Not long ago, the SEC introduced a few changes that made possible the launch of spot Bitcoin ETFs in the U.S. Until recently, regulators hesitated to approve applications, arguing concerns over market manipulation, fraud, and investor protection.
The SEC has given the green light to 11 ETFs for Bitcoin, opening the doors wide open for countless new investors. All of them began trading on January 11, including Grayscale.
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Spot Bitcoin ETFs are now available through various online brokerage firms, and the performance of these ETFs follows today’s value in Bitcoin trade closely. It’s a way of investing in Bitcoin without having to buy the cryptocurrency directly.
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Bitcoin Investing Is a Lot More Complicated Than It Sounds
It’s been proven that the vast majority of professional investors aren’t able to successfully time or beat the cryptocurrency market, and the few that do happen to outperform can’t continue to do so. Investing is so complex that your best bet is to keep it simple. Only with prudent strategies and thorough research does Bitcoin offer long-term potential for portfolio growth and diversification.
Spot Bitcoin ETFs advance a simple and direct way to gain exposure to cryptocurrency, with qualified custodians for safekeeping. This type of investment combined traditional finance with the emerging world of cryptocurrencies, impacting both sectors.
So, Is It a Good Idea to Invest in A Spot Bitcoin ETF?
A Bitcoin ETF isn’t something new and shiny. The first ETF (exchange-traded fund) was released in 1990 as a means to provide access to passive, indexed funds to individual investors. Since their introduction, ETFs have grown immensely in popularity and are now leveraged by all types of investors and traders worldwide.
Before 2024, any ETF that promoted itself as a Bitcoin ETF didn’t invest directly in the digital asset or track its price. They mainly were Bitcoin futures contracts, speculating about Bitcoin’s future price.
As opposed to a futures-based ETF, a spot ETF owns actual Bitcoin. Spot refers to the actual purchase price of Bitcoin and ownership of the underlying asset. In comparison to the spot price, a futures price is an agreed-upon price for future delivery. Investing in a spot Bitcoin ETF is convenient for investors who would rather not manage private keys and digital wallets.
The ease of access especially appeals to traditional investors and those new to cryptocurrencies. Liquidity costs are broken down into crossing the bid-ask spread and depth of liquidity.
Above all, spot Bitcoin ETFs are registered and regulated with the SEC, meaning they’re subject to the regulatory requirements of federal security laws. Investors are protected from various risks and conflicts associated with investing in cryptocurrencies. To be more precise, spot Bitcoin ETFs are contingent upon statutory limitations on their use of leverage and transactions with affiliates. Equally, they must meet specific reporting requirements and disclosure obligations regarding investment objectives, risks, expenses, etc.
The Best Way to Buy Spot Bitcoin ETFS, For the Most People, Is Through Brokerages
Buying a spot Bitcoin ETF is similar to buying shares in any other ETF or security. Many brokers make available spot Bitcoin ETFs commission-free for trading on certain platforms. Examples include but aren’t limited to Fidelity, Amplify, VanEck, and Charles Schwab, whose activity is paramount in maintaining a stable market, ensuring people can buy/sell the shares of the ETF without much difficulty.
If you don’t already have an account, don’t waste any time. Make a list of the options you want to compare and consider the fund’s expense ratio, i.e., the annual cost of owning an ETF.
A decision regarding a spot Bitcoin ETF comes down to how you feel about the cryptocurrency, your risk tolerance, and what plan you have for your money. Bitcoin is considered highly riskier than stock on account of its high volatility and its relative novelty, testing the patience of even the most confident investors.
You may want to consider other cryptocurrencies that are likely to have their own spot ETFs in the future, such as Ethereum. There’s currently interest and enthusiasm for a spot Ethereum ETF, so there would be value in this kind of product coming to the market.
Once you’ve funded your account and decided which spot Bitcoin ETF is right for you, placing your trade is as simple as clicking a buy button. If you embrace a short-term trading strategy, you’ll be missing out on the cost advantages of the new Bitcoin ETFs, to say nothing of the inherent tax efficiencies. Double-check your order before you proceed to ensure you’ve acquired the right number of shares. Bitcoin is known for its sharp swings up and down, so make decisions before emotions get involved. Hold out and wait until reason takes hold; there’s nothing worse than a reverse trade.
If You’re Excited About Bitcoin, Here Are Some Other Ways You Can Invest
For cryptocurrency veterans, spot Bitcoin ETFs aren’t going to be of much help. Experience is an expensive but valuable lesson. There’s no single best way to trade Bitcoin, so it’s up to you to figure out what suits your short- or long-term investment goals.
Indeed, spot Bitcoin ETFs make it easier (and cheaper) to invest in cryptocurrency, but they’re certainly not the only option available. For example, you can buy Bitcoin directly through a wallet app or cryptocurrency exchange that accepts fiat currencies. The coins will be stored in a wallet that’s operated by you or the exchange platform; if it’s hacked, your financial information is at risk.
Another option would be to use an ATM to buy and sell Bitcoin. The number of machines installed worldwide has been rapidly growing over the years, so it doesn’t matter if you don’t have a bank account and prefer using cash. Make sure you know the fees you’ll be charged, as some ATMs charge between 9% and 12% to purchase cryptocurrency.
Adhering to strict KYC standards, staff training, and so on, there are multiple expenses for Bitcoin ATM operators. You can reserve cash in advance for withdrawals, and the transactions are almost instantaneous.