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Best Bitcoin ETFs in 2022 • Safer Bitcoin Exposure? • Gasoline gas

Want to jump straight to the best bitcoin ETFs? Three of the best are BITO, XBTF for long bitcoin exposure and BITI for inverse bitcoin exposure. You can trade all 3 with eToro and WeBull.

Even if the bear market ends tomorrow, the carnage left behind proves how brutal it has been. From the collapse of TerraUSD and LUNA to the failure of FTX and FTX.US, 2022 has been a tough year. Other notable failures include Celsius Network, Voyager Digital, BlockFi and Three Arrows Capital.

With all these high-profile failures, it is no wonder that investors are shying away from centralized exchanges and platforms. Do you want exposure to the upcoming bull market but are hesitant to buy from a crypto exchange? Or are you trying to avoid the hassle of getting a wallet and learning how to transfer your Bitcoin?

If this sounds like you, then a Bitcoin exchange-traded fund (ETF) might be a perfect choice. You get exposure to Bitcoin with no need to deal with crypto exchanges because these ETFs are traded on traditional market exchanges. A Bitcoin ETF eliminates the need to navigate the wild wild west that is the crypto sector.

The following sections give you enough information to determine if a Bitcoin ETF would be an excellent addition to your portfolio.

What is a Bitcoin ETF?

An ETF is an investment that generally tracks the price of a specific asset or basket of assets. ETFs are traded on traditional stock exchanges.

Bitcoin ETFs don’t actually own Bitcoin; the underlying assets are most commonly Bitcoin futures contracts. A Bitcoin ETF tracks the price of Bitcoin and allows investors to gain exposure to Bitcoin’s price appreciation without having to directly buy and hold Bitcoin.

What are the Advantages of Bitcoin ETFs?

Here are several advantages and disadvantages of owning Bitcoin ETFs.

Potentially Safer Bitcoin Exposure

The main advantage of a Bitcoin ETF is that it provides exposure to Bitcoin’s price appreciation without having accounts on potentially risky crypto exchanges. It also eliminates the need to learn how to transfer and store Bitcoin safely.

Many investors feel safer gaining exposure to Bitcoin through a professionally managed ETF.

Diversification

Diversification is another advantage of an ETF. Some Bitcoin ETFs hold futures contracts and stocks of companies or other ETFs with exposure to cryptocurrency. Holding stocks and Bitcoin can help mitigate the price volatility of Bitcoin.

What are the Disadvantages of Bitcoin ETFs?

Although Bitcoin ETFs may be a good choice for more risk-averse investors, that doesn’t mean there aren’t disadvantages.

Imperfect Correlation With Bitcoin

Investors can’t count on a 1:1 value appreciation match with Bitcoin. The amount of variance will depend on the particular ETF and its holdings. Because some Bitcoin ETFs also hold blockchain-related stocks, Bitcoin could increase in value as the stock market decreases.

fees

Ongoing management fees can be a disadvantage owning a Bitcoin ETF. Fees for Bitcoin ETFs run about 1% annually. Over time, these fees can add up to a significant amount.

Best Bitcoin ETFs

Here are a few of the best Bitcoin ETFs:

ProShares Bitcoin Strategy ETF (BITO)

ProShares Bitcoin Strategy ETF is one of the best bitcoin ETFs because of its transparency and simplicity. It holds a large amount of CME Bitcoin future contracts between one and two months out.

VanEck Bitcoin Strategy ETF (XBTF)

The VanEck Bitcoin Strategy ETF is another great Bitcoin ETF because it is actively managed and uses a better company structure for taxes called a C corp. XBTF also has a significantly lower expense ratio (the small fee ETFs take off of your investment every year) than most Bitcoin ETFs.

ProShares Short Bitcoin ETF (BITI)

The ProShares Short Bitcoin ETF is one of the best Bitcoin ETFs because of its unique functionality. It is the only short Bitcoin ETF approved so far, allowing you to profit when Bitcoin falls. It returns the inverse daily return of the S&P CME Bitcoin Futures Index.

Should I Buy Bitcoin or a Bitcoin ETF?

Whether to buy Bitcoin outright or a Bitcoin ETF is an individual choice based on personal risk tolerance.

