Last week’s approval of the spot Bitcoin ETF has been a decade in the making, so understandable, this was huge news for all of the crypto space.
Specifically, 11 spot Bitcoin ETFs were approved, offered by different providers including BlackRock, Grayscale, ARK, Bitwise, Fidelity, and VanEck (which, in a nod to the OG crypto community, took HODL as its ticker). The important part is that this approval opens the door to even more crypto ETFs, including the highly anticipated Ether ETF, providing more choice and competitive rates for investors.
While there’s a lot of speculation about how this decision will impact institutional investment, what does the availability of ETFs mean for the individual investor, and how is it different from buying and holding Bitcoin?
What is an ETF?
An ETF (Exchange Traded Fund) is a type of security that tracks an underlying index, commodity, or other asset(s). There are ETFs for things like the S&P 500 Index, gold, and oil, as well as baskets of various stocks compiled by investment funds.
With a spot Bitcoin ETF, investors can get exposure to BTC price without having to actually own Bitcoin (as is true for gold and oil ETFs). The underlying asset of the Bitcoin ETF is actual BTC, held and managed by the ETF provider firm, which then issues shares of its Bitcoin holdings.
How is a Bitcoin ETF different from buying Bitcoin?
Although Bitcoin is a digital product, the comparison with gold holds well when we look at the differences between ways of investing in BTC.
Buying into a Bitcoin ETF is just like investing in gold via an ETF or a mutual fund – you have to have a brokerage account and pay fees for the management of your investment. In this scenario, you don’t actually own any Bitcoin, just like you don’t have a gold bar or a barrel of oil in your garage when you invest into those ETFs.
Buying Bitcoin and holding it in a self-custody wallet is like actually having that chunk of gold in your possession. When you hold keys to your own crypto wallet, nobody can destroy, take away, freeze, or lend out your Bitcoin. It ‘lives’ on the blockchain, and your keys control all access to it. You can choose to keep your keys in a bank deposit box, in a safe place in your home, or buried in the backyard – just like with real gold.
Keep in mind that this gold comparison ONLY applies to a self-custody wallet, NOT to Bitcoin that is bought on centralized platforms like Coinbase, Robinhood, PayPal, or Venmo. In these cases, you also don’t actually own any Bitcoin – just an ‘IOU’ from the provider saying that you are entitled to that Bitcoin or its fiat value.
What are the pros and cons of investing in Bitcoin ETF vs holding in a crypto wallet?
In the end, the decision about whether to invest in Bitcoin via ETFs or to hold it in your own crypto wallet boils down to how you think about security.
Do you have confidence in traditional financial institutions and the protections the government provides when dealing with those institutions?
Or do you feel you’d rather trust yourself and have exclusive, full control of your assets at all times, no matter what happens in the world of traditional finance
Advantages of self-custody
- Only you control your Bitcoin and it won’t be affected by defaults or regulations. No one can take your Bitcoin away or lock you out of your account.
- No fees to hold or manage your Bitcoin, ever. Once you pay the network and provider fees when you buy the Bitcoin, you will never need to pay more just to keep it in your wallet.
- Anyone can buy Bitcoin directly with a self-custody wallet like Enkrypt and hold it there. You don’t need a brokerage account or approval.
- The protections of traditional investments are a double-edged sword. Ideally, they are there to protect you from bad actors, but you may not always agree with their judgment about who the bad actors are. For example, despite being approved by the SEC, the ETF may not be available to you if your fund or bank decides to block or limit access (e.g., Vanguard, Citi, and UBS).
Advantages of a Bitcoin ETF
- If you are not familiar with crypto wallets or not comfortable with taking full responsibility for your security, with an ETF you don’t need to worry about keeping your wallet keys safe.
- Peace of mind in knowing that you are dealing with SIPC insured registered broker-dealers, rather than unknown or unregulated entities.
- For those closely familiar with traditional markets and who already have a brokerage account, it’s easy to get exposure to crypto without additional setup.
Investing via an ETF lets you avoid learning anything about crypto and the way it works – and that can be either a pro or a con, depending on how you look at it.
It’s possible to keep investing the way you always have – or the way your parents always have – and stick to the traditional markets, with all of their regulations. You can make crypto just another asset in your portfolio (if you have full access to banking and brokerage, of course – many people don’t).
Or, you can try something different, and learn about new technologies and ideas. Economists and social scientists are telling us that if we don’t keep up with tech innovations, we will soon become obsolete in almost any job. Self-custodial crypto is the first digital asset that offers true ownership, and is worth exploring both as a financial and technological concept.
Better yet, do both. Diversification is essential to investment, and now it’s possible to diversify not only the ‘what’, but also the ‘how’ of your portfolio. Self-custody puts some of your assets on the blockchain – a different ‘place’ that’s not your bank, not your broker, and not your mattress.
Download Enkrypt to get and hold your Bitcoin in an easy, friendly self-custody wallet, and be sure that you are not missing out on anything at all.