{"id":113891,"date":"2024-06-21T16:25:19","date_gmt":"2024-06-21T16:25:19","guid":{"rendered":"https:\/\/mycryptomania.com\/?p=113891"},"modified":"2024-06-21T16:25:19","modified_gmt":"2024-06-21T16:25:19","slug":"pros-and-cons-of-bitcoin-vs-bitcoin-etf","status":"publish","type":"post","link":"https:\/\/mycryptomania.com\/?p=113891","title":{"rendered":"Pros and Cons of Bitcoin vs. Bitcoin ETF"},"content":{"rendered":"

944 Institutional Investors just submitted their 13F reports<\/a> to the SEC reporting exposure to Bitcoin ETFs.\u00a0 By comparison, Bitcoin ETFs have 10x more institutional investors than the Gold ETF. \u00a0 Financial advisors and wealth managers are waking up to Bitcoin<\/a> which could ignite portfolio allocations of 4-6% exposure during this next bull run.\u00a0\u00a0<\/p>\n

The approval of the Bitcoin ETF is an adoption accelerator and net positive for Bitcoin.<\/p>\n

\n

Who\u2019s Buying Bitcoin ETFs (According to 13F Filings)<\/p>\n

Three takeaways from Bitwise CIO @Matt_Hougan<\/a>‘s weekly memo to investors.<\/p>\n

Takeaway 1: Lots of Professional Firms Own Bitcoin ETFs<\/p>\n

563 professional investment firms reported owning $3.5 billion worth of bitcoin ETFs as of\u2026 pic.twitter.com\/YCOKPpQqgE<\/a><\/p>\n

\u2014 Bitwise (@BitwiseInvest) May 15, 2024<\/a>\n<\/p><\/div>\n

This is a modern day gold rush<\/strong>, and make no mistake\u2026<\/p>\n

Wall Street is coming for Bitcoin<\/strong>!<\/p>\n

ETFs are buying up 3x the daily Bitcoin mined and Bitcoin held on-exchange is at the lowest levels since 2017.\u00a0 Supply shock post-halving is building and the ETFs will need to bid up the price if there\u2019s not enough liquidity to meet the growing demand.\u00a0\u00a0<\/p>\n

If you\u2019re all in on Bitcoin or just looking to get started, this post will help you understand the Pros and Cons of buying the Bitcoin ETF vs. Buying Bitcoin directly.\u00a0\u00a0<\/p>\n

Pros and Cons of a Bitcoin ETF<\/strong><\/h2>\n

Comparing the pros and cons of investing in a Bitcoin ETF<\/a> vs. holding Bitcoin on-exchange or in cold storage depends on your personal financial situation.\u00a0\u00a0<\/p>\n

Both options offer an avenue to participate in Bitcoin.\u00a0 The Exchange Traded Fund (ETF) is a regulated investment vehicle to gain exposure to the price of BTC.\u00a0 Buying Bitcoin (BTC:USD) directly from an exchange or P2P provides ownership of the asset which can be held in a hot or cold self-custody wallet<\/a>.\u00a0\u00a0<\/p>\n

For example, saying that the ETF is convenient does not necessarily mean that buying Bitcoin is inconvenient.\u00a0 There are arguments for both.<\/p>\n

It\u2019s hard to overlook the benefits of buying ETF shares with tax-advantaged investment accounts even though the hard core Bitcoin-maxis are quick to point out the obvious\u2026<\/p>\n

The biggest downside to holding the Bitcoin ETF is that you\u2019re not actually holding Bitcoin to benefit from its fixed supply (scarcity) and scheduled issuance (inflation).\u00a0\u00a0<\/p>\n

Bitcoin ETF Pros:\u00a0<\/strong><\/h3>\n

Convenience \u2013 It\u2019s easier for grandma to get into Bitcoin because buying the ETF is just like buying stocks via trusted brokerage accounts.<\/p>\n

Tax-advantaged accounts like 401(k) & IRAs benefit from tax-free appreciation.<\/p>\n

Employer Matching = Free money to invest in the ETF (details later in article).<\/p>\n

Brokerage Account Benefits<\/p>\n

Secure password reset, recovery and transfer on death<\/p>\n

Margin & leverage\u00a0<\/p>\n

Transfer ETF assets in-kind without triggering a tax event<\/p>\n

$500,000 SIPC insurance\u00a0<\/p>\n

ETF shares are backed with Bitcoin 1:1 by the ETF Fund Issuer.\u00a0<\/p>\n

Bitcoin ETF is easier to transfer on death vs. Bitcoin held in cold storage.<\/p>\n

