Spot Bitcoin ETFs are now legal ways to invest in or trade Bitcoin. Will these vehicles be a better way to deal with Bitcoin than by getting a crypto wallet and buying and selling directly? What will these vehicles do to Bitcoin’s price? For that matter, this new wrinkle in the world of cryptocurrencies raises the basic question of how to invest in Bitcoin. Will you be in Bitcoin for short term profits or for the long term? Will Bitcoin be the long term store of value that its strongest proponents argue? Or will we be treated to a series of crypto winters over and over again?
Mechanics of Investing in Bitcoin
Spot Bitcoin ETFs are a third way to invest in Bitcoin. The first way is to use a crypto exchange like Coinbase. The second is to invest in a Bitcoin mining company like Canaan, Bitfarms, Ltd., Riot Blockchain, Hive Blockchain Technologies, Hut 8 Mining Corp., Stronghold, or Core Scientific. The spot Bitcoin ETF choice is similar to buying stocks in Bitcoin miners in that it allows one to invest without ever using a crypto wallet. It is different in that it is an investment that directly tracks Bitcoin’s price instead of the stock price of a Bitcoin miner.
Strategies for Investing in Bitcoin
People who invest in stocks look for fundamental or intrinsic stock value. What ability does a company have to make money using its business plan, products and services, research and development, and brand name? What does its forward looking cash flow look like? When these factors are all positive that makes for a good investment. A commodity like gold bullion does not generate any income. However, gold tends to retain its value in relative buying power over the years while currencies are often prone to lose value due to steady inflation. This is the argument for investing in Bitcoin. There is an eventual limit to how many Bitcoin will exist. The likelihood of Bitcoin retaining its value as the dollar fades away was severely tested during crypto winter when the value of the dollar against other currencies soared and Bitcoin lost three fourth of its value against the dollar.
Following the Market When Investing
When a market is going up, like the stock market or crypto market, every investor is a genius. Then the market peaks, as markets always do, and “geniuses” who did not sell in time lose their shirts. Sometimes an investor can see a market crash coming, if they are paying attention, and sometimes not. In the case of crypto winter interest rates were likely to go up due to the Federal Reserve fight against the worst in inflation in four decades. Traditional investors bailed out in time and went to cash (dollars). Folks who believed the crypto mantra that Bitcoin and the rest were going to replace the dollar, yen, euro, and other traditional currencies held on and then saw their losses mount. All of this was compounded as stress in the crypto world revealed shenanigans from the likes of FTX and others. Faith turned to despair and crypto collapsed. The point is that if you are going to follow the market when investing you need to be fleet of foot and you need to sell when the market is selling as well as buy when the market is buying!
What Is the Future of Bitcoin?
It certainly would have been great to have bought Microsoft stock the day it went public more than thirty years ago. Your investment would have multiplied more than a thousand fold and your annual dividends would be a multiple of your initial investment. For this to have worked out you would have had to have seen how personal computers and the software they use was going to change the world. And you would have had to have seen how someone like Bill Gates could take advantage of this and create one of the richest companies in the world. Likewise, you would have had to have seen which of the dot coms in the 1990s were going to evaporate with a market crash. Such is the case with Bitcoin and the rest of the crypto world. Which crypto investments will survive and which will go into the history books as painful investment lessons? We are betting on folks in the DeFi world where crypto is a means to an end and not a speculative asset.
