The emergence of spot Bitcoin exchange-traded funds (ETFs) has opened up a new avenue for investors to enter the cryptocurrency market without the complexities of managing crypto wallets and navigating exchanges. With a selection of 11 ETFs now trading, investors can easily put Bitcoin (BTC 4.56%) into their portfolios through their regular brokerages.
Despite my longstanding belief that the best way to invest in Bitcoin is by straightforwardly purchasing the actual cryptocurrency, I recently found myself buying shares of one of these new Bitcoin ETFs. While holding Bitcoin directly allows for personal custody and round-the-clock trading, there are compelling reasons for some investors to consider one of these ETFs.
Image source: Getty Images.
My reason why
I am not a full-time analyst and writer. While I spend an inordinate amount of time crunching numbers, reading white papers, and analyzing market trends to provide readers with insightful guidance, I have a full-time job that is not associated with The Motley Fool. Fortunately for me, my full-time employer sponsors a tax-advantaged retirement account, and offers a contribution-matching program.
Over the years, I had been wanting to access my growing retirement nest egg and allocate some of it to Bitcoin, which I believe to be the premiere asset. However, to do so, I would have incurred penalties and fines for withdrawing my retirement contributions early. Not to mention, my employer only allows access to those funds once a person is no longer employed by them. So that was off the table.
Now, you might be thinking, "Well, RJ, you could just reduce your contributions to that retirement account, take the difference, and use it to buy Bitcoin." While that's true, the strategy has one flaw -- reducing my contributions would cost me the matching contributions my employer offers, which are basically free money.
After spot Bitcoin ETFs debuted in January, I began to think about this more and more. I figured there had to be a way I could tap into this opportunity and give my retirement account that long-sought-after Bitcoin exposure.
Turns out I could, but it was a slightly complicated process. The company sponsoring the retirement accounts didn't provide access to any of the new Bitcoin ETFs. The only options were some mutual funds that are balanced based on your risk tolerance and projected retirement date. Yet another roadblock.
After several phone calls and emails with my employer's retirement account sponsor, I finally got the answer I was looking for. In order to gain access to the spot Bitcoin ETFs, I had to open a Personal Choice Retirement Account or PCRA.
This account had to be set up with a separate brokerage, and I would have to transfer funds from my retirement account into the PCRA. After doing so, however, I could buy whatever ETFs, stocks, or mutual funds I wanted. But as you know, I had my eye on a Bitcoin ETF.
Choosing the right one
Finally, after all that work, I could invest in Bitcoin under the umbrella of my tax-advantaged employer-sponsored retirement account. But there are 11 spot Bitcoin ETFs all doing more or less the same thing. Which one should I choose?
After some more research, I eventually settled on the iShares Bitcoin Trust (IBIT 4.19%). It is currently the most liquid of the 11, with more than $17 billion in assets under management. This is a key statistic for this type of fund, as higher liquidity allows the ETF to track Bitcoin's price more effectively. In addition, it is managed by BlackRock (NYSE: BLK), one of the most reputable names in the financial industry.
Although I considered other candidates such as Bitwise's Bitcoin ETF (NYSEMKT: BITB) or VanEck's Bitcoin Trust (NYSEMKT: HODL) since they are contributing to funding Bitcoin developers, I felt that BlackRock's experience and reputation, as well as the volume of assets under management in the fund, made it the right choice.
For those in a similar situation to mine, who have been unable to buy a Bitcoin ETF through your retirement because they aren't among the options offered, pick up the phone to your company's account sponsor and ask to open a PCRA. It might take time sitting on hold or sending a few emails, but in the end, you will be able to gain exposure to the best-performing asset of the 21st century. And if your employer also offers matching contributions, then all the better -- you'll have some free Bitcoin coming your way.