ETF shares are a legitimized Proof of Asset (POA) and can be used as collateral for a loan.\u00a0 Corporations can use the ETF for leverage and hedging investments<\/a>.\u00a0<\/p>\n

The strongest argument for the Bitcoin ETF is the ability to purchase shares through a retirement account and holding to 59 \u00bd to realize tax-free profits.\u00a0\u00a0<\/p>\n

Even a hardcore Bitcoin Maxi will cede this point with the caveat that once contributions are maxed out, consider buying Bitcoin directly with any additional capital (depending on your financial situation).<\/p>\n

Bitcoin ETF Cons:\u00a0<\/strong><\/h3>\n

No direct ownership of Bitcoin.\u00a0 ETFs are financial products.\u00a0 Bitcoin is Bitcoin.<\/p>\n

No claim to Bitcoin, only a claim to a fund whose value is not even tied 1:1 to BTC.\u00a0 ETF shares are IOUs for FIAT (dollars) not an IOU for Bitcoin.\u00a0<\/strong><\/p>\n

ETFs are permissioned assets.\u00a0 Bitcoin is a permissionless, sovereign, appreciating asset without counter-party risk or control by any one entity.\u00a0\u00a0<\/p>\n

No P2P transfers or swapping for other coins. You must convert to fiat.<\/p>\n

Capital gains taxes levied on redemptions that aren\u2019t held to maturity in tax-advantaged accounts.\u00a0\u00a0<\/p>\n

Limited trading hours M-F 9:30 \u2013 4:00, T+2 settlement (vs. 10 minutes).<\/p>\n

Risk that the ETF shares are priced at a premium to the underlying value of Bitcoin (NAV).<\/p>\n

Management Fees & fund \u2018expenses\u2019 can change at the discretion of the issuer.<\/p>\n

The ETF enables traditional financial institutions to hold a large percentage of actual Bitcoin which is a divergence from Bitcoin\u2019s wealth redistribution vision.\u00a0<\/p>\n

Significant counterparty risk (see next section).<\/p>\n

When you decide that owning Bitcoin is more advantageous than an ETF share, you\u2019ll need to convert to dollars, pay taxes then purchase Bitcoin from an exchange using dollars.\u00a0\u00a0<\/p>\n

Fiat is debt-based and its economic growth is reliant on the creation of exponentially more debt resulting in a debasement of the currency with a risk of hyperinflation.\u00a0\u00a0<\/p>\n

Pros to owning Bitcoin (BTC):\u00a0<\/strong><\/h3>\n

Buying Bitcoin = full ownership of an asset with a hard cap on supply and a predetermined issuance (inflation) schedule.\u00a0\u00a0<\/p>\n

Risk-free, permissionless, sovereign custody of a fixed asset.\u00a0 You can actually hold and transfer Bitcoin without consent or government intervention.\u00a0 Forever!<\/p>\n

Bitcoin is a bearer instrument.\u00a0 $1M Bitcoin can be held in self-custody on a hardware wallet the size of a thumb drive, written on a piece of paper or memorized (brain wallet).\u00a0 Compare that with storing, spending, or transporting an equivalent amount of physical gold.<\/p>\n

Bitcoin trades 24\/7 so you can catch 9% weekend rallies like Apr 5, 2024.<\/p>\n

No management fees.\u00a0 There\u2019s a small fee to cash out and transact compared with the annual ETF fees + uncertain \u2018expenses\u2019 which can cause the ETF to trade higher than its value in Bitcoin (NAV).<\/p>\n

Safety net.\u00a0 Hypothetically if you get sued or go through a divorce, would you rather have some BTC outside of the system or everything in the system.\u00a0\u00a0<\/p>\n

Hold your Bitcoin with the same custodian the ETFs use or opt for cold storage which isn\u2019t as difficult or expensive as it\u2019s made out to be.<\/p>\n

Bitcoin is equal to property rights.\u00a0 If there was a food shortage, would you rather hold shares of Invesco DB Agriculture Fund ETF or have a silo of grain and a freezer of beef?<\/p>\n

