The Best Options for New Bitcoin Investors
As the price of bitcoin continues to fluctuate, waves of investors are being drawn back toward the technology. Many are beginning to eye emerging cryptocurrency exchange-traded funds (ETFs), along with Chinese exchanges. While there are no officially approved cryptocurrency ETFs currently in the U.S., there are trusts and investment opportunities referred to as ETFs by investors.
Some of these opportunities include the Greyscale Bitcoin Investment Trust (GBTC), Amplify Transformational Data Sharing (BLOK) and the Bitwise 10 Private Index Fund. Investment vehicles such as these allow investors to invest in bitcoin through options based on indexes.
Bitcoin Investing Through GBTC
Investors looking to invest in bitcoin through the capital markets can access an investment through Greyscale’s Bitcoin Investment Trust (GBTC). Using Greyscale provides certain advantages that make an investment in bitcoin a more digestible option. For one, shares of GBTC are eligible to be held in certain IRA, Roth IRA, and other brokerage and investor accounts—allowing easy access for all levels of investors in a wide variety of accounts.
Investors are provided with a product that mirrors an underlying value of 1/10th the value of bitcoin. As an example, if the value of bitcoin is $1,000, each share of GBTC should have a net asset value of $100. This value is not without costs, as GBTC maintains a 2% fee that impacts the underlying value.
In reality, investors are paying for security, ease of use, and liquidity (conversion to cash). By arranging strong offline storage mechanisms, GBTC allows investors who are less technical to access the bitcoin market safely. The fund trades on the capital markets as well, which allows it to trade at a premium or discount of its net asset value (NAV).
Amplify Transformational Data Sharing ETF (BLOK)
BLOK is an actively managed fund that has holdings in 15 different industries and is traded on the New York Stock Exchange Arca. The company invests in other companies that are involved with and developing blockchain technologies.
As with GBTC, there are fees and expenses totaling 0.9% (or 0.7% with a waiver).
Bitwise 10 Private Index Fund
The Bitwise 10 Private Index Fund is based on the Bitwise 10 Large Cap Crypto Index, a basket of large capacity coins in which the company tries to provide security and the ease of use of a traditional ETF.
The Bitwise 10 Private requires a $25,000 minimum investment and has a fee ratio of 2.5%. Similar to GBTC, the assets are held in cold storage (offline), providing necessary security for its investors.
Chinese Rule in the “Bitconomy” and the Impact on New Investment
The United States continues to fall behind China in the adoption and mining of bitcoin—the approval of cryptocurrency ETFs would speed up efforts to bring America up to date in the bitcoin marketplace.
Many have speculated what effect the approval of such an exchange would have on the bitcoin markets. With over 97% of known bitcoin trading still occurring in Chinese exchanges, a strong surge is expected as North American investors re-enter or enter the market.
Government Is Slow to Approve Crypto ETFs
Exchange-traded funds (ETFs) are asset vehicles that trade during the day on the capital markets. These investments are not susceptible to the forces of illiquidity, theft, hacking, or poor accounting and security practices found in early bitcoin exchanges and companies. These funds are also ideal for those chasing a relatively safe investment in the bitcoin world.
Government officials take a very conservative approach toward approving ETFs in the largely speculative bitcoin market, due to worries over the stability and the potential illicit uses for bitcoin. The prevalence of illicit uses of bitcoin (using the currency for illegal activities) has stymied progression regarding the application of traditional investment vehicles into the cryptocurrency realm.
Government View of Bitcoin
The IRS has ruled that bitcoin is property, not a currency. This ruling subjects them to tax rules depending on the purpose the cryptocurrency was used for or how it was used. The IRS requires the reporting of capital gains for tax purposes from bitcoin-related trades.
This sends a signal that while bitcoin is viewed as property, regulators also qualify the asset like a stock. Given the importance of private keys needed to access the currency, bitcoin as property (despite the tax drawback) seems a logical choice.
Given the scarce final amount of 21 million bitcoins that will ever be in existence (unless protocols change), combined with the exponentially increasing mining power on the network, Bitcoin has demonstrated its staying power and seeks to provide those in the developing world with banking services—while also seeing bitcoin’s use and implementation rise among supply chain, media monetization, and data notarization services.
ETF listings remain a crucial step toward widening the investment network in bitcoin within America. Investors remain nervous about the risks associated with digital currency, it's market dominance from China, and potential illicit use. Beginner investors are advised to monitor bitcoin ETF regulations, as the listing of exchange-traded funds and the resulting liquidity and sense of security should ring bullish in the bitcoin market.