I believe most of the crypto investors are hearing about $BTC spot ETFs -even $ETH spot ETFs!-, so I wanted to write a little information on them, whether you should invest on the BTC itself (actually buying it) or investing on the Bitcoin Spot ETFs from BlackRock, Grayscale etc...
So what are the pros and cons of directly purchasing $BTC ?
Pros:
Ownership and Control: Many examples demonstrate the significance of possession and management in cryptocurrency issues. An example is the crash of Mt. Gox exchange in 2014 which left hundreds of successful exchange users with the possible loss of Bitcoin equivalent to a quarter-billion dollar. On the other hand, a minority of those who held their Bitcoins in a private wallet seemed to have the upper hand when it came to controlling their assets, while those who left them on the exchange confronted major loss.
Decentralization: Decentralization of Bitcoin together with real examples when governments or tax administration attempted to censor or regulate transactions are attributes that support the notion greatly. In any case, the unprecedented campaign of protests, strikes and open rebellion in a couple of countries has forced a section of the population to resort to Bitcoin for storing their valuables, and consequently, the users have managed to circumvent the capital controls.
Potential for Higher Returns: Bitcoin history of quotations contains a number of such situations that are characterized by large price increases within a given time frame. For example, in 2017, a single bitcoin cost about $1000 then it surged and gets near about $20000 just in a single year. This gave an enormous ROI to the early investors. One can catch these potential upturns by setting auto-buy instructions and owning Bitcoin directly.
Cons:
Security Risks: Famous hacking cases, for example, the 2019 Binance exchange heist that drained the crypto platform of more than 7,000 BTC (equivalent to about $40 million), further illuminate the level of security concerns for crypto owners. In addition, the users have to take a number of counteractive steps to protect their private keys and funds, among other measures, such as using hardware wallets and having a high security level.
Complexity for New Users: The burdens of Data Wallet and the blockchain technology can intimidate users who just start to use this kind of payment system. An example of vulnerabilities in crypto is sendings past mistakes where people lost funds or made incorrect transaction and thus we need to develop knowledge and be careful while dealing with crypto.
Lack of Diversification: Bitcoin's price instability and the resulting high correlation with traditional investment vehicles make it difficult to devise unique strategies for asset allocation. The situation might come up sometimes that the securities investors hold become sluggish or more volatile, which diversification basically a try to prevent.
And what about investing on BTC ETFs?
Pros:
Convenience and Accessibility: Bitcoin ETFs provide institutional investors with a convenient way to access Bitcoin that doesn’t require a specialized knowledge or use of new platforms through regular brokerage accounts. This convenience could transpire into a wide range of additional investors who might find getting involved in direct cryptocurrency ownership a bit too complex.
Regulated and Institutional Support: The development of regulated Bitcoin exchange traded funds, like U. S. SEC approved ones, is now the player in the market with SEC regulated product and offers the investors certain regulatory oversight and investor protection. Institutional participation may well contribute to market liquidity, in turn we should see a broader base of appeal and associated adoption.
Diversification Opportunities: Others Bitcoin ETF’s cover for different investment products, such as strategies relying on a combination of digital assets, or so called basket products, which diversify the risk over multiple different crypto assets. This asset diversification can dampen the risk of being invested in a single asset and makes the entire portfolio more robust.
Cons:
Counterparty Risk: The fund managers presence and custodians authority on the platform embodies counterparty risk, proven by occurrences such as the collapse of QuadrigaCX in 2019 and the allegations of mismanagement of customer funds to the tune of approximately $190 million. The investors should take a due diligence of the credibility and security measures provided by the ETFS issuer and the custodian bank.
Management Fees: Bitcoin ETFs operate in a way that involves staff work and fees which can decrease yields, if they are not kept at levels of dynamically changing environment, especially when volatility or performance become lower. Investors should not pay more than the service is worth and see beyond the apparent low costs of ETF investing by comparing the fees with the benefits and complexity.
Market Premiums and Discounts: A Bitcoin ETF premium or discount could occur when prices do not closely align with net asset value (NAV) of the underlying assets leading to a disagreement between the market value and the actual value of the assets. This situation can result in investors failing to see the predicted return on their investments and there can be unknown arbitrage openings which may subject the firms to unruly market forces.
So Logan, which one is better to invest, overall?
In short, direct Bitcoin Buying or Bitcoin ETFs offer their own pros and cons. Investors should consider their investment goals, risk exposure and preference for ease of use and control when deciding the optimal strategy for them. For example, if you believe you can trade your way off cryptomarket with profits, you might wanna just go and trade instead of ETFs and etc. Or you can just simply hold! There are lots of ways to win in crypto. For me, ETFs are for those who don't wanna get their hands dirty.