Purchasing $BTC can help build a personal long time preference of holding Bitcoin as it matures and transitions into the financial mainstream.<\/p>\n

Pro and Con: Depending on your viewpoint, self-custody is the greatest safeguard or the biggest liability if holding BTC.\u00a0<\/p>\n

For some, choosing to buy Paper Bitcoin (ETF) vs. Bitcoin (BTC) is simple.\u00a0 One is Bitcoin, the other is not!\u00a0 Personally, one of the biggest benefits getting into Bitcoin early before ETFs launched was learning about how broken our money actually is.\u00a0\u00a0<\/p>\n

The dollar can be printed to infinity at the government\u2019s discretion and no one can stop it.\u00a0 US dollars are being stolen from you by way of unpredictable inflation and debasement.\u00a0\u00a0<\/p>\n

There are scenarios in the future where Bitcoin holders are exchanging Bitcoin for goods and services, not for dollars.\u00a0 Imagine if no one will want to exchange Bitcoin for dollars because of the finite supply of Bitcoin.\u00a0<\/p>\n

Cons to owning Bitcoin BTC compared to the Bitcoin ETF:\u00a0<\/strong><\/h3>\n

No tax advantage because you can\u2019t buy Bitcoin in retirement accounts.\u00a0<\/p>\n

User error (security) like losing your recovery seed<\/a><\/p>\n

, clicking phishing links or getting hacked.\u00a0 Once your Bitcoin is gone, it\u2019s gone.\u00a0\u00a0<\/p>\n

There\u2019s no FDIC or SIPC insurance for Bitcoin (yet).<\/p>\n

Upfront cost of cold storage including the device, metal seed plate, tamper proof bags, a legit physical safe, or securing an offside location like a safe deposit box.\u00a0<\/p>\n

Learning curve.\u00a0 You should learn about Bitcoin security best practices<\/a>, cold storage<\/a>, Bitcoin Blockchain basics<\/a> and how bitcoin transactions work<\/a>.\u00a0\u00a0<\/p>\n

Requires time to develop to create and execute a self-custody plan.<\/p>\n

Should I buy Bitcoin or the ETF?\u00a0\u00a0<\/strong><\/h2>\n

Hopefully the previous section covering the Pros and Cons of Bitcoin and Bitcoin ETF will prepare you to have a discussion with a financial advisor or scrutinize the comments on a random Reddit post telling you what to do.\u00a0\u00a0<\/p>\n

These are the most common unsound arguments and generalized bad advice I\u2019ve read:<\/p>\n

Investing in the Bitcoin ETF with a 401(k) retirement account<\/strong><\/h3>\n

The tax advantage for using a qualified retirement account to invest in the Bitcoin ETF is undeniably attractive, but it\u2019s not as easy to set up as it is for a random commenter to wag their finger at you with generalized financial advice.\u00a0\u00a0<\/p>\n

Under The Employee Retirement Income Security Act of 1974 (ERISA<\/a>), employers and 401k sponsors have a fiduciary duty<\/strong> to offer suitable investment options to employees.\u00a0 The Bitcoin ETF is prohibited by most retirement plans for this reason.\u00a0\u00a0<\/p>\n

Here are some options to consider when talking with HR or qualified financial advisor:<\/p>\n

Does your company offer or restrict the Bitcoin ETFs as investment options?<\/p>\n

Does your company offer a Personal Choice Retirement Account (PCRA) as an alternative to a traditional retirement plan?<\/p>\n

If Fidelity is the plan sponsor, you can transfer 401k or 403b plan funds to their self-directed Brokerage Link account for investment in a Bitcoin ETF.<\/p>\n

Roth IRAs and rollover 401(k) plans may offer a Bitcoin ETF investment option.<\/p>\n

A designated Roth 401(k) plan can be converted to a Roth IRA, but standard 401(k) plans create a taxable event upon conversion to a Roth IRA because pre-tax dollars are used.<\/p>\n

Does your plan allow a one tie \u2018in service rollover\u2019 to convert to an IRA?<\/p>\n

If you have employer matching contributions, how does the vesting schedule work if\/when you switch from 401(k) to a self-directed brokerage account (SBDA)?<\/p>\n

Bitcoin ETF fees vs. Transaction Fees<\/strong><\/h3>\n

Bitcoin transaction fees <\/a>are paid to miners and can vary based on Bitcoin Blockchain Network<\/a> activity.\u00a0 Centralized Exchanges (CEX), like Coinbase, may charge a slightly different fee than what you see on the Mempool.<\/a>\u00a0 Fees are paid when you are buying, selling, or transacting with Bitcoin.\u00a0<\/p>\n

