Understanding the Difference between Bitcoin and Bitcoin ETF

“Bitcoin has become so popular that it is being now traded as an asset all around the globe, and with the fame came multiple asset classes that are being formulated using Bitcoin, and the Bitcoin ETF is one such class. We must understand the difference between both to identify the best option for investment”. 

Bitcoin as an Investment

Bitcoin has become one of the most sought for investment options there is, due to its highly volatile nature and its capability of providing tenfold growth in a very short period of time. Most investors have at least 3% Bitcoin in their portfolio. The popularity of Bitcoin is not only due to its volatility but also due its capability of acting as a hedge against inflation as it is highly scarce in nature (Almost 0.0026 BTC per person as per current global population).

Bitcoin vs. Bitcoin ETF and its Need

Bitcoin ETFs are the Exchange Traded Funds that track the price of Bitcoin. A Bitcoin ETF does not only contain Bitcoin but can also contain other stocks such as Meta, Apple etc. It is an indirect method to obtain exposure to Bitcoin without actually owning it. The company who manages the ETF will be responsible for owning the assets and the investor will only buy the share of that Bitcoin ETF. Bitcoin trading is extremely risky due to its high volatility and thus, the Bitcoin ETF was launched in order to provide diversification and portfolio risk management. There are a very few Bitcoin ETFs available at the moment and many are in the pipeline to get approval. But, this asset has actually become one of the most talked about, as an investment option.

The Bitcoin ETFs are not traded on the crypto exchanges and can only be traded on stock exchanges such as NYSE and as per the rules of these exchanges. ETFs can be traded as stocks and the fluctuation in the price of Bitcoin will be reflected in the price of each share of the ETF.

How to Choose?

Choice between Bitcoin and Bitcoin ETF varies with investors and as per the taste and preferences of the investors, the choice might change:

Choose Bitcoin If:

  • You have ample time and knowledge about cryptocurrencies and especially Bitcoin and handle its volatility.
  • You don’t want to pay the management fee.
  • You want to trade your Bitcoin for other cryptocurrencies such as Ethereum.
  • You want to be the owner of the Bitcoin you bought.

Choose Bitcoin ETF If:

  • Convenience is your choice and you cannot handle the market volatility.
  • You are ready to pay management fees for the management of the fund and ready to own the share rather than the actual Bitcoin.
  • You want to diversify your portfolio and at the same time want an exposure to Bitcoin.
  • You want to invest in a tax efficient class as Bitcoin is unregulated whereas Bitcoin ETFs are regulated.

Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.

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