Bitcoin vs Bitcoin ETF: What is the difference between buying Bitcoin directly vs buying the ETF?

On January 10, 2024, SEC approved the listing and trading of a number of spot bitcoin exchange-traded product (ETP) shares. It’s approval is a complete game-changer. Not only it legitimize Bitcoin(BTC), but it also provides a new means for investors to join and add crypto to their portfolios. An investor like you doesn’t want to miss out this opportunity to gain exposure to cryptocurrency.

Previously, buying Bitcoin meant going through a cryptocurrency exchange, which could be a challenging task for those not proficient with technology so let’s discuss the pros and cons of buying bitcoin directly and buying bitcoin ETF. And what might be the best for you as an investor.

bitcoin vs bitcoin etf

What is Bitcoin ETF?

A bitcoin exchange-traded fund (ETF) is a financial product that allows investors to gain exposure to the price movements of bitcoin without actually holding the asset itself. Like buying a gold ETF, you don’t actually receive gold bullion instead you receive a receipt that tells you own an amount of it. Shares of a bitcoin ETF are traded on traditional stock exchanges, making it easier for investors to participate in the cryptocurrency market.

What is the difference between buying Bitcoin directly vs buying the ETF? Which is for you?

The main difference between buying Bitcoin directly vs buying Bitcoin ETF is the custody. Simply put, buying Bitcoin would mean you can actually hold the Bitcoin in your own digital wallet or even on your own hardware. You have it in your own custody, unlike Bitcoin ETF where the company or institution that you’ll invest with will have the custody of your Bitcoin. 

Why buying Bitcoin is for you?

If you’re tech-savvy, buying and holding Bitcoin on your own could be great for you. One, because you have complete control over your private keys and can store your assets in a secure hardware or software wallet of your choice. This eliminates the need to trust a third-party custodian or intermediary to hold your Bitcoin on your behalf, reducing the risk of hacking, fraud, or other security breaches associated with ETF providers.

Second, you are in direct control of your Bitcoin. In contrast to stock exchanges with fixed trading hours, Bitcoin trades 24 hours a day, seven days a week. If you need to sell some of your holdings late on a Saturday night, you can do just that. The same goes for buying. With the ETFs, you are limited to the set trading hours of the exchange, Monday through Friday, from 9:30 a.m. to 4 p.m. East Coast time.

Lastly, you can use your holdings in ways that are unique to cryptocurrencies. For example, you can send Bitcoin to other individuals anywhere in the world as payment. You can’t send your ETF holdings. But  that doesn’t mean you are fully safe so here’s why Bitcoin ETF might be for you.

Why Bitcoin ETF is for you?

One of the main reasons is if you are not good at technology because owning and holding your Bitcoin on your own might put you at risk from hackers, hardware problems, and losing private keys. Or maybe you have no idea how to use a cryptocurrency exchange. In this case, Bitcoin ETFs can be a useful means of gaining exposure. 

Perhaps you have a 401(k) retirement savings plan, do you know that you can rollover your 401(k) without penalty to a crypto IRA and own Bitcoin in your portfolio? If you’re interested, read this article. What Is A Crypto IRA? 

Whatever your preference, Bitcoin is proving to be a necessary component of any portfolio. Whether you own Bitcoin or choose ETFs, rest assured that you are setting yourself up for long-term success and will benefit from Bitcoin’s historic journey of price appreciation.