Bitcoin ETFs on the other hand, charge 1) an annual \u2018management fee\u2019 <\/strong>or fixed percentage fee<\/a> based on your investment amount and 2) variable \u2018other expenses\u2019 <\/strong>which are paid using the fund\u2019s assets (ie \u2013 Bitcoin).<\/p>\n

Management fees<\/strong>:\u00a0 Each Bitcoin ETF charges an annual fee (0.19% \u2013 1.5%) which is subject to change at any time. If you want to switch ETFs because of fees, a taxable event may be created when you liquidate holdings to purchase a new ETF or convert to cash to purchase Bitcoin (BTC).<\/p>\n

Other Expenses<\/strong>:\u00a0 Each ETF publishes an S-1 disclosure of their expenses which are passed on to the shareholders, further reducing the fund\u2019s value.\u00a0\u00a0<\/p>\n

For example, Bitwise\u2019s Prospectus<\/a> discloses their ability to sell Bitcoin assets to cover their expenses which can reduce the funds value:\u00a0<\/p>\n

\u201cThe Sponsor, on behalf of the Trust, may sell the Trust\u2019s bitcoin as necessary to pay such expenses.\u201d<\/p>\n

Is it safer to own the Bitcoin ETF or Bitcoin?<\/strong><\/h3>\n

Bad argument: \u201cI don\u2019t trust Coinbase, I trust Blackrock.\u201d\u00a0<\/p>\n

Why? Because BlackRock uses Coinbase to custody the fund\u2019s coins.\u00a0\u00a0<\/p>\n

If you\u2019re worried about an exchange insolvency due to asset mismanagement, like FTX, there doesn\u2019t appear to be a difference in custodial risk<\/strong> because Coinbase secures Bitcoin purchased by individual investors and the ETF issuers.\u00a0<\/p>\n

For example, when you buy the BlackRock Bitcoin ETF, you are exposed to counterparty risks <\/strong>which requires you to TRUST multiple parties like:\u00a0<\/p>\n

iShares Delaware Sponsor Trust LLC, the ETF\u2019s sponsor, to accurately perform the managerial and legal responsibilities.<\/p>\n

BlackRock Fund Advisors (trustee) will manage the ETF with your best interests in mind.<\/p>\n

Avoidance of price manipulation at the detriment of the Bitcoin Network.<\/p>\n

Avoidance of bear market liquidation to close the fund below NAV.<\/p>\n

Coinbase (custodian) will securely manage their keys, prevent commingling of Bitcoin and safeguard against internal bad actors or external security threats.<\/p>\n

Your Bank (and the ETF\u2019s bank) to manage cash deposits and transactions with proper accounting controls.<\/p>\n

eTrade or Merrill (your broker) will maintain accurate records and not loan or lend your Bitcoin ETF position through hypothecation or rehypothecation.<\/p>\n

Fidelity, for example maintains custody of their Bitcoin and promises to NOT expose Bitcoin through derivatives (synthetic Bitcoin) which can be used as collateral (rehypothecated) for other investments.\u00a0\u00a0<\/p>\n

The Depository Trust Company (DTC<\/a>) must settle and hold the ETF shares on your behalf.<\/p>\n

Employees and external providers will act in good faith.<\/p>\n

The US Government does not intervene or confiscate assets.<\/p>\n

Third party risks including lawsuits, fraud, negligence, mismanagement, bankruptcy, change of ownership, government decree, and cyber attacks must be considered when deciding between investing in Bitcoin vs. Bitcoin ETF.\u00a0<\/p>\n

The notion that a Bitcoin ETF is less risky than holding your Bitcoin on Coinbase is FALSE.\u00a0\u00a0<\/p>\n

Bitcoin Self-custody is complicated to set up<\/strong><\/h3>\n

Bitcoin has been around for the last 15 years.\u00a0 Paper money has been around since the Chinese introduced this form of currency in 1260 CE which paved the way for the US Dollar 500 years later when Congress passed the \u201cMint Act<\/a>\u201d in 1792.<\/p>\n

People assume Bitcoin is scary and complicated because it\u2019s new.\u00a0 In reality, many of the Bitcoin components are just like the traditional banking system we use every day.\u00a0<\/p>\n

