BTC ETF vs. Direct Purchase: Which Is Better? The idea of an exchange-traded fund (ETF) that invests in Bitcoin based on its spot price has been a hot issue for several years. Traditional and crypto-focused investment businesses have flooded the U.S. Securities and Exchange Commission with applications. These applications have been sent in more than once. On January 10, 2024, the Securities and Exchange Commission (SEC) officially authorized eleven applications for Bitcoin exchange-traded funds. Much sacrifice has been made over many years in this war. Are you looking for a comprehensive timeline of all the events? Check out our in-depth page on the subject: Now that the clearance is official, it’s time to dive into a crucial topic: how to decide between purchasing Bitcoin directly and investing in a spot Bitcoin ETF. While the following essay offers a more thorough examination, here is a quick table that compares the two.
Spot Bitcoin ETFs: What Are They?
As far back as conventional financial instruments go, exchange-traded funds exist. Stocks that are exchanged on an exchange in a way similar to a basket of assets are called exchange-traded funds (ETFs). Markets for commodities, stocks, and other assets are followed by it. The spot Bitcoin ETF is only one example of how it might follow a portfolio or a specific investment. In contrast, investing in Bitcoin ETFs is a safe bet for anyone hoping to profit from cryptocurrency’s price.
Nevertheless, the exchange-traded fund (ETF) and the underlying asset are distinct. Because it is not tied to any investment, an ETF can trade independently and has its own market. This means that there is no guarantee that the NAV of the underlying asset will coincide with the ETF price. Along with other vital points, we will comprehensively describe Bitcoin exchange-traded funds.
Trades on Traditional Exchanges
Because the exchange-traded fund (ETF) is a conventional financial product, it is conducted on Wall Street’s regulated exchanges, such as the New York Stock Exchange. Exchange-traded funds (ETFs) are not traded on cryptocurrency exchanges like Binance.
Investors do not own Bitcoin Itself
BTC ETF vs. Direct Purchase: When you own an exchange-traded fund (ETF), you do not directly own the underlying product. Consider it to be a synthetic asset that is constructed on top of Bitcoin, and it corresponds to the price of Bitcoin. Buyers of the exchange-traded fund (ETF) do not need to be concerned about the storage and protection of Bitcoin. The shares in the ETF are backed by BTC, which is owned and stored by the ETF provider.
Acquisition Fees are Depending on the ETF Provider
There is a wide variety of Bitcoin exchange-traded funds (ETFs), each of which comes with a unique set of fees decided upon by the issuer. A sponsor fee of 0.25% applies to BlackRock’s Bitcoin Exchange-Traded Fund (IBIT) (terms and conditions apply).
Provided by ETF
ETFs are administered by the company that initially introduced them to the market. They can withdraw funding if they do not satisfy specific requirements, and they also can adjust the costs at their discretion.
Trade During US Trade Hours
ETFs are only accessible during regular trading hours in the United States since they are traded on traditional and regulated exchanges in the United States, such as the New York Stock Exchange (NYSE).
Possible ETF/NAV Price Disparity
On the same day, there is a possibility that the price of Bitcoin and the price of the Bitcoin exchange-traded fund (ETF) will differ. The current pricing of exchange-traded funds (ETFs) is determined by the fact that they are traded on their distinct markets.
BitCoin ETF Pros and Cons
There are benefits and drawbacks to the features mentioned above that are unique to Bitcoin ETFs.
Pros
- Managed investment vehicle
- Specialized portfolios, such as retirement or 401(k) plans, can incorporate it.
- With the support of regulated and trustworthy sources such as BlackRock,
Cons:
- Investors do not own that.
- The ETF’s value may be higher than the Bitcoin NAV.
- Decreased availability of trade and increased costs
Bitcoin Purchases
Unlike ETFs, buying Bitcoin directly rather than through an exchange or a P2P platform gives you ownership over the BTC. Buying it through an exchange like Binance does necessitate thinking about self-custody. The best course of action is to withdraw your Bitcoin from the exchange and store it in a cold wallet—a device where you do not have access to private keys like Trezor or Ledger. BTC ETF vs. Direct Purchase: The following is an example of a common saying in the cryptocurrency industry: “Not your Bitcoin, not your keys.” Along with this, you’ll have specific duties to fulfill. If you don’t have any experience, keeping your crypto safe could be a real challenge. But there’s no need to fret; we’ve laid down all the steps you need to take to safeguard your Bitcoin.
9 Must-Do Bitcoin and Crypto Wallet Security Tips
Just as it is with ETFs, buying Bitcoin directly has its specifics. Here’s a quick summary.
Cryptocurrency Exchange Trades
Bitcoin cannot be purchased on the New York Stock Exchange now. To utilize a Bitcoin exchange, you are required to do so. Binance (in countries other than the United States) and Coinbase (in the U.S.) are the most popular.
Traders Acquire Bitcoin Directly
You are the owner of Bitcoin once you have purchased it on a cryptocurrency exchange. You can either use it to trade against other alternative cryptocurrencies like Ethereum or transfer it out of the exchange and into cold storage, where it will remain.
Crypto exchanges have Different Acquisition Fees
In contrast to ETFs, there is no sponsor charge. Buying and selling Bitcoin does, however, incur trading fees, the exact amount of which might vary from cryptocurrency exchange to exchange.
Controlled by yourself
You must ensure the security of the Bitcoin you purchased since you are the sole owner of it. Learn the ins and outs of cold storage and other crypto security measures; self-custody isn’t without its difficulties.
Trades Around the Clock
Cryptocurrency exchanges have no trading hours or weekend restrictions because they operate continuously.
Direct BTC Price Exposure
The price of the exchange-traded fund (ETF) and the value of the net asset will never conflict with one another. You are exposed to the cost of Bitcoin to the greatest extent that is physically possible.
Pros and Cons of Buying BTC Directly
BTC ETF vs. Direct Purchase: Here are the advantages and disadvantages:
Pros
- You get direct ownership of the BTC you buy
- You can get complete control through self-custody
- Unlimited trading hours and lower fees
Cons
- Storing your BTC can be challenging and requires higher technical expertise.
- Can’t include it in traditional retirement plans and 401(k)
- Not recognized as a financial instrument
Bitcoin ETF or Buying BTC Directly: Which is Better?
A spot Bitcoin exchange-traded fund (ETF) and buying Bitcoin directly entail several significant distinctions, summarised here. Which one is superior is a question that cannot be answered definitively because it is highly dependent on the preferences and requirements of the individual investor. If you are not well-versed in technology, do not have any interest in trading Bitcoin against other alternative cryptocurrencies, are looking for long-term exposure without having to worry about the security of your cryptocurrency, and are willing to pay higher fees. An exchange-traded fund (ETF) might be the better choice for you. On the other hand, if you are well-versed in the cryptocurrency industry and prefer direct ownership of Bitcoin because you want to either store it securely in your cold wallet or trade it against other altcoins actively, then purchasing Bitcoin directly might be the best option for you.