Crypto ETF vs. Direct Bitcoin Investment: Which Is Better?

'Ferrari accepts Bitcoin, Dubai Court rules crypto salary payments' These are the recent major positive things that recently happened in the crypto industry. You may confused why we have added this in this blog. There is a reason for that because even with these updates a lot of investors still have doubts and fears about investing in cryptocurrencies.

That's why major companies came up with crypto ETFs. It is the best idea to attract potential investors to cryptocurrencies. With its launch, everyone saw huge inflows in the market. But, out of Bitcoin and Bitcoin ETF, which is the right investment? Let's discuss this.

What is a Crypto ETF?

A Crypto ETF (Exchange Traded Fund) is a type of investment fund that follows the performance of one or more cryptocurrencies. You can buy and sell it on regular stock exchanges, just like any other ETF that tracks things like stock indexes or commodities. A Crypto ETF allows you to invest in cryptocurrencies without needing to own them.

One of the main benefits of a Crypto ETF is that it makes investing in cryptocurrency easier. Instead of dealing with the technical aspects of buying and storing digital currencies, you can simply buy shares in a Crypto ETF through a regular brokerage account.

Example & Market Size

The ProShares Bitcoin Strategy ETF (BITO) is a good example of a Bitcoin ETF. Launched in October 2021, BITO became the first U.S.-based Bitcoin-linked ETF. Instead of holding actual Bitcoin, BITO invests in Bitcoin futures contracts, which gives investors indirect exposure to Bitcoin. But, Spot Bitcoin ETFs got approved by the US SEC and started trading on January 2024.

In recent days, U.S. Bitcoin ETFs got $61.98 million in new investments, while Ethereum ETFs lost $13.52 million. Out of the 12 Bitcoin ETFs, Blackrock did the best, and Grayscale’s Mini Ethereum Trust saw the most gains among Ethereum ETFs.

How to Invest in a Bitcoin ETF

Investing in a Bitcoin ETF is much like investing in any other ETF.  Follow these simple steps to start trading ETFs.  

➤ Open a Brokerage Account: To invest in a Bitcoin ETF, you need to have a brokerage account. This can be done with any online platform that offers ETF trading.

➤ Choose a Bitcoin ETF: Select from the different Bitcoin ETFs available. Research how they are structured, whether they invest in actual Bitcoin, Bitcoin futures, or Spot Bitcoin ETFs, their fees, and how they’ve performed in the past.

➤ Place Your Order: Once you’ve picked a Bitcoin ETF, you can place an order through your brokerage account. Finalize how many shares you want to buy and plan to place a market order or a limit order.

➤ Follow Your Investment: After you’ve bought your shares, keep an eye on how your investment is doing. Bitcoin ETFs trade on regular stock exchanges, so you can buy or sell shares during normal trading hours.

How ETFs Influenced the Market

Since the introduction of the first Bitcoin exchange-traded fund (ETF), Bitcoin, the largest cryptocurrency by market value, has seen a remarkable 35% increase. As per the data from Coinmarketcap, Bitcoin's price experienced a rise, climbing from $46,106 on January 10, 2024, to $62,500 by March 1, 2024, showing the strong impact of the Bitcoin ETF on market momentum.

This growth has been operated by factors such as the improved availability and credibility that ETFs bring to the crypto market. The influence of ETFs didn't stop there. Shortly after, Ethereum ETFs were approved, leading to $107 million in net inflows on their launch day alone. Following this, on August 8, Brazil's CVM approved the first Solana ETF, offered by QR Asset.
Many investors who were hesitant about buying Bitcoin directly now feel more comfortable with ETFs, which are similar to traditional investments like stocks. This has opened the door for more investors, making cryptocurrency more accessible and secure.

Further, the approval of Bitcoin ETFs has encouraged larger institutions to get involved such as Blackrock, Grayscale, etc. This has also increased awareness of cryptocurrency through media coverage, attracting more investors to the market and helping it grow. Despite ongoing debates about futures-based vs. spot-based ETFs, the overall effect has been positive.

Difference between Bitcoin ETF and Bitcoin

Crypto ETF vs. Direct Bitcoin Investment: Which Investment is Better?

Choosing between Bitcoin ETF and Bitcoin, we can consider some important factors. With a Crypto ETF, you can’t use Bitcoin for transactions or other activities that need the actual cryptocurrency. When you buy Bitcoin directly, you own the cryptocurrency itself. You can store it, transfer it, or use it however you want.

ETFs come with management fees, which can decrease your profits over time. There might also be trading fees when you buy or sell shares in the ETF. Buying Bitcoin directly usually contains transaction fees charged by the exchange, but there are no ongoing management fees. This can make direct Bitcoin investment cheaper over time.

Crypto ETFs are easy to buy if you’re used to trading stocks since you can purchase them through a regular brokerage account. Which is a straightforward way for traditional investors. While Crypto ETFs follow Bitcoin’s price, they might not track it exactly. With direct Bitcoin investment, you benefit fully from any increase in Bitcoin’s price.

Final Words

Finally, for the investor trading a bitcoin ETF may be better than buying bitcoin directly because of the fund security, because of the recent hacks and security/regulatory concerns in exchanges. Whether it's a Bitcoin or Bitcoin ETF we all must accept what Anthony Pompliano said, ‘Investing in Bitcoin is like investing in the internet before the internet was a thing’.

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