Thank you again to our guest (not-so-)ghost writer Jason Abrams for his assistance on this article. Jason also maintains a personal blog where he writes about other topics in finance, which you can find here. (NB: linking to Jason's site does not imply we agree with or endorse the contents of his blog.)
Because cryptocurrencies have been getting a lot of attention in the news, we sometimes get questions from clients about including Bitcoin (BTC) or other digital currencies in their holdings. In this article, we will provide information on ways to invest in cryptocurrency or related blockchain technology funds using a brokerage account. We generally don’t discuss purchasing cryptocurrency directly with custodians like Coinbase, investing in private cryptocurrency or blockchain funds, or investing in specific stocks, as that is not a service we offer.
What is cryptocurrency?
Bitcoin and other cryptocurrencies are software programs that store information in a type of database called a blockchain. The Bitcoin blockchain stores a record representing the amount of Bitcoin that each user owns, and all of the payments that each user makes or receives. This serves a similar function to how banks record the amount of money that each client has in their accounts and make an entry in their database every time a client sends or receives funds.
Should I own any BTC or other cryptocurrencies?
This is not a question that we cannot reasonably answer in a wide-audience format like this one.
We construct diversified and risk-appropriate portfolios for our clients using traditional investments. The high potential risk and volatility of cryptocurrencies is not necessary for most people to achieve their financial goals. However, each client has different investment goals and we always have discussions with clients to understand and meet their individual needs.
What are some options for buying cryptocurrency or blockchain related funds in my brokerage account?
Most traditional custodians and accounts cannot hold cryptocurrencies directly, but there are three main ways to have indirect exposure to cryptocurrencies within a brokerage account. You can invest in a fund that owns cryptocurrency, you can invest in a fund that trades cryptocurrency futures, or you can invest in a company (or fund that holds companies) who do work in the cryptocurrency or blockchain industry. Each of these options has benefits and drawbacks.
Funds that directly own cryptocurrencies can be one of the most straightforward ways to invest in this space. The Grayscale Bitcoin Trust (Ticker: GBTC), for example, is one of the earliest such funds and is still one of the most well known. This convenience comes at a cost, because this fund has high fees compared to much of the universe of other investment options. In addition, this fund has had a degree of tracking error in the past, so your investment in such funds could rise or fall differently than the rise or fall in the underlying cryptocurrency.
Another way for investors to gain exposure is through Bitcoin futures ETFs. Futures funds don’t own cryptocurrencies directly; rather, they own cryptocurrency futures contracts which requires them to buy or sell a cryptocurrency at a specific price at a later date. There are several of these ETFs, and many have expense ratios lower than direct-holding funds. However, futures contracts can be more volatile than the underlying asset, which can increase the risk of holding these funds. In addition, these funds need to buy new futures contracts as their existing contracts reach the expiration date, which can be expensive and create a “headwind” that reduces investment returns. As a result, cryptocurrency futures ETFs can be a costly option. Cryptocurrency futures ETFs tend to be used more for short-term trading and less as a long-term holding.
Finally, there are some thematic ETFs that invest in public companies that are involved with cryptocurrencies and blockchain. These can include Bitcoin mining companies or companies who use blockchain technology. For example, Global X’s Blockchain ETF (BKCH) and VanEck’s Digital Transformation ETF (DAPP) invest in companies like Coinbase, Marathon Digital, and Galaxy Digital. Thematic ETFs like these funds tend to have lower correlation to the price of cryptocurrencies, so don’t expect the performance to be similar.
Summary
The list below compares several of the options discussed. Please note that this is not an exhaustive list of all cryptocurrency- or blockchain-related funds that can be purchased in a brokerage account.
Product | Grayscale Bitcoin Trust | VanEck Digital Transf. ETF | Global X Blockchain ETF | VanEck Bitcoin Strategy ETF | Global X Blockchain & Bitcoin Strategy ETF |
|---|---|---|---|---|---|
Symbol | GBTC | DAPP | BKCH | XBTF | BITS |
Crypto Exposure | Direct holding (Bitcoin) | Thematic (Blockchain stocks) | Thematic (Blockchain stocks) | Futures (Bitcoin) | Futures & Thematic Blend |
Liquidity | Intraday | Intraday | Intraday | Intraday | Intraday |
Minimum Investment | None | None | None | None | None |
Expense Ratio | 2.00% | 0.50% | 0.50% | 0.65% | 0.65% |
Disclosure
Jason Abrams does not own actual or beneficial shares in any of the securities mentioned above.
Disclaimer
This post is for informational purposes only and is not intended to provide investment advice. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, market sectors, other investments or to adopt any investment strategy or strategies. This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. This material is not intended to be relied upon as a forecast or research. There is no guarantee that any forecasts made will come to pass. As a practical matter, no entity is able to accurately and consistently predict future market activities. The opinions expressed are those of CJW Capital LLC ("CJW Capital") as of the date of publication and are subject to change at any time due to changes in market or economic conditions.
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