When Bitcoin ETFs are suitable for investors (and when they are not) | CoinDesk JAPAN

There is no doubt that the approval of a Bitcoin ETF in January was a historic event for the US crypto asset (virtual currency) market.

This will have an impact on both dissemination and access. Investors interested in crypto assets were greatly relieved that the U.S. Securities and Exchange Commission (SEC) finally conceded, with financial news reporters calling the nine bits the “Newborn Nine.” We are paying attention to which coin ETF will take the top spot in terms of total assets under management and trading volume.

This is a sign of progress, something a handful of dedicated industry leaders have painstakingly pushed forward in recent years through repeated filings and, to a lesser extent, litigation. Approval of a Bitcoin ETF would be a big step in the right direction.

But there are also more practical questions. Investors can own a Bitcoin ETF, which is great, but is it enough?

Bitcoin ETFs are a remarkable innovation in crypto investing, but they may not be suitable for everyone.

I'm a big fan of ETFs and everything they've done to democratize investing. ETFs are one of the most important financial innovations of the 21st century, but incorporating Bitcoin into an ETF is like putting training wheels on a Ferrari. Well, that would be good too.

That's not to say that Bitcoin ETFs aren't great. But what I'm trying to say is that if you take off the training wheels, there's a much better world out there.

When is it suitable for investors?

One reason Bitcoin ETFs are important is that they offer investors the opportunity to experiment with crypto assets in a way they are familiar with (gold ETFs have been available since the early 2000s, for example). Opening the door to crypto assets for a whole new generation of investors.

Owning a Bitcoin ETF allows you to invest indirectly in Bitcoin's potential price appreciation, with custody, acquisition and disposal responsibilities held by BlackRock, Grayscale, Fidelity, It can be entrusted to well-known and established institutional investors such as Ark Invest.

For investors just getting started with Bitcoin, or those with special interests, ETFs offer exposure to the potential growth of Bitcoin with less effort and the extra assurance of brand trust. .

In most cases, fees are low and access is simple and easy. Another benefit is that you can add Bitcoin to your 401K or retirement plan. It can accommodate options that have been in increasing demand in recent years.

With any luck, we'll see more crypto ETFs launched this year. In particular, the potential of Ethereum ETFs is seen as promising. But for now, it's only Bitcoin. This is a prelude to the next chapter.

Not appropriate: “one-way bridge”

Financial thought leader Dave Nadig wrote about Bitcoin in an article titled “Why a Bitcoin ETF Doesn't Matter,” which he published ahead of the SEC's approval. The ETFs are organized very precisely.

He emphasizes all the positives of the ETF-led growth of the Bitcoin market, but ultimately describes it as a “one-way bridge.” And that will be a problem for many investors.

why? In fact, there are many great benefits of direct investing that are lost when you don't own Bitcoin directly.

Here are three reasons why I think direct ownership is important.

• Diversified investment: Buying a Bitcoin ETF is the same as buying a Netflix subscription and only being able to watch one movie, or getting the final Super Bowl score and not being able to watch the game. I want you to think about it.
  Having only access to Bitcoin is the same as owning only one stock, severely limiting the potential for market performance.
  There are many other assets to consider for a balanced and comprehensive digital asset portfolio, and a Bitcoin ETF narrows the possibilities.
• Access to the ecosystem: Blockchain-based finance is all about eliminating intermediaries, increasing liquidity, and building seamless global connectivity.
  It is a 24/7, instant trading, mobile accessible market where you can access a variety of crypto assets and swap them in-kind through a fast decentralized exchange (DEX).
  It's this network structure that makes crypto assets so powerful, and it's what gives Bitcoin its broad appeal. In other words, it provides access to a broader decentralized world.
• tax harvesting(A type of tax-saving measure): The standard rules surrounding a wash sale of investment assets (selling a loss-making stock and using the loss to offset profits from other stocks to reduce taxes) are currently However, it does not apply to the crypto asset market.
  In other words, the volatility inherent in the crypto asset market may work in favor of tax-loss harvesting. Stocks that have recorded a loss can be immediately repurchased.
  With ETFs, the opportunity to take advantage of volatility is lost.

Bitcoin is arguably the most recognized and available crypto asset, but it is only the tip of the iceberg.

By investing in Bitcoin through an ETF provider, investors are crossing a one-way bridge. When you buy an ETF, you don't actually own Bitcoin directly, you own an interest in a fund that directly owns Bitcoin.

Overall, the big losses investors incur when investing in Bitcoin ETFs are about self-sovereign interests. The benefit of Bitcoin is that it allows anyone to self-custody their assets, rather than relying on a fractional reserve banking system. Bitcoin's censorship resistance also prevents the possibility of assets being frozen or accounts closed by banks, which is a growing problem.

Bitcoin allows for self-custody, which greatly reduces counterparty risk. The familiar phrase “not your keys, not your coins” still holds true.

Unlike a few years ago, when crypto assets were just beginning to enter the mainstream market and most people were new to them, financial professionals are now the go-to for understanding this emerging market.

We are excited to see the crypto industry making such strong strides in the market. Because these advances only increase opportunities for investors. This is just the beginning.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original text: When Bitcoin ETFs Are Right for Investors (and When They're Not)