Bitcoin ETFs Now Approved In The U.S.
But should you buy a bitcoin ETF?
Earlier this week, on January 10th 2024, the Securities and Exchange Commission (SEC) approved the trading of exchange-traded funds (ETFs) that “hold” Bitcoin.
Many believe that this approval of Bitcoin ETFs will foster(and maybe even speed up) the adoption of Cryptocurrency.
And while there has been a lot of buzz and excitement about this announcement, as an individual investor, you might be wondering if you should invest in a Bitcoin ETF.
Not sure what Cryptocurrency is? Read our article on what Cryptocurrency is and how it works.
Wondering about ETFs? Learn about ETFs (and index funds).
Why a Bitcoin ETF could make sense
Here are a couple reasons why a Bitcoin ETF could make sense for you. (This, assuming you are adding a bit more diversification in an already well diversified portfolio!):
Easier to buy
If you’ve been hesitant about buying Bitcoin or wary of the risks associated to crypto wallets (hacking, phishing attacks, and the risk of losing access to your wallet if you forget your login credentials), a Bitcoin ETF could help you feel more secure since you’ll soon be able to add them to your existing brokerage accounts e.g. Fidelity is one of the major brokerage firms now offering Bitcoin ETFs.
Cheaper to buy
With the approval of Bitcoin ETFs many brokerages are waiving fees initially or offering very low expense ratios (e.g. Fidelity’s fee on its Bitcoin ETF is 0.25% at the time of this writing) compared to the standard fees charged by a crypto wallet platform like Coinbase which charges a 1% fee.
Cautions to keep in mind about Bitcoin ETFs
With that said, it’s important to keep the following in mind:
Cryptocurrency IS volatile
Getting into cryptocurrency like Bitcoin can be pretty risky and this applies to Bitcoin ETFs.
There’s a lot of volatility because it all depends on how many people want it. Additionally, Cryptocurrencies are not backed by a government or central bank which also impacts its stability.
And while risky investing can bring in big returns, they can also bring big losses, so you should only use money you can afford to lose.
Putting your all of your long-term savings for retirement into cryptocurrency? Not a great idea, in my opinion.
With a Bitcoin ETF, you won’t actually have any Bitcoin you can spend
You are essentially buying shares of the ETF. This means, you don’t actually have access to actual Bitcoin you can go out and spend or use on cryptocurrency exchanges like Coinbase or Robinhood.
You simply have shares in an ETF.
So, should you invest in a Bitcoin ETF?
The answer to this is; it depends on you! Just like any investment, it's crucial to learn about what it is, how it works, and do your research before you make any investing decision.
It’s also essential that you have broad diversification in your investment portfolio. This means making sure your current portfolio includes a mix of more stable less volatile investments.
Remember, you don’t want to place all your bets on any investment, no matter how incredible it sounds.
The key to becoming a successful investor is learning how investing works and creating the best plan for your future self. Learn more about how investing with our completely free investing course bundle!