A New, Easy Way to Invest in Bitcoin Is Here. Should You Buy In Early?
KEY POINTS
- The SEC signed off on 11 Bitcoin ETFs, making it simpler for Americans to invest in Bitcoin.
- They might do well because of the upcoming 2024 Bitcoin halving and new rules.
- Bitcoin and these ETFs have risks, with extra fees and limits compared to direct Bitcoin ownership.
Bitcoin just got easier. That's a relief to everyone who wants to dabble without outright owning the cryptocurrency. You can now buy Bitcoin like you can a Vanguard ETF, easy peasy. All it takes is access to one of the 11 brokerages offering a spot Bitcoin ETF.
Does that sound oddly specific? It should. As of Jan. 10, 2024, the SEC approved 11 spot Bitcoin ETFs, the first of their kind in the United States. Big news for American investors.
This whole Bitcoin ETF thing is brand spanking new. As of this article's publication, none of the approved SEC-blessed ETFs are even active yet. In other words, you, reader, are ridiculously early to the party. The question is, are you one of the first miners to arrive at the forefront of a very lucrative gold rush? Or are you the canary in the coal mine, doomed to be among the first to lose their savings?
A new, easy way to invest in Bitcoin is here. But should you bite? Expectations are high, but these shiny new ETFs aren't for everyone. Here's what you should consider buying.
Buy Bitcoin ETF shares if you think Bitcoin will outperform
Bitcoin spot ETFs track the price of Bitcoin. The better Bitcoin does, the better the ETF does. So only buy shares of a Bitcoin ETF if you expect the underlying asset to perform well.
Global investment firm Van Eck expects the Bitcoin ETFs to perform well because of the 2024 Bitcoin halving and new regulations. ARK Invest analysts claim spot Bitcoin ETF approvals may be "the biggest catalyst for institutional adoption BTC has ever seen."
Either could boost Bitcoin ETF prices into 2024. But nobody knows exactly how Bitcoin will perform going forward. It may take years before corporations feel comfortable buying Bitcoin -- if ever.
Treat the Bitcoin spot ETF like you would any other security. The less certain you are of BItcoin's performance, the smaller portion of a share you should consider taking.
Nothing about the underlying asset has changed. Bitcoin remains as it always has. What has changed is the SEC's official stance on spot Bitcoin ETFs. Namely, they're legal. Now that the SEC has approved the ETFs, they'll be hard-pressed to punish folks for investing in them.
Buying a Bitcoin spot ETF vs. owning Bitcoin
There are pros and cons to buying Bitcoin via a spot Bitcoin ETF versus owning the coin outright.
Pros:
- Simple: Easy to buy and sell through stock brokers.
- Lawful: Bitcoin spot ETFs are regulated and, therefore, predictable.
- Custody: There is little risk of "losing" your Bitcoin spot ETF shares.
Cons:
- Fees: Bitcoin spot ETFs may charge fees.
- Inflexible: You don't own Bitcoin; you own a share of a fund.
The risk of purchasing a Bitcoin ETF is twofold: Bitcoin could underperform, which would be bad for your investment portfolio; ETF management fees could eat into your returns. Plus, you don't get the flexibility that comes with owning Bitcoin outright. You can't trade or send it.
However, the benefits may be worth the risks. You don't have to worry about someone hacking into your crypto wallet and stealing your Bitcoin -- you're SIPC insured. Nor do you need to keep track of self-custody keys or hardware. Finally, the SEC has blessed your investment.
In a world where regulators are waging war against crypto companies, that's a perk, to be sure. Of course, all that assumes you're okay with holding a volatile asset. Bitcoin has performed great in the past, but it's plunged many times.
Before you buy Bitcoin, be sure you're okay with holding a high-risk asset. Stabler alternatives include certificates of deposits (CDs) and high-yield savings accounts. If you plan on selling your assets short-term (hello, retirees), Bitcoin does not deserve a large place in your portfolio.
Should you buy into a spot Bitcoin ETF early?
If you're buying into a spot Bitcoin ETF, ask yourself whether you 1. Believe in Bitcoin, and 2. Are okay with paying management fees. If so, it may be worth adding shares to your portfolio.
I already own Bitcoin through Robinhood. I don't plan on purchasing an ETF for that reason. I'm betting the SEC won't draft rules that make owning Bitcoin outright unprofitable. So far, buying and holding Bitcoin has been easy (I buy the currency through Robinhood). More to the point, I'm not on the hook for ETF fees. I'm comfortable with that level of risk.
My Bitcoin strategy remains as it was before the ETF release: Buy when I can (within reason) as part of a long-term, diversified investment portfolio.
It's totally okay to wait for the hype to pass before boarding the boring ol' Bitcoin train. Boring is excellent for cooling heads. And it's perfectly okay not to purchase Bitcoin at all. If your risk tolerance is low, a spot Bitcoin ETF may have no place in your portfolio.
On the fence? Check out five questions to consider before buying crypto in 2024 to set yourself up for success. (Seriously, skip the hype!)
Our Research Expert
Cole Tretheway is a full-time personal finance writer whose articles have been featured on Motley Fool Money and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
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