Blockchain = Central Bank (but everyone has access to it)<\/p>\n

Wallets = Bank App<\/p>\n

Private Key = Password<\/p>\n

Public Key = Bank Account Number<\/p>\n

UTXO = A small piece of Bitcoin you received as change.\u00a0<\/p>\n

Setting up Bitcoin Cold Storage<\/a> is a fundamental right and responsibility.\u00a0 Technical skills like setting up a device, managing 2FA, and a review of your online practices to develop and execute on a crypto security plan<\/a>.<\/p>\n

In my experience, setting up a qualified retirement account and getting approval to purchase the Bitcoin ETF took more time than setting up a cold wallet to store Bitcoin.<\/p>\n

Not your keys, not your cheese.<\/p>\n

Final thoughts on Bitcoin Investment Account Types<\/strong><\/h2>\n

Remember that this post is for informational purposes.\u00a0 We\u2019re not offering financial advice.\u00a0 This is your money, your life and everyone is different.\u00a0<\/p>\n

Bitcoin ETF in a Retirement Account<\/strong><\/h3>\n

It\u2019s hard to overlook the benefits of buying ETF shares with a tax-advantaged investment account if you\u2019re planning to hold your stack until you\u2019re 59 \u00bd.\u00a0 In the past 5 years, Bitcoin has appreciated by 1,000%.\u00a0 Imagine cashing out tax free compared with paying tax on your capital gains.\u00a0<\/p>\n

The biggest downside to holding the Bitcoin ETF is that you\u2019re not actually buying Bitcoin.\u00a0\u00a0<\/p>\n

Bitcoin ETF in a Brokerage Account<\/strong><\/h3>\n

You\u2019re buying an IOU for the price appreciation which is subject to capital gains tax and inflation risk if you decide to take some chips off the table or actually buy Bitcoin.<\/p>\n

The biggest downside to this strategy is that you\u2019re not realizing the tax savings compared to holding Bitcoin in a retirement account.\u00a0 Depending on your financial situation, it may be more advantageous to buy MSTR<\/a>, RIOT<\/a>, or BTC<\/a>.<\/p>\n

Buying Bitcoin on an Exchange<\/strong><\/h3>\n

Bitcoin acquired peer-to-peer or from an Exchange (Coinbase) can be stored in a custodial hot wallet or non-custodial cold storage wallet.<\/p>\n

If you\u2019re betting on price appreciation, adoption will follow as Nation-states, corporations, institutions and regular investors compete for their share.\u00a0\u00a0<\/p>\n

This could be the beginning of a bull run that spans the next 10 years on the heels of a global shift to hyper-bitcoinization.<\/p>\n

The industrial infrastructure supporting Bitcoin will likely mature over this time period making it easier to collateralize and transact with BTC.<\/p>\n

You can\u2019t buy a house or go on vacation with an ETF share.\u00a0 ETFs must be converted to dollars which introduce future inflationary risk, early withdrawal penalties and tax liabilities.<\/p>\n

Hybrid Bitcoin Investment Strategy<\/strong><\/h3>\n

Some investors choose to diversify their concentration risk.\u00a0<\/p>\n

For example, if you\u2019re already a Bitcoin wholecoiner<\/a> you may want to consider the option of adding the ETF to your tax-advantaged retirement accounts.<\/p>\n

A Roth IRA with Bitcoin ETF shares offers tax free gains in the long term and your BTC held in a hot\/cold wallet can be used to transact as needed before retirement.<\/p>\n

Only invest what you can afford to lose and consider a Bitcoin Dollar Cost Averaging<\/a> strategy to develop a consistent investment strategy.\u00a0\u00a0<\/p>\n

The post Pros and Cons of Bitcoin vs. Bitcoin ETF<\/a> first appeared on Stratus Crypto<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"

944 Institutional Investors just submitted their 13F reports to the SEC reporting exposure to Bitcoin ETFs.\u00a0 By comparison, Bitcoin ETFs have 10x more institutional investors than the Gold ETF. \u00a0 Financial advisors and wealth managers are waking up to Bitcoin which could ignite portfolio allocations of 4-6% exposure during this next bull run.\u00a0\u00a0 The approval […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-113891","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/113891"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=113891"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/113891\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=113891"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=113891"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=113891"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}