What is the difference between buying Bitcoin & through an ETF?

With the enormous media attention worldwide, almost every investor has heard of a Bitcoin spot ETF. And many will wonder: what is now the best for my portfolio? Buying Bitcoin directly, or via a Bitcoin spot ETF? In this article, we discuss the differences and the pros and cons that both options know.

What is a Bitcoin spot ETF?

An Exchange-Traded Fund (ETF) is a fund that is traded on the stock exchange. It can contain one or more assets. Think of stocks, bonds, commodities, or nowadays: Bitcoin. For example, there are ETFs that respond to food production, and have a basket with shares of companies in the food industry. Or ETFs that respond to companies that historically pay out the most dividends. The convenience of trading in an ETF is that an investor does not have to take all those different positions himself and still has market exposure.

A Bitcoin ETF does not have a basket with different assets, but only tries to follow the price of Bitcoin as accurately as possible.

Future ETFs and crypto ETPs

An important note: there were already several Bitcoin futures ETFs and even crypto ETPs or ETNs available. These futures ETFs trade in futures contracts and are not backed by Bitcoin. The crypto Exchange-Traded Products or Notes are other forms of investment products that fall outside supervision, often with baskets of different cryptocurrencies.

The advantage of the Bitcoin spot ETFs is that the publishers hold Bitcoin one-on-one. Thanks in part to this advantage of BTC coverage, the recently approved American Bitcoin spot ETFs enjoy the most popularity.

Consideration for the Bitcoin spot ETF

Advantages

• Low threshold: Investors can often buy the Bitcoin spot ETF from the broker where they also do other investments. They also often already have integrations for their administration, which significantly lowers the threshold.
• Trust: Many investors sit with a wealth manager or broker where they already entrust their assets and receive personal support.
• Safe: The safe storage of Bitcoin is not something investors need to worry about if they use the Bitcoin ETF as an investment.
• Retirement: In the United States, it is possible to hold ETFs for building up retirement. This has led to high demand for the Bitcoin ETFs from the retail market, among other things.

Disadvantages

• Lack of transparency: Despite the fact that the financial institutions that have released the Bitcoin ETFs are among the largest in the world, there is a lot of lack of transparency about the bitcoins they hold. Very little is published about the type of storage, security measures, and where the bitcoins stand on the blockchain.
• Centralisation: However, a Bitcoin spot ETF is issued by a company and listed on a central exchange. This is not in line with the philosophy of Bitcoin. However, that central character also creates counterparty risk: the ETFs depend on financial institutions that can theoretically go bankrupt.
• No control: An investor in a Bitcoin ETF does not have his own Bitcoin, and it is also not possible to withdraw the Bitcoin ETF to his own wallet. In addition, the Bitcoin ETFs are only tradable during stock exchange hours. Having control over your Bitcoin offers both certainty and flexibility.
• High costs: The Bitcoin ETFs charge up to 1.5% custody fees per year, which are relatively high costs for the service provided.

Buying and storing Bitcoin yourself

To buy Bitcoin, an account at an exchange and a Bitcoin wallet is needed. This can be done, for example, at a crypto exchange such as Bitvavo, after which the bitcoins can be withdrawn to their own wallet. There are countless possibilities for a hardware or software wallet under your own management. Each type of wallet has its advantages and disadvantages, but the most important thing is that the Bitcoin is stored in a very safe way.

Unique solution from Blockrise

At Blockrise we have built a unique, technically advanced solution from the ground up: each client receives their own wallet that they fully own. The principle of Blockrise is that the client should not notice anything, it should be that simple. This way they don't have to deal with technical solutions themselves or run the risk of losing a physical wallet, but they do keep all control. Something unprecedented in the current crypto market.

In addition, Blockrise also offers asset management and is supervised by De Nederlandsche Bank.