The Best Way to Invest in Bitcoin Might Be a No-Brainer ETF

For many years, investors could buy Bitcoin (BTC -1.10%) only through dedicated cryptocurrency exchanges. They could also invest in exchange-traded funds (ETFs) that were tethered to future contracts or Bitcoin trusts, but the former didn't always closely track Bitcoin's spot price, while the latter charged high expense fees.

For many years, the only way investors could directly buy Bitcoin (BTC -1.10%) was through dedicated cryptocurrency exchanges. They could also invest in exchange-traded funds (ETFs) that were tethered to future contracts or Bitcoin trusts, but the former didn’t always closely track Bitcoin’s spot price, while the latter charged high expense fees.

That all changed this January when the U.S. Securities and Exchange Commission (SEC) approved 11 spot price Bitcoin ETFs, making it easier for retail and institutional investors to invest in the world’s top cryptocurrency. Today, the top five spot price Bitcoin ETFs have a combined $56.5 billion in assets under management (AUM).

I’ve never directly owned Bitcoin, but I once held three Bitcoin future ETFs — ProShares Bitcoin Strategy ETF, VanEck Bitcoin Strategy ETF, and Valkyrie Bitcoin and Ether Strategy ETF — in my individual retirement account (IRA). But after the spot price ETFs were approved, I sold those ETFs and bought the Bitwise Bitcoin ETF (BITB -1.60%) instead. Here, I’ll explain why I bought that particular ETF, and why it still might be the best no-brainer way to invest in Bitcoin.

What is the Bitwise Bitcoin ETF?

With $2.16 billion in AUM, the Bitwise Bitcoin ETF is the world’s fifth-largest spot price ETF. However, its annual 0.20% sponsor fee makes it cheaper than its larger peers.

As of June 14, 2024. Data source: Blockworks.

Grayscale is still the largest player because it converted its original Bitcoin trust, which was launched back in 2013, into a spot price ETF. But its 1.5% fee — which Grayscale Investments Chief Executive Officer Michael Sonnenshein says is justified by the “the size, the liquidity, and the track record” of the fund — makes it a lot less attractive than the newer players.

Moreover, Grayscale — along with iShares, Ark, and Bitwise — still relies on Coinbase as its Bitcoin custodian instead of holding its own keys. The only leading ETF that holds its own Bitcoins is Fidelity’s Wise Origin Bitcoin Fund.

All five of the top ETFs actually outperformed Bitcoin during the past four months. The two cheapest funds — Ark and Bitwise — also outperformed their pricier peers. So for now, there doesn’t seem to be much of a reason to pay up for the pricier spot price ETFs when their performance trails behind the cheaper ones.

Data source: YCharts.

Why you should buy Bitwise’s ETF to expose your portfolio to Bitcoin

For some investors, it might seem smarter to simply buy Bitcoin on Coinbase, which charges individual trading fees, instead of paying recurring fees for Bitwise’s low-cost ETF. But if you’re like me and want to keep all your investments organized in a single brokerage account, then it makes sense to add some shares of this ETF to your portfolio.

I keep my Bitwise Bitcoin ETF shares in an IRA, but I can add only $6,500 to the account every year and can’t cash out without incurring penalties before I’m nearly 60 years old. Those restrictions prevent me from pouring too much cash into the ETF or cashing out too early, and they encourage me to use dollar-cost averaging to offset Bitcoin’s wild price swings.

Therefore, if you’re bullish on Bitcoin and want to gain some exposure to its potential growth through your brokerage account, I believe the Bitwise Bitcoin ETF is still a no-brainer buy and a better overall investment than its pricier peers.