On Jan. 10, the SEC finally approved the first-ever spot Bitcoin (BTC +0.34%) exchange-traded funds (ETFs). For good reason, they have been called the most important new product Wall Street has created in nearly 30 years. That's because these ETFs make the process of buying and selling Bitcoin so simple that practically anyone can do it.
As a result, the new Bitcoin ETFs could change the world of crypto investing forever. But there's one thing that they will not change: The need for a long-term, buy-and-hold strategy when investing in Bitcoin.
Capture Bitcoin's long-term price performance
While there are undoubtedly some investors who will actively trade these ETFs, or who will use them as part of sophisticated portfolio hedging strategies, they are designed primarily for only one purpose: To get passive exposure to the long-run price potential of Bitcoin.
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Since the new ETFs are backed by Bitcoin itself (and not by derivatives contracts attempting to replicate the performance of Bitcoin), they should offer a nearly 1:1 match with Bitcoin's performance. Unlike most other ETFs, which typically hold a very diversified basket of stocks, these new ETFs will only hold Bitcoin. So if Bitcoin goes up by 150% in one year (as it did in 2023), then your new ETF should also go up by 150% in the same year.
CRYPTO: BTC
Key Data Points
This ability to capture the long-term price performance of Bitcoin is very attractive, because just about everyone agrees that the price of Bitcoin has the potential to skyrocket higher. Bitcoin could soon eclipse its all-time high of $69,000 before breaking through the $100,000 level by the end of 2024. And you can easily find price predictions for Bitcoin well in excess of $100,000. Cathie Wood of Ark Invest, for example, thinks that the price of Bitcoin could top $1.5 million by the year 2030.
But the only way you will be able to capture the full long-term price performance is by buying and holding. If you are constantly moving in and out of the market, you will likely end up losing out on some of Bitcoin's gains.
Minimize your total cost of ownership
That brings us to another key aspect of the new Bitcoin ETFs: They are designed to minimize your total cost of ownership. In a race to acquire as much investor money as possible as quickly as possible, the new Bitcoin ETF offerings often come with extraordinarily low expense ratios.
In some cases, the fees are as low as 0.20% per year. The fees are so modest, in fact, that some analysts have speculated that the big Wall Street firms may not make any money on them at all. (But don't worry, they'll find other ways to make the money back from you!)
If you are thinking about getting exposure to Bitcoin, there is only one calculation that you need to make. Simply add up the total costs of buying Bitcoin directly on a cryptocurrency exchange such as Coinbase Global (COIN +5.70%), and then compare it to the super-low cost of owning the new ETFs. Unless Coinbase decides to lower its trading fees, it will almost always make sense to go with the lower-priced ETFs. At a near-zero cost, you can add Bitcoin to your portfolio.
That's why it doesn't seem to make sense to embrace a short-term trading strategy for Bitcoin. You'll be missing out on the cost advantages of the new Bitcoin ETFs and unnecessarily driving up your total cost of ownership. Not to mention the fact that you will likely be missing out on the inherent tax efficiencies of the ETF investment product.
Take the emotion out of crypto investing
Finally, there's something to be said for taking the emotion out of investing. Crypto investing, in particular, is known for its sharp swings up and down. The daily volatility can be jarring if you are new to crypto. And it can be very confusing to determine why a particular crypto is trading up or down at a particular moment.
That's why a buy-and-hold strategy can make so much sense. You can sit back and ignore the day-to-day volatility, confident that your ETF will ultimately trend higher over a long-enough time horizon. That's why many experienced Bitcoin investors have always preached a HODL (crypto slang for "hold") strategy: It's the best way to capture the long-term uptrend in the price of Bitcoin.
Bitcoin for the long haul
For most investors, the new Bitcoin ETFs are likely the most efficient way to capture the long-term price potential of Bitcoin. They are a low-cost investment vehicle that takes away the need to monitor the performance of Bitcoin on a daily basis. So if you're going to buy one of the new Bitcoin ETFs, you should plan to buy and hold for the long term.
