ETFs.

This doesn’t mean you shouldn’t buy the new Bitcoin ETFs. If you’re new to crypto, these are potentially fantastic investments, right after the fourth Bitcoin halving event. They remove all the complexities of cryptography and make Bitcoin easy to buy. You never have to worry about cryptographic keys or what Bitcoin miners actually do all day.

But just keep in mind: buying a Bitcoin ETF is not the same as buying Bitcoin. One day this could be a game changer.

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Dominic Basulto has positions in Bitcoin. The Motley Fool posts and recommends Bitcoin. The Motley Fool has a disclosure policy.

Should you buy Bitcoin or a Bitcoin ETF? was originally published by The Motley Fool


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