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Is this cryptocurrency ETF a discount buy?
There are two reasons why this new Bitcoin ETF should be considered in your investments.
If you are thinking of investing in Bitcoin (Bitcoin 0.57%), the good news is that it has never been easier to do so. After the Securities and Exchange Commission (SEC) approved the new find bitcoin exchange traded funds (ETF) in January, investors now have nearly a dozen new options for buying Bitcoin.
Of these new ones ETFwhat has my attention, is the iShares Bitcoin Trust (IBITS 0.78%). Let’s take a closer look at two main reasons why you might think about adding it to your portfolio.
Direct exposure to the price of Bitcoin
The iShares Bitcoin Trust from Black rock It was created with one primary investment objective in mind: to monitor the price of Bitcoin. Unlike other ETFs, which typically hold a diversified basket of assets, the iShares Bitcoin Trust holds just one asset: Bitcoin. As a result, this ETF does a remarkably good job of tracking the price of Bitcoin. Since its launch on January 11, the iShares Bitcoin Trust is up 32.44%, while Bitcoin is up 32.67%.
Bitcoin/US Dollar Chart by TradingView
The ability to track the price of Bitcoin is so important because, for more than a decade, Bitcoin has been the best-performing asset in the world. From 2011 to 2021, for example, Bitcoin delivered annualized returns of 230%. No other asset class has come close to that. The next best asset class (tech stocks) delivered annualized returns of just 20%. After a down year in 2022, Bitcoin is back to delivering triple-digit percentage returns in 2023.
Of course, there is no guarantee that Bitcoin will be able to replicate this kind of performance in the next decade. In fact, it is unlikely. But, if you look at Bitcoin as a unique asset class with its own risk-return profile, then the additional risk of investing in cryptocurrencies should (theoretically) be compensated for with higher returns.
Easy and cost-effective portfolio diversification
Given Bitcoin’s historical performance, you may want to include at least a small allocation in your portfolio for diversification purposes. As a general rule, a 1% allocation to Bitcoin is a good starting point for novice crypto investors. But a slightly higher allocation of 2% to 5% may make sense for more experienced crypto investors. Since the iShares Bitcoin Trust is bought and sold like any other ETF, it’s incredibly easy to get the exact allocation you want.
Image source: Getty Images.
More importantly, the management fees for this ETF (0.25%) are low. If you do the math, it is cheaper to buy and hold Bitcoin through this ETF than to buy the same amount of Bitcoin through a cryptocurrency exchange. This is bad news for people like that. Global Coinbasebut it’s fantastic news for the average investor.
Consider this ETF a loss leader for BlackRock. The company may not make a profit on this ETF, but it will likely help attract new customers and sell other investment products. This is especially true since the iShares Bitcoin Trust is part of the company’s iShares ETF family.
Compromises
At this point, you’re probably wondering: so what’s the catch? A trade-off of this ETF is that you are not actually holding Bitcoin. You are getting exposure to the price of Bitcoin, but you do not directly own the underlying asset. This is true of any ETF, of course, but it has significant implications. This is because Bitcoin is both a financial asset and a digital currency.
Therefore, you will not be able to use Bitcoin as you would if you purchased Bitcoin through a cryptocurrency exchange. If you plan to use Bitcoin for transactions, for example, or to send Bitcoin to other people, you won’t be able to do so if you don’t own Bitcoin directly. Furthermore, if you delve into the fundamental values of Bitcoin, you will quickly realize that many investors are philosophically opposed to anyone, and especially a large Wall Street institution like BlackRock, holding onto their Bitcoin.
Buy and hold strategy
In theory, you could use this ETF as part of an actively managed portfolio. And there are plenty of hedge funds that are doing just that. But it makes more sense to think of this ETF as a long-term buy-and-hold investment. You shouldn’t use this ETF to make short-term directional bets on the price of Bitcoin.
Instead, your investment goal should be to gain exposure to the price of Bitcoin, at the lowest possible price, for as long as possible. And iShares Bitcoin Trust lets you do exactly that. For this reason, this ETF may simply be a no-brainer right now, as long as you’re willing to put up with the daily price volatility that comes with investing in cryptocurrencies.