Crypto ETF — Should You or Shouldn’t You Invest?
It’s a question that has been on the minds of many: should I invest in crypto? The answer is yes, but not yet.
Crypto investing is fraught with risk. In fact, it’s the riskiest investment you can make for your money. And so far, the potential return does not outweigh the potential loss.
But what about investing in a crypto ETF? Well, there are a few options for investing in crypto if you’re not a high-net worth individual or don’t have time to trade yourself.
It’s up to you whether or not to invest in products such as Grayscale Bitcoin Investment Trust (OTC: GBTC) and ProShares Bitcoin ETF (NASDAQ: COIN). So before you decide to invest, here are some things to take into consideration first.
What is a crypto ETF?
A crypto ETF is an investment fund that invests in cryptocurrencies. A crypto ETF can be thought of as a basket of cryptocurrencies.
COIN is the first Bitcoin ETF to be listed on NASDAQ, while GBTC is the first publicly traded bitcoin fund in the U.S., which trades over the counter and provides exposure to bitcoin prices without having to hold any bitcoin.
The main downside of a crypto ETF is that it’s not currently able to provide exposure to all the coins in circulation today, which means your money will not be diversified enough. Also, there are risks associated with holding any kind of cryptocurrency fund.
If you decide to invest in a crypto ETF, make sure you’re educated about what you’re investing in and understand the associated risks before diving into something uncharted territory!
The Wariness of Investing in Crypto
There are many reasons why investing in crypto is a risky bet. Let’s start with the volatility of crypto currencies. If you invested $10,000 in Bitcoin (BTC) back in 2013 when one coin was worth $100, it would now be worth more than $6.3 million dollars. That sounds great, but if you think that Bitcoin will continue to rise over the next few years, you might want to think again. For example, from November 2nd to November 7th of this year, BTC lost almost 40% of its value before jumping back up by about 20%.
Another factor that makes investing in crypto risky is because there are no guarantees for security. Crypto theft and fraud is a big problem with cryptocurrencies as there are no safeguards like those found with banks or credit card companies. And then there’s the issue of regulation — investors don’t know what regulations may come down the pipe and affect their investments.
Should You or Shouldn’t You Invest?
There are a few reasons to invest in an ETF, and there are just as many reasons not to.
It’s important to remember that investing in any type of ETF carries enormous risk. For example, if you were to invest $10,000 in a Grayscale Bitcoin Investment Trust (OTC: GBTC) at the current price of $2,400 — which is less than the market high of $3,000 — your investment would be worth approximately $14,360.
However, this doesn’t mean that you’ll make money on your investment. This is also assuming that prices don’t drop any lower than they already have.
The fact is that investing in crypto right now is too risky for most investors who want to protect their hard-earned money. And so far there isn’t enough evidence for the average investor to believe that investing in cryptos will yield greater returns.
If you’re still interested in investing and want more information about the risks involved with cryptocurrencies and how it may affect your investment portfolio please contact your financial advisor.
How Do Crypto ETFs Work?
Crypto ETFs are investment funds that track the price of bitcoin (and sometimes other cryptocurrencies) through a traditional security. These funds come in two forms: The Bitcoin Investment Trust (OTC: GBTC), and the ProShares Bitcoin ETF (NASDAQ: COIN).
The Bitcoin Investment Trust is an open-ended trust, which means it can grow indefinitely, and it’s not pegged to a specific number. Grayscale Investments, LLC, the company behind GBTC, offers two securities at this time: 1) an always-in-out fund that will invest 95% of its assets in Bitcoin and 5% in cash; 2) a never-in-never-out fund that will invest 100% of its assets in Bitcoin.
ProShares’ ETF is linked to the performance of bitcoin futures contracts on CME Group’s BTC Index via arbitrage. That index tracks the price of bitcoin on various exchanges.
The key difference between these two products is price transparency. GBTC doesn’t have any fees or commissions to buy and sell shares, but if you’re looking for day trading opportunities and don’t want to pay transaction fees, then COIN might be more attractive.
What Makes the ProShares Bitcoin ETF Different from Grayscale Bitcoin Investment Trust?
The ProShares Bitcoin ETF is one of the proposed Bitcoin ETFs that are on the market. This ETF has a much higher expense ratio than Grayscale Bitcoin Investment Trust (GBTC). GBTC is currently at 0.07% whereas COIN is at 0.65%.
The GBTC and COIN also differ in their price structure. One share of GBTC converts to one-fifth bitcoin, whereas a share of COIN converts to 10 bitcoins. The main difference between these two products is that GBTC doesn’t offer any leverage for reinvesting dividends, unlike COIN which offers 2x leverage.
The ProShares Bitcoin ETF is a passive investment vehicle. This means that it tracks the price of Bitcoin without requiring any input from the fund’s management team. The ETF has a current per share net asset value of $195.09 and invests exclusively in Bitcoin.
If you’re looking for a way to invest in Bitcoin without actively trading, the ProShares ETF is a great option. But if you want to actively trade Bitcoin, this isn’t the ETF for you.
It’s no surprise that more and more investors are considering Bitcoin investments. And while there are a number of ways to invest in cryptocurrencies, an ETF may be the most convenient option for many people. Ultimately, it’s up to you to decide which investment strategy is right for you.