Bitcoin ETF
By Jeremy Reif, CRPS
Decoding Bitcoin’s ETF Approval: A Financial Insight
Bitcoin comes with a lot of controversy, as do many new companies. We have all heard about the celebrities and sports stars that jumped onto the bandwagon early. The latest news is that on January 10th, 2024, Bitcoin and other cryptocurrencies became easier to invest in when the Securities and Exchange Commission (SEC) allowed them to be traded in exchange-traded funds (ETFs).
Why is it important to know that Bitcoin is available via ETFs?
For those who don’t know how ETFs work, they allow you to own a fractional amount of the whole. ETFs pool money and will allow you to purchase part of it.
Bitcoin is presently trading above $42,000 at the time of this article. Most investors do not want to buy one Bitcoin for $42,000+. Investors also try to avoid the complexities associated with establishing a cryptocurrency wallet, identifying suitable platforms for crypto acquisition, and navigating through the entire procedural landscape—potentially coupled with associated fees.
The ETFs allow for easy purchase or sale and for the amount the investor is willing to participate in. No hoops or hassle accompanies investing in ETFs, which can be done through a brokerage account. It is also easier to track for tax purposes and will be consolidated on your brokerage 1099 come year-end.
Is Now The Time To Jump On The Crypto Bandwagon?
Crypto ETFs have created a lot of buzz, but hold your horses. Cryptocurrencies, including Bitcoin, are still very volatile investments classified in the range of speculation. Speculative investments are at the highest end of the aggressive part of the investment risk profile range.
Questions that you should be asking:
- Would you normally invest in aggressive investments? (If yes, proceed to number 2. If not, you should probably avoid this type of investment.)
- How much would you normally invest in aggressive investments?
- Volatility and unpredictability. In roughly one year, from November 2021 to November 2022, Bitcoin lost about 75% of its value. How would this affect your view on investing in Bitcoin?
- Early adoption. Looking around the world we live in, who accepts Bitcoin as currency or is willing to adopt the technology in the future? When will they adopt this technology? Is this a large percentage?
- Will the government at some point intervene and squash these cryptocurrencies and introduce their variations and technology so the Federal Reserve has full control and makes the present crypto companies obsolete?
- How safe is cryptocurrency?
The Problem
Right now, there are quite a few problems that cryptocurrencies face. There are too many different types, and not one go-to company. Not enough people are using it or viewing it as actual currency for daily transactions. It’s too easy to get locked out of your own money if you forget your password. Will the government step in and adopt it or introduce its technology?
Harsh Reality
To put crypto into perspective with regular investing. When you hear about stock tips, it does not matter where they come from. Do you take this information and run with it, take money, and invest in it right away? Many investors are afraid to invest in individual stocks; crypto should be treated no differently. Crypto could potentially be even more aggressive than a company stock listed on the exchanges.
For the majority, it is probably best to avoid speculation with your normal investments that you are counting on for retirement. If you really must try it, ETFs have made bitcoin a little easier to access. Remember, only invest what you are willing to lose, as it is an extremely aggressive and volatile investment.