ETF or Bitcoin: which is more profitable to invest and why?

When you engage in Bitcoin trading, you are simply buying a digital commodity. While it differs from traditional stock market assets, Bitcoin is still a product with its own value. Its price can vary based on factors such as regional currency differences, demand, and the exchanges where Bitcoin is traded. However, regardless of where you purchase BTC, the product itself remains the same.

What about ETFs? Do buying shares in a fund make you a Bitcoin owner?

ETF trading

ETFs operate differently. There are different types, including futures ETFs and spot Bitcoin ETFs that have recently been approved by the US Securities and Exchange Commission (SEC). The key difference is where they invest their funds. Spot Bitcoin ETFs invest directly in Bitcoin, while futures funds invest in futures contracts and sometimes perpetual contracts.

So, where does an investor’s money go when they buy ETF shares? It certainly does not go into Bitcoin itself. There is no process for converting ETF shares into cryptocurrency. However, you will often come across headlines claiming that spot Bitcoin ETFs are a new way to invest in the cryptocurrency.

For example, if you purchase shares of Barrick Gold, what asset do you own? After the purchase, you will become a shareholder of the company, but you won’t be able to directly convert your ownership into physical gold. Similarly, when you buy shares of a Bitcoin ETF like GBTC, you become a shareholder of the fund, not an owner of the underlying Bitcoin. This is why you may find conflicting information online regarding ETFs being a new way to invest in cryptocurrency. While they do indirectly invest in Bitcoin, they are fundamentally different financial instruments.

So, what are the advantages and disadvantages of investing in ETFs compared to cryptocurrency itself?

Investments in cryptocurrency

Crypto enthusiasts, especially those who are familiar with the market, often prefer investing in Bitcoin. It offers less government intervention and a market that closely reflects supply and demand. Additionally, Bitcoin provides more opportunities for anonymity, although it’s important to note that complete anonymity is not guaranteed due to the transparency of the Bitcoin blockchain. Nevertheless, when you buy Bitcoin, you are acquiring a specific digital asset.

Investments in ETFs

ETFs are more appealing to individuals who do not want to delve into the complexities of the crypto industry. Dealing with Bitcoin requires learning about public and private keys, seed phrases, hot and cold wallets, consensus algorithms, transaction processes, and more. Many people may not have the time, inclination, or resources to fully understand these concepts. Furthermore, trading cryptocurrencies on crypto exchanges can be daunting, as these exchanges are less regulated compared to traditional stock or commodity markets.

ETFs, on the other hand, are familiar and regulated products. They are traded on established platforms such as NYSE and NASDAQ. While they lack privacy, the rules and responsibilities are clearly defined, and there are avenues for recourse in case of issues. ETFs provide an easier entry point for large capital to enter the crypto industry, especially in countries where cryptocurrency investments are partially or fully restricted. ETFs offer an opportunity for anyone to gain exposure to Bitcoin.

Trading Strategies

So, is it better to invest in cryptocurrency or ETFs? The answer depends on your preferences. If regulatory certainty and lower volatility are important to you and you simply want to make a speculative transaction in the crypto market with a relatively lower entry threshold, then ETFs may be the better option.

Advanced users, crypto enthusiasts, and many traders view ETFs as a controversial addition. They are capable of understanding the technical aspects independently and may have reservations about funds with undisclosed activities. Compared to the robustness of smart contracts and the transparency principles found in early cryptocurrency, ETFs lack a mechanism for effectively providing value with accessible audits.

There is a third type of investor who may have significant funds and prioritizes risk reduction. These individuals may choose to diversify their portfolio by investing in both funds and Bitcoin directly. This approach combines the highly volatile and free nature of the cryptocurrency with the regulated nature of an ETF, which seemingly invests in cryptocurrency but is subject to government oversight.

Conclusion

In summary, trading spot Bitcoin ETFs and trading Bitcoin itself are not the same thing. Purchasing ETF shares does not grant ownership of cryptocurrency, whereas buying Bitcoin directly results in ownership of the digital asset.