Blog: Why investing directly in bitcoin is worth it?
The most significant topic of the cryptocurrency market in 2024 and likely the factor most influencing the rise of the cryptocurrency market is the Bitcoin spot ETFs approved in the United States in January. This blog post addresses the benefits of investing directly in bitcoin versus investing in Bitcoin ETFs.
Bitcoin
Bitcoin is the first and largest cryptocurrency by market capitalization. Bitcoin operates on a decentralized blockchain. Bitcoin has its currency, bitcoin. The maximum number of bitcoins is capped at 21 million, and new bitcoins are created through a process called mining. In mining, Bitcoin miners compete with computational power to add the latest Bitcoin block to the blockchain. Bitcoin can be purchased from various cryptocurrency exchanges. The easiest and safest way to buy is through Northcrypto.
Bitcoin ETF
Bitcoin ETF is a broad concept that includes two different types of ETFs: Bitcoin futures ETF and Bitcoin spot ETF. Generally, an ETF refers to a fund whose shares are traded on an exchange like stocks. When talking about Bitcoin ETFs, Bitcoin futures ETF is an ETF whose shares are backed by Bitcoin futures. A futures contract is an agreement between two parties to buy or sell the underlying asset at a specified price at a certain time in the future.
A Bitcoin spot ETF, on the other hand, is an ETF whose shares are backed by actual bitcoins. Consequently, the prices of spot ETF shares closely follow the price of Bitcoin. Bitcoin spot ETFs have also become a topic of discussion in Finland, as the popularity of spot ETFs approved in the United States in January 2024 has contributed to Bitcoin reaching a new all-time high. Generally speaking, a spot ETF can be considered a better option compared to a futures ETF because it is closer to directly investing in Bitcoin.
Benefits of Investing Directly in Bitcoin
Investing directly in bitcoin and investing in Bitcoin ETFs differ in several ways. The general view among cryptocurrency experts is that investing through an ETF is often an easier and better solution for institutional investors, while individual investors may benefit more from buying bitcoin directly. The following are some reasons why investing directly in bitcoin is beneficial.
Bitcoin's Technology: Many consider Bitcoin's technological innovations unique and see them as a key reason behind Bitcoin's value. One of Bitcoin's most significant technological innovations is the ability to own and use Bitcoin without relying on any third party. In this regard, Bitcoin differs significantly from, for example, digital euros. Digital euros cannot be genuinely owned because euros must be stored in a bank or some kind of digital wallet managed by a third party. For example, euros in a bank's current account are not the customer's euros but a debt taken from the customer by the bank and thus under the bank's control. Throughout history and even in recent years, there have been situations where banks have frozen their customers' ability to withdraw euros in cash or restricted the amount of cash that can be withdrawn. These are practical examples of euros in a bank ultimately being under the bank's control.
Although bitcoins exist only in digital form, it is possible to own them in a way that they are completely owned and available to their owner. This is possible, for example, through hardware wallets and various wallet applications. The genuine ownership described above is an innovation never seen before in the digital world. This innovation can only be utilized if one buys actual bitcoins. In the case of a Bitcoin ETF, an ETF investor must trust that each ETF share is backed by the correct amount of bitcoins or Bitcoin futures, and the ETF owner cannot handle bitcoins at any stage themselves.
Trading Hours: Bitcoin operates continuously, which makes it undependable on centralized parties such as stock exchanges. Therefore, it is possible to trade bitcoin around the clock, every day of the year, which differs significantly from, for example, banks and stock exchanges. Take, for example, the Helsinki Stock Exchange, which is open on weekdays from 10:00 to 18:30. This means that the Helsinki Stock Exchange is open only about 25% of the year, while Bitcoin operates 100 percent of the time. Therefore, it is possible to trade Bitcoin at any time, whereas trading Bitcoin ETFs is only possible when the stock exchange is open.
Fees: Both trading Bitcoin and trading Bitcoin ETFs incur trading fees regardless of the trading venue. There are differences in trading fees between Bitcoin trading venues and Bitcoin ETF trading venues, but on average, Bitcoin and Bitcoin ETF trading fees can be seen to be quite similar. However, there are also differences in the costs of owning Bitcoin and Bitcoin ETFs, as ETFs usually include an annual management fee. While owning Bitcoin in a marketplace such as Northcrypto or many wallet solutions is almost always free, ETFs charge an annual management fee based on the customer's holdings. So, if you were to buy exactly 1 bitcoin and keep it in, for example, Northcrypto, and buy ETF shares equivalent to 1 bitcoin, you would still own 1 bitcoin after a year and, for example, with a 1% annual management fee, ETF shares equivalent to 0.99 bitcoin.
Summary
Bitcoin spot ETFs approved in the United States in January 2024 have significantly influenced the movements of the cryptocurrency markets this year. Spot ETFs, backed by actual bitcoins, have attracted particular interest because they provide an easy way for institutional investors to invest in bitcoin.
The benefits of investing directly in Bitcoin are manifold. Bitcoin's technological innovations, such as the ability to own and use bitcoins without the intervention of a third party, make it an attractive option for investors. Additionally, Bitcoin's trading hours are flexible, allowing trading around the clock worldwide, which sets it apart from traditional stock exchanges. Although both Bitcoin and Bitcoin ETFs incur trading costs, investing directly in Bitcoin may be cheaper in the long run due to the annual management fees of Bitcoin ETFs. Overall, investing directly in Bitcoin offers investors a unique opportunity to leverage Bitcoin's technological innovations and participate directly in its value development without extra intermediaries.
Ville Viitaharju
Cryptocurrency specialist
Last updated: 26.03.2024 10:20
