Why Mark Cuban Won't Invest in Bitcoin Futures ETF
Why invest in a Bitcoin futures ETF when you can buy the real thing?
Bitcoin (BTC) hit a new all-time high this week, passing the $65,000 mark for the first time. A large part of the reason for its recent price rise was the successful launch of a Bitcoin Futures Exchange Traded Fund (ETF) on the New York Stock Exchange.
But billionaire crypto enthusiast Mark Cuban says he won't invest in the new ETF. The reason? He'd rather buy Bitcoin directly.
What is a Bitcoin futures ETF?
The ProShares Bitcoin Strategy ETF (BITO) is the first of several Bitcoin futures ETFs to get the green light from the SEC. It opens the way for non-crypto investors to buy Bitcoin without opening a separate crypto account. If you're considering investing in the ETF, be aware that buying Bitcoin futures is different from buying Bitcoin.
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Futures are a form of financial derivative, which are contracts that derive their value from another asset. For example, Bitcoin futures are essentially an agreement to buy Bitcoin at a fixed point in the future, rather than actually owning Bitcoin.
Mark Cuban would rather buy Bitcoin directly
The Shark Tank judge told CNBC he wouldn't buy the Bitcoin ETFs because he can instead simply buy Bitcoin for himself. Cuban has previously called Bitcoin a type of digital gold because he sees it as a good store of value. Back in May, he said Bitcoin made up 60% of his crypto portfolio.
If you're a first-time crypto investor who wants to follow Cuban's lead and buy Bitcoin for yourself, it isn't hard to do. You'll need to set up an account with a reputable cryptocurrency app or exchange, deposit money, and convert it into Bitcoin.
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Our guide to the best places to buy Bitcoin is a good place to start. You'll find several secure platforms that make it easy to set up an account. You'll likely have to provide some basic personal information and a photo ID.
It's worth taking a bit of time to understand the fee structure and security protocols. Some exchanges charge you to deposit money, while others make their money when you trade or withdraw your assets. In terms of crypto exchange security, look for platforms that keep the majority of customer assets offline in what's called cold storage.
Before you buy your first Bitcoin, it's important you understand what you're getting into. Here are three important factors to consider.
1. Bitcoin is volatile
All cryptocurrency investors need to be prepared for wild price swings. Bitcoin can easily lose or gain 10% or even 20% in a day. Back in April, it almost halved in value in just six weeks.
One way to protect yourself against volatility is to invest for the long term. If you're a buy-and-hold investor looking through a five- to 10-year window, you won't be as affected by the day-to-day price fluctuations. That said, it's important to be cautious about jumping in when a crypto just hit an all-time high, as you don't want to buy at the peak. Take it slow, and make sure your emotions are not driving your buying decisions.
2. Bitcoin is a high-risk investment
Bitcoin is becoming increasingly mainstream, but that doesn't mean it is risk-free. Indeed, some financial gurus still believe this is a bubble and the price could go to zero. That's why it’s important investors only invest money they can afford to lose, and make sure crypto doesn’t make up more than around 5% of their overall portfolio.
3. You need to do your research on crypto
As with any investment, it isn't a great idea to buy in just because Mark Cuban did. Only you know your financial situation and tolerance for risk, and research will help you make solid financial choices that are right for you.
Try to understand the basics of blockchain technology and why crypto is different from other investments. There are many potential ways you can invest your money, from crypto to stocks and real estate and even wine or art. Each carries different levels of risk and return, and will suit different people's needs.
Buy Bitcoin for the right reasons
Taking your first steps into cryptocurrency investing can be daunting, but it doesn't have to be. There's a wealth of information out there, and as we noted above, there are ways you can minimize or manage the risks involved.
The most important thing is to buy Bitcoin for the right reasons. Don't invest because everybody else is doing it or because you're scared of missing out. Make sure it is part of a clear investment strategy that's right for you and that you're convinced by its long-term potential.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin.