Tap into Bitcoin Investment Opportunities with Your Brokerage Account

15 views 11:42 am 0 Comments April 12, 2024

With Bitcoin being the best-performing asset of the year
more often than not during the last 15 years, many investors want to gain
exposure but doing so can be tricky.

For retail and institutional investors alike, questions of
regulatory and tax compliance can be puzzling. Then, there’s the challenge of
learning to navigate a new ecosystem. Using exchanges, sending transactions,
and taking custody of coins can take significant time to learn.

Fortunately, there are ways to gain exposure to Bitcoin
without purchasing and holding the asset itself. This can be done in a standard
brokerage or retirement account.

This article will explore the avenues available for tapping
into the Bitcoin market in this way, including exchange-traded Funds (ETFs),
public companies with Bitcoin holdings, and mining companies.

ETFs in general have become a popular vehicle for investors
looking to diversify their portfolios without directly purchasing the
underlying assets. Spot Bitcoin ETFs
offer a straightforward way to invest in Bitcoin through a regulated framework,
and have been very successful since their initial launch in the US on January
10, 2024. The first gold ETF took 2 years to reach $10 billion in AUM.
Blackrock’s IBIT accomplished the same in just 2 months.

Investors track the price of Bitcoin and trade on traditional
stock exchanges, providing liquidity and accessibility to investors who may not
otherwise be able to access cryptocurrency
markets or don’t want to hold Bitcoin itself. Some of the most dominant spot ETFs in the US include BlackRock’s IBIT,
Fidelity’s FBTC, and ARK’s 21 Bitcoin Shares.

Here are some important things to
think about when it comes to selecting a spot Bitcoin ETF:

  • Custodian: How does the issuer store their coins? All
    the ETFs use Coinbase
    as their custodians, with a few exceptions:
  1. Fidelity secures their own
    Bitcoin internally,
  2. VanEck uses BitGo rather than Coinbase,
  3. Hashdex
    selected BitGo as its
    custodian.
  • Fees: What expense ratio does the fund charge?
    BitWise has garnered attention for having the lowest fee at just twenty basis
    points. On the other end of the spectrum, Grayscale charges 1.5%.
  • Transparency: How much do you value transparency when
    it comes to your funds’ holdings? So far, BitWise is the only
    fund that has published the public key to its wallet, allowing anyone to view
    the blockchain transactions that prove the fund holds what it claims to.

Fidelity
stands out, as being a veteran in the digital asset space that allows them to
self-custody their Bitcoin holdings. BitWise shines for its low fees and
transparency. Some investors see these funds as preferable. Others
may opt for the reputation of firms like BlackRock or ARK.

Public Companies with Bitcoin Holdings: Investing in
Corporate Believers

A number of forward-thinking public companies have added
Bitcoin to their balance sheets, recognizing its potential as a store of value.
By investing in these companies, investors indirectly gain exposure to
Bitcoin’s price movements. This approach allows investors to benefit from the
company’s broader business performance while aligning with their innovative
stance on Bitcoin.

MicroStrategy (MSTR) was the first and still is the most
well-known company to adopt a Bitcoin treasury strategy. The company currently
holds over 1% of the entire supply of BTC. Shares of MSTR have also seen
impressive appreciation in recent years, even outperforming Bitcoin at times.

Here is a partial list of other companies that have decided
to put Bitcoin on their balance sheets:

  • Galaxy Digital Holdings
  • Marathon Digital Holdings

In addition to companies that hold Bitcoin, mining stocks
can also provide BTC exposure.

Mining Companies: The Backbone of Bitcoin’s
Infrastructure

Bitcoin mining companies are at the heart of creating new
Bitcoin and securing the network. Investing in these companies represents an
investment in the infrastructure of the Bitcoin network. As the demand for
Bitcoin grows, these companies may see increased profitability, making them an
attractive option for investors looking to get involved in the cryptocurrency
space.

The recent rise in Bitcoin’s price has been accompanied by
an increase in the network’s hash rate, as miners can create profitable
operations with greater ease.

Many mining companies hold some of the Bitcoin they
mine on their balance sheets, making them a way to gain exposure to both
Bitcoin and its infrastructure. A few popular Bitcoin mining stocks in 2024
include:

  • Riot Blockchain
  • Hive Blockchain
  • Bitfarms Limited
  • Cipher Mining
  • CleanSpark

Strategic Considerations for Bitcoin Exposure

Each of these securities has benefits and
drawbacks. For example, mining stocks can be very volatile, even more so than
Bitcoin. Yet they can outperform Bitcoin by a significant margin at times.
Such securities require the highest risk tolerance and greatest conviction in
the promise of Bitcoin. They can be thought of as a speculative play on
Bitcoin, which may be too speculative for some.

Public companies that hold Bitcoin provide a blend of
exposure to the company’s operations and their Bitcoin holdings. In general,
the larger the Bitcoin holdings, the more the share price tends to be
correlated to the Bitcoin price. These can be a great choice for more
traditional investors who feel safer holding equities with earnings, cashflows,
dividends, etc. The downside is they may underperform the other securities
available.

Bitcoin ETFs represent the purest Bitcoin exposure that a
brokerage account can have. There’s not much to be said here, as these shares
represent ownership of a portion of the fund’s BTC holdings. There has even
been talk of ETFs eventually allowing shares to be redeemed for spot Bitcoin,
although this is unlikely in the USA, as the SEC has required ETFs to be
settled in cash only. The drawback is that each ETF issuer charges fees,
which can eat into profits over time.

When considering exposure to Bitcoin through your brokerage
account, it’s important to evaluate your investment goals and risk tolerance.
Bitcoin and related investments can be volatile, and a strategic approach
should involve due diligence and a clear understanding of the underlying market
dynamics.

With Bitcoin being the best-performing asset of the year
more often than not during the last 15 years, many investors want to gain
exposure but doing so can be tricky.

For retail and institutional investors alike, questions of
regulatory and tax compliance can be puzzling. Then, there’s the challenge of
learning to navigate a new ecosystem. Using exchanges, sending transactions,
and taking custody of coins can take significant time to learn.

Fortunately, there are ways to gain exposure to Bitcoin
without purchasing and holding the asset itself. This can be done in a standard
brokerage or retirement account.

This article will explore the avenues available for tapping
into the Bitcoin market in this way, including exchange-traded Funds (ETFs),
public companies with Bitcoin holdings, and mining companies.

ETFs in general have become a popular vehicle for investors
looking to diversify their portfolios without directly purchasing the
underlying assets. Spot Bitcoin ETFs
offer a straightforward way to invest in Bitcoin through a regulated framework,
and have been very successful since their initial launch in the US on January
10, 2024. The first gold ETF took 2 years to reach $10 billion in AUM.
Blackrock’s IBIT accomplished the same in just 2 months.

Investors track the price of Bitcoin and trade on traditional
stock exchanges, providing liquidity and accessibility to investors who may not
otherwise be able to access cryptocurrency
markets or don’t want to hold Bitcoin itself. Some of the most dominant spot ETFs in the US include BlackRock’s IBIT,
Fidelity’s FBTC, and ARK’s 21 Bitcoin Shares.

Here are some important things to
think about when it comes to selecting a spot Bitcoin ETF:

  • Custodian: How does the issuer store their coins? All
    the ETFs use Coinbase
    as their custodians, with a few exceptions:
  1. Fidelity secures their own
    Bitcoin internally,
  2. VanEck uses BitGo rather than Coinbase,
  3. Hashdex
    selected BitGo as its
    custodian.
  • Fees: What expense ratio does the fund charge?
    BitWise has garnered attention for having the lowest fee at just twenty basis
    points. On the other end of the spectrum, Grayscale charges 1.5%.
  • Transparency: How much do you value transparency when
    it comes to your funds’ holdings? So far, BitWise is the only
    fund that has published the public key to its wallet, allowing anyone to view
    the blockchain transactions that prove the fund holds what it claims to.

Fidelity
stands out, as being a veteran in the digital asset space that allows them to
self-custody their Bitcoin holdings. BitWise shines for its low fees and
transparency. Some investors see these funds as preferable. Others
may opt for the reputation of firms like BlackRock or ARK.

Public Companies with Bitcoin Holdings: Investing in
Corporate Believers

A number of forward-thinking public companies have added
Bitcoin to their balance sheets, recognizing its potential as a store of value.
By investing in these companies, investors indirectly gain exposure to
Bitcoin’s price movements. This approach allows investors to benefit from the
company’s broader business performance while aligning with their innovative
stance on Bitcoin.

MicroStrategy (MSTR) was the first and still is the most
well-known company to adopt a Bitcoin treasury strategy. The company currently
holds over 1% of the entire supply of BTC. Shares of MSTR have also seen
impressive appreciation in recent years, even outperforming Bitcoin at times.

Here is a partial list of other companies that have decided
to put Bitcoin on their balance sheets:

  • Galaxy Digital Holdings
  • Marathon Digital Holdings

In addition to companies that hold Bitcoin, mining stocks
can also provide BTC exposure.

Mining Companies: The Backbone of Bitcoin’s
Infrastructure

Bitcoin mining companies are at the heart of creating new
Bitcoin and securing the network. Investing in these companies represents an
investment in the infrastructure of the Bitcoin network. As the demand for
Bitcoin grows, these companies may see increased profitability, making them an
attractive option for investors looking to get involved in the cryptocurrency
space.

The recent rise in Bitcoin’s price has been accompanied by
an increase in the network’s hash rate, as miners can create profitable
operations with greater ease.

Many mining companies hold some of the Bitcoin they
mine on their balance sheets, making them a way to gain exposure to both
Bitcoin and its infrastructure. A few popular Bitcoin mining stocks in 2024
include:

  • Riot Blockchain
  • Hive Blockchain
  • Bitfarms Limited
  • Cipher Mining
  • CleanSpark

Strategic Considerations for Bitcoin Exposure

Each of these securities has benefits and
drawbacks. For example, mining stocks can be very volatile, even more so than
Bitcoin. Yet they can outperform Bitcoin by a significant margin at times.
Such securities require the highest risk tolerance and greatest conviction in
the promise of Bitcoin. They can be thought of as a speculative play on
Bitcoin, which may be too speculative for some.

Public companies that hold Bitcoin provide a blend of
exposure to the company’s operations and their Bitcoin holdings. In general,
the larger the Bitcoin holdings, the more the share price tends to be
correlated to the Bitcoin price. These can be a great choice for more
traditional investors who feel safer holding equities with earnings, cashflows,
dividends, etc. The downside is they may underperform the other securities
available.

Bitcoin ETFs represent the purest Bitcoin exposure that a
brokerage account can have. There’s not much to be said here, as these shares
represent ownership of a portion of the fund’s BTC holdings. There has even
been talk of ETFs eventually allowing shares to be redeemed for spot Bitcoin,
although this is unlikely in the USA, as the SEC has required ETFs to be
settled in cash only. The drawback is that each ETF issuer charges fees,
which can eat into profits over time.

When considering exposure to Bitcoin through your brokerage
account, it’s important to evaluate your investment goals and risk tolerance.
Bitcoin and related investments can be volatile, and a strategic approach
should involve due diligence and a clear understanding of the underlying market
dynamics.