If you don’t mind learning how to buy, transfer and store Bitcoin safely, then buying Bitcoin outright might make sense. On the other hand, if you are not interested in learning the steps or don’t trust crypto exchanges, then buying a Bitcoin ETF could be the way to go.

History shows that banks can freeze accounts and governments can seize your assets with little or no warning. By owning Bitcoin in a self-custodial wallet, you retain custody of your funds, making it easy to maintain your wealth. This level of personal autonomy is one of the strongest arguments for owning Bitcoin.

Can Crypto Exchanges Be Trusted?

The failures of FTX and FTX.US have shaken investor confidence. To most investors, both exchanges seemed solid and trustworthy. These aren’t the first crypto exchange failures; many past failures have occurred. What has shaken investor confidence so much is that FTX was considered one of the top crypto exchanges. It was also that almost no one saw this coming. FTX was thought to be financially solid and was promoted by well-respected investors and celebrities.

Below is a Bitcoin 2-Day Chart showing crypto exchange failures (Red vertical lines).

It may not look like it, but 2022 has seen a sharp decrease in exchange failures, with 48 compared to 94 in 2021.

Exchange failures are another example of why storing large amounts of crypto on exchanges is a bad idea. The best investors can do is only use top exchanges with high liquidity. Some examples of top exchanges include eToro, Webull, Robinhood and Coinbase.

Another precaution investors can take is to look for exchanges that publish proof of reserves, which is a technique used by crypto exchanges and other custody providers to demonstrate their solvency. Proof of reserves can be published by the exchanges themselves or by a third-party auditor.

Even taking these precautions doesn’t guarantee that you can avoid an exchange failure. The best way to protect yourself is to move crypto off of exchanges immediately after making purchases. The exception is if you are an active trader, in which case you would have to accept the risks.

How to Buy Bitcoin

If you choose to buy Bitcoin rather than a Bitcoin ETF, you must first find a top exchange and a good wallet, then learn how to transfer your Bitcoin safely. Regarding an exchange, eToro, Webull and Robinhood are all top exchanges and any one of them would make a good choice. All are reputable and have user-friendly trading platforms.

The first step is to decide on an exchange and open an account. Opening an account is easy; just follow the instructions. Be ready to complete Know Your Customer (KYC) verification. All reputable centralized exchanges require customers to complete the KYC verification process to comply with the standards designed to protect against fraud, corruption, money laundering and terrorist financing.

After opening your account, you will need to fund it by transferring in crypto or linking a bank account so you can transfer in fiat. Some exchanges also allow you to make purchases with debit or credit cards.

You will also need a good software or hardware wallet to get your Bitcoin off the exchange as soon as possible. A cold storage hardware wallet offers the most security; both Ledger and Trezor wallets are excellent choices. At a minimum, you should get a software (hot storage) wallet like MetaMask or Trustwallet.

Crypto experts advise that it is a bad idea to keep significant amounts of crypto on crypto exchanges.

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How to Buy Bitcoin ETFs

Buying a Bitcoin ETF is easier than buying and holding Bitcoin. If you don’t already have one, the first step is to open an account with a reputable broker. Webull, eToro and Robinhood are examples of reputable online stock brokers.

After opening your account, you need to link a bank account to fund your account. Once you fund your account, you can then buy as many shares of whatever Bitcoin ETF you choose. Unlike when you purchase Bitcoin, you can safely store your ETF shares with the broker. Stock brokers are highly regulated, which generally makes them safer to use than less-regulated crypto exchanges.

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    Intermediate Traders and Investors

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Frequently Asked Questions

Q

What is the largest Bitcoin ETF?

A

the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) is the largest Bitcoin ETF, with $547.28 million in assets. BITO is the first US Bitcoin-linked ETF that allows investors to gain exposure to Bitcoin returns.

A

Although Bitcoin ETFs are safe in that they trade on traditional stock markets and are highly regulated, they come with the same risks that crypto and stock market investing hold.

Q

Why is there no Bitcoin Spot ETF?

A

While the SEC has approved Bitcoin futures ETFs, it has repeatedly rejected Bitcoin spot ETFs. Bitcoin spot ETFs would hold actual Bitcoin instead of futures contracts. The SEC has cited concerns about potential fraud and manipulation as a reason for the rejection.

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