Bitcoin ETF approved by SEC chair, Gary Gensler

The chairman of the U.S. Securities and Exchange Commission, Gary Gensler.

More than 10 years after the first application, the SEC (Securities and Exchange Commission – America’s financial regulatory arm) finally approved a Spot Bitcoin ETF (exchange traded fund) on January 10, 2024.

In fact, they approved ELEVEN Bitcoin ETFs! Let’s look at what this means:

What is an ETF?

As described in my 2010 book Investing 101 (free pdf download), ETFs are traded on traditional stock exchanges like the New York Stock Exchange (NYSE) and are regulated, offering a layer of oversight that traditional bitcoin and cryptocurrency exchanges do not typically have.

What are the benefits of a Bitcoin ETF?

The main benefit of a Bitcoin ETF for some investors is that they can avoid dealing with the technical challenges of buying, storing, and securing bitcoin directly. Instead, investors can buy the Bitcoin ETF via a stock broker which holds the bitcoin for you. Adding further peace of mind, the Bitcoin ETFs qualify for SIPC insurance (Securities Protector Investment Corporation), meaning that if investors lost their ETF shares due to mismanagement or malicious behavior by their brokerage, they would be covered (up to $500,000) against loss by the U.S. government.

What are the downsides of a Bitcoin ETF?

Not your keys, not your bitcoins! With a Bitcoin ETF, you do not control or hold the bitcoin yourself. You are actually an unsecured creditor of the company holding the bitcoin.

If, for any reason, the company holding the bitcoin goes bankrupt, you may lose your investment, despite the SIPC insurance. Also, if the government declares you to be a criminal or a political enemy, the government may freeze or confiscate your Bitcoin ETF assets, as was the case for Canadian truckers in 2022.

Further, not all stock brokers will allow you to buy Bitcoin ETFs. Despite the SEC approval of Bitcoin ETFs, many brokers FORBID purchases of Bitcoin ETFs after the launch! Vanguard, Citi, Merrill Lynch, Edward Jones, and UBS were all being reported to not allow clients to trade the Bitcoin ETF.

The Bitcoin ETFs also come with management fees. When you manage bitcoin yourself, you become your own bank and keep those fees.

Eleven Bitcoin ETFs to choose from

There are eleven Bitcoin ETFs for investors to choose from.

Here’s a list of the approved Bitcoin ETFs, their ticker symbols and their annual fees:

  • Bitwise Bitcoin ETP Trust (BITB) – 0.20%
  • ARK 21Shares Bitcoin ETF (ARKB) – 0.21%
  • Fidelity Wise Origin Bitcoin Trust (FBTC) – 0.25%
  • iShares Bitcoin Trust (IBIT) – 0.25%
  • VanEck Bitcoin Trust (HODL) – 0.25%
  • Franklin Bitcoin (EZBC) – 0.29%
  • Wisdomtree Bitcoin Trust (BTCW) – 0.30%
  • Invesco Galaxy Bitcoin ETF (BTCO) – 0.39%
  • Valkyrie Bitcoin Fund (BRRR) – 0.49%
  • Hashdesh Bitcoin ETF (DEFI) – 0.90%
  • Grayscale Bitcoin Trust (GBTC) – 1.50%

There is also the risk of failure of the custodian holding the bitcoin for these providers. 8 of the 11 providers above will use Coinbase Custody, posing a custodian centralization risk. If Coinbase gets hacked or goes bankrupt, these bitcoin may disappear and your entire investment may be at risk.

Another downside is that you can’t take custody of bitcoin from a Bitcoin ETF. You are only entitled to a Cash (USD) redemption. One of the reasons we hold bitcoin is to protect ourselves from rampant money printing and other problems stemming from Central Bank control of our money and the resulting corruption.

TRADE-OFFS BETWEEN BITCOIN HELD IN SELF-CUSTODY VS BUYING SHARES IN A SPOT BITCOIN ETF

  • Holding Bitcoin In Self-Custody Control: You have complete control over your Bitcoin. This means you’re responsible for your own private keys and the security of your wallet.
  • Security Risks: With control comes the responsibility of ensuring your Bitcoin is safe from theft, fraud, or loss. Secure storage solutions are a must.
  • No Intermediary: There’s no need to trust a financial institution or intermediary to manage your investment.
  • Improved Financial Privacy: Bitcoin can be acquired P2P (peer to peer) without KYC (Know Your Customer requirements), minimizing the amount of personal financial information known by third parties.
  • Potential for Higher Returns: Self-custody potentially leads to higher returns, as you’re not paying management fees or other ETF-related expenses.
  • Complexity: Requires a good understanding of self-custody and security best practices.
  • Accessibility: Buying and selling may not be as quick or easy as trading ETF shares.
  • Simplicity: Investing in a spot Bitcoin ETF is as simple as trading stocks through a brokerage account.
  • Regulation: ETFs are regulated financial products that may offer some investors a sense of security and trust.
  • Liquidity: ETFs are designed to be highly liquid, allowing for quick entry into and exit out of the market.
  • Fees: You will pay annual fees for the management of the ETF, which can eat into your investment returns over time.
  • Less Control: You don’t own the underlying Bitcoin directly, and you’re subject to the management decisions of the ETF provider and to the decisions of governments and regulators (remember Presidential Executive Order order #6102 where gold was confiscated in 1933?).

Ultimately, the “best choice” will depend on your individual circumstances. Contact us for a FREE 15 minute consultation.

Every Investor Can Benefit from Bitcoin

No matter how you hold bitcoin, every investor should have some of it. With SEC approval of these ETFs, Bitcoin has been brought into the mainstream. Thousands of investment advisors can now safely and easily recommend Bitcoin for their clients.

As the best performing asset over the last 1, 5 and 10 year time frames, Bitcoin is an obvious choice for any portfolio, large or small. These Bitcoin ETFs will bring billions $$$ more into Bitcoin which should only propel the price higher – not investment advice ;)

We are excited about the future of Bitcoin ETFs and this journey we’re on towards a sound, honest monetary system that will free the world!