ETFs have done it again.
They broke the asset class barrier in the early 1990s with ETFs tied to equities. They did it again in the mid-2000s with ETFs tied to the spot-price of gold. They’ve done yet once more, this time in 2024, with ETFs tied to the spot price of cryptocurrencies, like bitcoin.
After years of application denials, the Securities and Exchange Commission (SEC) approved an incredible, long awaited 11 spot bitcoin ETFs all on the same day. Among this group, was Grayscale’s conversion of its $27 billion bitcoin trust (GBTC) to an ETF.
Years ago, comedian John Oliver quipped, “Bitcoin is everything you don't understand about money combined with everything you don't understand about computers.” Kidding aside, bitcoin’s ascension into financial stardom has been no laughing matter.
Starting from its 2008 invention, it took bitcoin just 12 short years to hit a $1 trillion market cap. To achieve the same feat, it took Microsoft 44 years, Apple took 42 years and Amazon.com took 24 years. To say that bitcoin has been a rocket ship is putting it mildly.
Bitcoin’s sparklingly performance, of course, has had many dramatic valleys and peaks. But it’s had enough peaks to lure hyper-bulls like Michael J. Saylor, the CEO of MicroStrategy, into radical views about how the average person should have most or all of their net worth in bitcoin.
Where do bitcoin ETFs fit in? Let’s examine some use cases for financial advisors and their clients.
Diversification
Bitcoin, like all cryptocurrencies, is extremely volatile. And its behavior isn’t always aligned with traditional assets like stocks, bonds, commodities, or real estate. As such, bitcoin offers diversification benefits.
Moreover, bitcoin ETFs provide advisors and their clients with easy access.
Instead of dealing with self-storage risk of crypto wallets and private keys or the potential for being hacked, spot bitcoin ETFs allow investors with brokerage accounts to own bitcoin while shoving the storage risk onto the ETF sponsor.
Choice
Which bitcoin ETF do you buy?
With annual expense ratios ranging from just 0.20% to 0.90%, it’s now cheaper to own and trade spot bitcoin ETFs versus owning bitcoin on a cryptocurrency exchange like Coinbase. Moreover, the number of major crypto exchanges has compressed, giving investors less choice.
But with ETFs, investors now have a bevy of choices.
Firms like Blackrock (IBIT), Invesco (BTCO), Fidelity (FBTC) and WisdomTree (BTCW) are among the Wall Street giants now battling for bitcoin ETF market share. And some of them have even offered temporary fee waivers of 0%.
In the end, the investing public is served with affordable cryptocurrency choices in an easy to understand ETF wrapper.
Summary
Spot bitcoin ETFs will blast open the doors and pave the way for the arrival of other spot cryptocurrency ETFs from ethereum to litecoin and many others.
In time, investors will be able to own ETFs linked to a diversified basket of cryptocurrencies versus owning a single currency like bitcoin.
Looking ahead, the use case for cryptocurrency ETFs will expand. And investment portfolios everywhere will never be the same.
Ron DeLegge II is the founder of ETFguide.com and author of several books, including "Habits of the Investing Greats" and "Portfolio Architecture: A Handbook for Investors."