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Better Buy: Bitcoin Investment Trust vs. Amplify Transformational Data Sharing ETF

By Matthew Frankel, CFP® - Dec 4, 2018 at 7:26AM

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These are two very different ways to invest in cryptocurrencies and blockchain technology.

Although most cryptocurrencies have performed rather poorly in 2018, there's no doubt that the concept of cryptocurrency and the underlying blockchain technology that makes it work are here to stay. With tons of potential applications, the long-term impact of the cryptocurrency and blockchain space has often been compared with the emergence of the internet in the 1990s.

With that in mind, there are several ways for investors to get involved. The obvious way is to invest in a cryptocurrency such as bitcoin, which can be done either directly or through an exchange-traded vehicle such as the Bitcoin Investment Trust (GBTC -4.04%). Alternatively, investors can also put their money into publicly traded companies that stand to benefit as the cryptocurrency industry evolves. And one new way to do this is through the Amplify Transformational Data Sharing ETF (BLOK -0.82%). Here's a look at both options to help you decide which is the better way to go.

Various cryptocurrency symbols on a tech background.

Image Source: Getty Images.

Bitcoin Investment Trust allows you to directly own bitcoin, but at a price

To be clear, there are no bitcoin ETFs. The Securities and Exchange Commission has yet to approve a single cryptocurrency-related investment fund.

Having said that, the Bitcoin Investment Trust is about the closest thing out there. It's a company (not an ETF) that owns bitcoin tokens, so its shareholders effectively also own them. If you want to invest in the price of bitcoin, but for whatever reason don't want to own the cryptocurrency directly, this could be a viable alternative.

However, there are two key downsides to the Bitcoin Investment Trust that investors should know about. First is the management fee. The Grayscale Investment Trust, which runs the bitcoin operation, charges a 2% annual management fee. This is extremely high by mutual fund/ETF standards.

Second, the shares trade at a hefty premium. Each share of the trust represents just under 0.001 bitcoin, so based on the current bitcoin price of $4,050, this implies an intrinsic value of $4.05 per share. Well, as I write this, the trust trades for $4.99 per share -- or a 23% premium to the value of its underlying assets.

The Amplify Transformational Data Sharing ETF could be a wise move for long-term growth investors

Aside from the premium and high expense ratio, the fact is that the future of any individual cryptocurrency remains uncertain -- even bitcoin. In its relatively brief history, bitcoin has increased by 1,000% or more in four separate years, and has lost more than half of its value twice, including in 2018.

The point is that investing directly in bitcoin isn't the right move for everyone who wants to invest in the cryptocurrency/blockchain space.

Fortunately, there's an alternative. The Amplify Transformational Data Sharing ETF is an exchange-traded fund that primarily invests in stocks of companies that are well positioned to benefit from the evolution of these new technologies. And the best part is that the fund's top holdings all have well-established businesses that should do just fine regardless of how well bitcoin and other cryptocurrencies do. As of this writing, here are the ETF's top positions:

Company (Symbol)

% of Portfolio

Digital Garage

5.51%

Taiwan Semiconductor (NYSE: TSM)

4.74%

Overstock.com (NASDAQ: OSTK)

4.46%

GMO Internet

4.10%

SBI Holdings (NASDAQOTH: SBHGF)

4.07%

Square (NYSE: SQ)

3.87%

Kakao 

3.54%

Accenture PLC (NYSE: ACN)

3.32%

Goldman Sachs (NYSE: GS)

3.18%

International Business Machines (NYSE: IBM)

3.04%

Data source: Amplify ETFs. Companies without ticker symbols listed do not trade on U.S. stock exchanges.

As I mentioned, most of these companies will do just fine, even if cryptocurrencies and blockchain technologies don't pan out like many people believe. For example, Square has several rapidly growing business segments. Goldman Sachs has invested a significant amount of money in blockchain-focused start-ups, but at the end of the day, it will still be an investment banking powerhouse no matter what happens with those investments.

Plus, with a current net expense ratio of 0.70%, the Amplify ETF is a much more reasonably priced investment vehicle. In fact, this is quite competitive with most other actively managed ETFs and mutual funds.

Two very different investments

In a nutshell, the better choice for you depends on what your goals are. If you want to speculate on the price of bitcoin itself, the Bitcoin Investment Trust could make sense for you. Personally, I'm a fan of simply owning bitcoin tokens or other cryptocurrencies directly and avoiding the fees -- exchanges like Coinbase have evolved to the point where doing so is rather easy.

On the other hand, if you want to invest in the future of blockchain technology without completely relying on cryptocurrency prices or even blockchain itself, the Amplify Transformational Data Sharing ETF is a smart alternative, and as a long-term investor myself, it is my clear preference between the two.

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Stocks Mentioned

Grayscale Bitcoin Trust (BTC) Stock Quote
Grayscale Bitcoin Trust (BTC)
GBTC
$18.74 (-4.04%) $0.79
Amplify ETF Trust - Amplify Transformational Data Sharing ETF Stock Quote
Amplify ETF Trust - Amplify Transformational Data Sharing ETF
BLOK
$21.72 (-0.82%) $0.18

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