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What to Tell Clients About Bitcoin ETFs


 

(Bloomberg) — It just got a whole lot easier to invest in Bitcoin. 

After years of anticipation, the first US exchange-traded funds that invest directly in the biggest cryptocurrency have begun trading. Billions of dollars changed hands Thursday and the token briefly surged past $49,000 following the US Securities and Exchange Commission decision to grant them approval after markets closed on Wednesday.

How do your clients get some of the action? And what are the pros and cons? 

Here’s what they need to know:

What is a spot Bitcoin ETF?

An ETF is a basket of securities that tracks a specific index or asset, giving people an easy way to invest in equities, bonds, currencies, commodities and real estate. And, as the name implies, ETFs trade on exchanges, making them simple to buy and sell — just like a stock.

The key aspect of the new spot Bitcoin ETFs is that they hold actual Bitcoin. That means investors get direct exposure to the current market price of the token.

Previously, you could only invest in ETFs that traded Bitcoin futures — contracts to buy or sell an asset at a specified price at a later date. 

Why Crypto Is Counting on Spot Bitcoin ETFs: QuickTake

How do I invest in one?

Because they’re ETFs, you can just buy them using your regular brokerage account. As Ryan Firth, a financial planner at Mercer Street Company in Bellaire, Texas, explains it really is as simple as logging in to your account and searching for a quote using the term “Bitcoin” or “BTC.”

It’s a good idea to watch the liquidity of the ETFs, which may take a few weeks to establish, said Matt Maley, chief market strategist at Miller Tabak + Co.

“I think the best way to invest, especially early on, is to stay with the ones that are the most liquid,” he said.

On the first day of trading, over $4.6 billion worth of shares traded across almost a dozen US spot Bitcoin ETFs. The Grayscale Bitcoin Trust, which converted into an ETF, saw about $2.3 billion in volume, according to data compiled by Bloomberg. Meantime, BlackRock’s iShares Bitcoin Trust — IBIT — saw over $1 billion change hands. 

Are all brokerage firms offering access?

No — it’s up to firms and some may be reluctant to jump into a volatile asset class.

Vanguard Group Inc.’s brokerage arm will not offer trading in ETFs that invest directly in Bitcoin, according to a spokesperson. Bank of America Corp.’s Merrill Edge is still evaluating whether to provide that service, a person familiar with the matter said, asking not to be identified discussing a private matter. 

Read more: Vanguard Spurns Bitcoin ETF Trading While Merrill Evaluates

What are the Bitcoin ETFs I can invest in?

US regulators approved 11 ETFs, including from BlackRock, the world’s biggest asset manager, and other well known names including Fidelity Investments and Invesco. 

Here’s the list: Grayscale Bitcoin Trust, Bitwise Bitcoin ETF, Hashdex Bitcoin ETF, BlackRock’s iShares Bitcoin Trust, Valkyrie Bitcoin Fund, ARK 21Shares Bitcoin ETF, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust, WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund and Franklin Bitcoin ETF.

What are the management fees?

The beauty of competition means the issuers have been slashing their fees in a bid to make their products more attractive. 

The cost of holding a spot Bitcoin ETF may be much cheaper than some traditional digital wallets, Bloomberg Intelligence analysts Rebecca Sin, Eric Balchunas and James Seyffart said in a note.

The temporary management fee of 0% may lure owners of other virtual assets into swapping to an ETF to gain the benefits of having their assets in a regulated exchange, Bloomberg Intelligence said.

What are the advantages of investing in a Bitcoin ETF?

For Maley, it’s the low fees and the security of having the backing of big firms like BlackRock.

Bitcoin ETFs have also been widely lauded by crypto advocates for opening up the token to everyday investors, which should help increase adoption, liquidity and growth. 

“An ETF packages Bitcoin ownership into a widely accepted and accessible vehicle, removing the need for investors — whether individuals or institutions – to take physical custody of Bitcoin,” said Sui Chung, chief executive of data provider CF Benchmarks.

What do I need to be aware of before investing?

The big one is volatility. Bitcoin gained 60% in 2021, lost 64% in 2022, and more than doubled in 2023 — and that wild ride may be too much for the average retail investor.

Also, note the language of SEC Chair Gary Gensler when the decision was announced: “While we approved the listing and trading of certain spot Bitcoin ETP shares today, we did not approve or endorse Bitcoin. Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto.”

Maley said while the big names behind the ETFs would give investors some peace of mind, they still need to be aware that the price of Bitcoin can still fall.

“It’s still a very speculative thing. The volatility is still going to be there,” Maley said. “More people able to invest it, means more people can sell it too.”



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