Cryptocurrency may still evoke images of reckless gambling for many, but Wall Street has never shied away from a lucrative opportunity. Speculation in crypto markets is on the rise again after a relatively quiet summer, with major tokens like Bitcoin, Ethereum, and Solana approaching new all-time highs.
This time around, traditional investors have new avenues to access these markets without needing a crypto exchange or digital wallet. Similar to gold funds, crypto ETFs eliminate the hassle of storage, allowing investors to gain exposure to this alternative asset class directly from their traditional brokerage accounts. If you’re curious about crypto and want to capitalize on the next rally, consider exploring the ETFs discussed here.
Advantages of Owning Bitcoin in an ETF Wrapper vs. Crypto Wallet
Despite gaining traction among investors, cryptocurrency remains akin to the Wild West. Hacks are common, and crypto scammers frequently target unsuspecting investors to access their seed phrases and passwords. Just like gold, digital assets require secure storage. As history has shown, a cryptocurrency exchange does not guarantee complete safety.
To securely store Bitcoin or other tokens, you’ll need a digital wallet disconnected from the internet. Essentially, your assets will reside on a flash drive that only you can access. If you lose the drive or forget the password, your assets will be irretrievably lost.
While the concept of self-storage is straightforward, it can be tedious for less tech-savvy investors who prefer their assets in SIPC-insured brokerage or FDIC-insured bank accounts. Here are some primary advantages of Bitcoin ETFs over exchanges or wallets:
- Straightforward Regulation: Bitcoin ETF providers offer regulated products on traditional U.S. exchanges, making it easy for both institutions and retail clients to buy and sell. These ETFs must comply with Securities and Exchange Commission (SEC) standards and make timely filings.
- Easier Tax Planning: Your brokerage account will track the profits and losses of your Bitcoin ETF holdings, providing you with a 1099 for tax obligations at the start of each year. While crypto exchanges also send 1099s, self-custody requires you to report these figures independently.
- Security Through Institutional Custody: Many crypto ETFs purchase and store Bitcoin or other tokens directly, employing large institutional custodians that utilize various security measures to safeguard client assets and maintain accurate documentation.
However, Bitcoin ETFs do come with some drawbacks. You’ll incur expense fees similar to traditional ETFs, which can add up, and you’ll lose control over the specific composition of your crypto holdings. Additionally, trading is limited to market hours, while crypto exchanges operate 24/7.
Three Bitcoin ETFs to Add Exposure to Your Portfolio
If Bitcoin ETFs align better with your investment strategy than self-storage, it’s essential to evaluate different offerings to find the best fit. While all the ETFs listed here hold cryptocurrency (or stocks) directly, they each have unique features catering to various risk tolerances.
IBIT: Lowest Fees With Highest Liquidity
Crypto volatility is a significant concern for many investors. Similar to the tech sector, crypto can experience extreme highs and lows. While you can’t avoid volatility, you can mitigate its impact with a highly liquid, low-fee product like the iShares Bitcoin Trust ETF (NASDAQ: IBIT).
IBIT is one of the largest crypto ETFs, boasting nearly $100 billion in assets under management (AUM) and trading almost 60 million shares daily on average. This high volume results in tight bid-ask spreads, minimizing slippage for institutional block trades.
In addition to the security provided by BlackRock’s custodial infrastructure, the expense ratio is just 0.25%, one of the lowest in the industry.
FBTC: In-House Custody and Institutional Support
The Fidelity Wise Origin Bitcoin Fund (NYSEARCA: FBTC) also offers a low expense ratio and the security of in-house custody through Fidelity’s Digital Asset Services.
Like IBIT, FBTC has a 0.25% expense rate, but with a smaller AUM of just under $26 billion.
While spreads may be slightly wider with FBTC compared to IBIT, they remain minimal, and the fund tracks the spot price of BTC with precision. If you’re already a Fidelity account holder, FBTC provides added convenience.
BITQ: Diversified Cryptocurrency Exposure via Equity
If you’re seeking a diversified crypto portfolio and don’t mind higher fees, consider the Bitwise Crypto Industry Innovators ETF (NYSEARCA: BITQ). Rather than simply buying and holding tokens, BITQ has constructed a portfolio of 38 crypto-related companies, including private stocks like Galaxy Digital and MetaPlanet.
This fund charges a 0.85% expense ratio and has about $500 million in AUM. While it may not track crypto prices as closely, it offers exposure to a diverse range of companies employing various strategies, including crypto treasuries, public exchanges, and Bitcoin miners.
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