Understand the new 11 Bitcoin EFTs
The SEC's recent approval of 11 new spot Bitcoin (BTC-USD) ETFs in the United States has generated significant anticipation in the market. These ETFs differ from previous ones as they directly invest in Bitcoin rather than futures, promising a closer correlation with Bitcoin prices. Unlike futures ETFs, spot Bitcoin ETFs are more cost-effective and less complex. While the approval is a milestone for Bitcoin, it doesn't inherently increase Bitcoin's value. The ETFs, however, offer a more accessible option for investors who were hesitant to buy Bitcoin directly.
How does this change the investment landscape?
Since the introduction to cryptocurrency and Bitcoin back in 2009, the process someone bought, stored, and traded cryptocurrencies was complex and ever changing. One had to have an encrypted “wallet” that stored the cryptocurrency information that had a one-time set password that if lost, all your money was lost. The price was always rising and falling on a whim. The more notable issues were with regulations. Due to the lack of, major theft and fraud captured headlines.
How does the new update change the for the everyday investor?
With the creation of the 11 new Bitcoin ETFs, it eliminates the need for a wallet, thus avoiding the risk and complexity of managing your own accounts. Now individuals can rely on large companies like Fidelity and Charles Schwab to hold their shares and give you a simple online account.
What are the new Bitcoin ETFs?
The 11 new Bitcoin ETFs include:
- ARK 21Shares Bitcoin ETF (ARKB) by ARK Invest, featuring a reasonable expense ratio of 0.21%.
- Bitwise Bitcoin ETP Trust (BITB) with a fee of 0.20%, and a fee waiver for the first six months or first $1 billion in investments.
- Fidelity Wise Origin Bitcoin Trust (FBTC) from Fidelity with a moderate expense ratio of 0.25%, with a fee waiver until July 31, 2024.
- Franklin Bitcoin ETF (EZBC) by Franklin Templeton, trading on the CBOE with a 0.29% expense ratio.
- Grayscale Bitcoin Trust (GBTC), an existing trust converting into an ETF with an expense ratio of 1.5%.
- Hashdex Bitcoin ETF (DEFI) by Hashdex from Brazil, featuring an expense ratio of 0.90%.
- Invesco Galaxy Bitcoin ETF (BTCO) with a fee of 0.39, waived for the first six months or first $5 billion in assets.
- iShares Bitcoin Trust (IBIT) by BlackRock, charging 0.12% for the first year or first $5 billion in AUM, increasing to 0.25% later.
- Valkyrie Bitcoin Fund (BRRR) on Nasdaq, offering no fee for the first three months and then 0.49%.
- VanEck Bitcoin Trust (HODL) with a 0.25% expense ratio.
- WisdomTree Bitcoin Trust (BTCW) charging 0.3%, with the fee waived for the first six months or first $1 billion in AUM.
What influences cryptocurrency prices?
Let’s compare Microsoft and Bitcoin. Although not perfectly alike, it’s important to see how the market looks at each investment. Microsoft stock price reflects many factors but some major factors are current income and future growth potential. Microsoft primary business is producing tech products and selling said products to consumers. The price of Microsoft is closely related to demand of their product. Being a large company the rise and fall of price can be taken with ease, it’s like going through turbulent weather on a very large ship, the waves feel much smaller than when you’re on a small boat. The key to remember here is Microsoft produces a good that has demand.
On the other side, Bitcoin’s price is almost exclusively influenced by recent and upcoming news and government regulation. Since Bitcoin is NOT in the business of producing a good for the market, the price doesn’t have the legs to stand steady. The result, major price volatility. As an example, since a couple major custodian companies, like BlackRock and Fidelity, applied to open Bitcoin ETFs the price of bitcoin increased by over 150% in 2023. The other side, in 2011 Bitcoin dropped 3,200% from $32 a share to $.01. Thus, Bitcoin and cryptocurrencies are considered speculative markets or in other words very high risk.
What are the risks involved?
We already mentioned that Bitcoin is considered a speculative investment. The other risks are:
Government regulation: The government has the ability to tank the price of Bitcoin with major legislation that negatively impacts cryptocurrencies.
Market Liquidity: Buying and Selling is only possibly by people on both sides trying to make moves. If holders of Bitcoin decide to hold and not sell it can very much affect the market price.
Influencers: There are individuals who if they speak negatively about Bitcoin can affect the price. An example of this is when Elon Musk announced that someone can buy a Tesla with Bitcoin, which increased the price, then he rescinded the offer and Bitcoin then dropped.
Fraud: One reason crypto is so enticing is that no government can control it. The opposite side is that it can’t be regulated like most other things. This is a huge draw for illegal activity. Google scams and fraud around crypto and you’ll understand how big of a deal this is.
Laws and change summary
The SEC's approval signifies a significant shift in cryptocurrency trading, allowing spot Bitcoin ETFs on established U.S. exchanges. Despite the approval, SEC Chair Gary Gensler remains cautious, emphasizing the risks associated with Bitcoin and crypto-related products. The approval opens new avenues for investors, providing more accessible ways to gain exposure to Bitcoin without directly purchasing it. These ETFs, however, still carry risks, and investors are urged to understand the unique challenges posed by cryptocurrencies.
In conclusion, the approval of spot Bitcoin ETFs marks a pivotal moment for Bitcoin, opening up new possibilities for investors and signaling a positive development for the cryptocurrency market.
Intermountain Wealth Management is a Registered Investment Adviser (RIA). The company manages several fee-based portfolios comprised of various equity and fixed-income investments that may include mutual funds and exchange traded funds. This is not a prospectus or an offer to sell any security. Please read the prospectus of any investment before you invest. Information included here is intended for education and information purposes only.
