2024 has not been a quiet year for Bitcoin and all that comes with it, but going through all the events merits a separate podcast, or even TV show.
Nevertheless, it’s still high in demand and people are looking more than ever to invest in this asset. For many, Bitcoin Exchange-Traded Funds (ETFs) offer a great avenue for investment white many still are hesitant to embrace this new asset.
Let’s explore both sides of the argument.
Bitcoin ETFs: The Good
With a crypto ETF, you can invest in currencies via your regular trading account, so you don’t have to buy and keep the assets yourself. Most of the time, these funds follow the price movement of one or more coins. This makes it easy for buyers to diversify their holdings and take advantage of the market’s possible growth.
Here’s what you can get when you purchase a Bitcoin ETF:
Accessibility
To start with, they make things much more accessible. ETFs make the Bitcoin market more accessible to investors who might have been scared off by the technical side of direct proprietorship.
They do this by removing the need to deal with cryptocurrency platforms and manage wallets.
Diversification
Besides that, Bitcoin ETFs open up a new way to diversify your assets. Bitcoin has generally had a low affiliation with standard assets. This means that it might help lower the overall risk of investments. ETFs can be used by a wide range of investors, such as those who want to participate in Bitcoin’s future growth and risk-averse investors who want to add a special and possibly risky asset to their portfolios.
Security
When you purchase cryptocurrencies on an exchange, you may be able to keep your private keys there if the exchange allows it. But people can hack into wallets and accounts and steal keys. When you buy an ETF, you own a stake in the fund, which you can access from any internet-connected device. You don’t have to hold any coins, keep your keys safe, or move things in and out of storage.
Bitcoin ETFs: The Bad
Despite these upsides, the broader crypto community is hesitant about the fund, some doubting that it’s just a tactic to divert wealthy clients into Bitcoin investment.
Naturally, the likes of Lee Baker, Apex Financial Services founder, believe that the asset needs to “get more of a track record” to be considered as a capital-worthy option.
On top of that, there are three potential risks when dealing with such ETFs:
Lack of Stability
As a result of Bitcoin’s notoriously large price swings, the ETFs are naturally risky investments. It’s important for investors to know that they could lose a lot of money very quickly.
Unexpected Costs
The managing fees for Bitcoin ETFs are usually higher than the transaction fees that come with holding bitcoin outright.
That’s why cost rates are so important to look at: over time, such charges can bring potential profits much lower.
Tracking Mistakes
Crypto ETFs are susceptible to tracking inaccuracy, particularly those that invest in crypto via futures contracts instead of actually owning the cryptocurrency. As a result, the ETF’s success might not exactly match the assets it’s supposed to track.
The Takeaway
Bitcoin ETFs can be both a great way to make money and an enormous danger. ETFs make it easier to invest in Bitcoin and might help broaden an investment portfolio. But users need to carefully think about the risks that come with Bitcoin’s natural volatility, changing rules, and the way ETFs are structured.
The main thing to remember is that Bitcoin ETFs are neither a surefire way to make money nor an obviously risky trade. Whether or not they are right for you depends on how much risk you are willing to take, your financial goals, and how well you understand the pros and cons. When adding Bitcoin ETFs to a financial plan, it’s important to make a well-informed choice.
