Daily Brief - Why we’ll buy BTC and avoid the new Bitcoin ETF (Oct 20, 2021)
The most common question we receive from friends when we talk about markets is “how do I buy Bitcoin?”
It’s a good question because for a lot of people the crypto space remains full of mystery.
What we can say for certain is how not to buy it, and that is via the ETF. As was pointed out in a brilliant opinion piece by the FT, the new ETF is a wrapper around the BTC futures that CME launched in 2017.
The problem with futures and ETFS are two-fold.
For one, this ETF carries a 1% management fee.
For second, the ETF needs to roll futures, which means that the final investors get impacted by transaction costs as well as the problem of “contango” - which is jargon for saying that BTC futures have a higher price than Bitcoin itself (this applies to any commodity). These two aspects boil down to 5-10% costs per year.
Now if you are saying “6-11% of costs to hold bitcoin does not sound too bad compared to Bitcoin’s 100x increases”. And you might be right, but costs are a certainty, and returns are an alea.
And irrespective of this, you can buy BTC directly and forget about all costs, so our advice mirrors the FT’s: if you plan to buy BTC, open up an account with a broker and buy the coin itself.