Imprint: 3 reasons to buy Bitcoin ETF, not BTC

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December 13th

The first US bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO), was launched in October after a long wait and reached AUM 2 billion in just 2 days.

Since then, several other ETFs have gone public, but many are still wondering why they shouldn’t just buy bitcoin itself. Here are some situations where bitcoin ETFs are a better investment than bitcoin.

What is a Bitcoin ETF?

The Bitcoin ETF (exchange traded fund) functions in a similar way to an investment fund. It allows you to buy into a fund and receive shares that are then traded on the stock exchange.

Bitcoin ETFs hold Bitcoin futures — or make Bitcoins after the ETFs are approved — for their investors, which means you don’t have to worry about caring for them or handling day-to-day cryptocurrency trading tasks. Instead, all you need to do is buy a fund and watch your investment grow.

Bitcoin ETFs are a good option for those who want to invest in Bitcoin but do not feel comfortable trading it on the stock market. They are also a safer option for those who want to invest in Bitcoin but do not want to deal with the security risks associated with cryptocurrency storage.

Some significant bitcoin ETFs (in descending order of assets under management) are:

  • Bitcoin Trust in Grayscale (GBTC)
  • ProShares Bitcoin Strategy ETF (BITO)
  • The purpose of the Bitcoin ETF (BTCC
  • Valkyrie Bitcoin Strategy ETF (BTF)

Before we consider which Bitcoin ETF is the best, we should understand why.

Reason 1: Tax savings

In most jurisdictions, taxpayers have to pay capital gains tax when mining or selling cryptocurrencies.

For assets you have held for more than 1 year (long-term capital gains), Americans must pay 15% to 20%. The amount is similar in Canada, although it is calculated much differently.

Since BTC is a high-growth investment, you will end up paying a large portion of your funds to the state.

In both the U.S. and Canada, the maximum contribution to tax-free savings accounts (Roth IRA and TSFA, respectively) is $ 6,000.

Tax law is complicated and there are many factors in estimating the amount you have to pay. However, if you were to invest $ 6,000 in BTC and 5 times more money a year – for example, if you bought before this latest bull round – you would probably have to pay $ 3,000 to $ 4,000 in taxes.

By using a tax-free savings account, you won’t pay anything for that $ 6,000 a year. Since you can also buy options in the Roth IRA or TFSA, your leverage gain can be significant if you swing successfully.

Reason 2: Leverage trading (in many countries)

Canada, Great Britain, and now Singapore.

The list of countries where people cannot use Binance, the only platform that offers comprehensive leverage trading and cryptocurrency options, is growing.

Fortunately, the high degree of correlation between crypto ETFs (and even crypto-heavy stocks like Coinbase) and the price of BTC allows anyone to start trading leverage on crypto, and there are more ways to choose.

Several alternative market indicators have emerged that might give crypto traders an advantage over those using traditional financial analysis techniques. For example,

  • MVRV Z-score
  • Inventory to flow ratio
  • Short-term to long-term realized value ratio (SLRV).
  • Profit to value ratio (RPV).
  • Net unrealized gain / loss (NUPL)

Crypto investors have a unique opportunity to bet on the effectiveness of these alternative forms of analysis in predicting BTC prices and fluctuations.

If they are accurate, they have an advantage over the market and can make huge profits by buying crypto ETF derivatives.

If the price of BTC rises to its long-awaited limit of 100,000 by the end of March 2022, and we maintain a correlation coefficient of 90+ between ETF and BTC, you could see gains of 4-5X with options on BITO, GBTC, or BTCC, not just 2x on BTC.

Reason 3: Simplicity

Most people don’t like to manage or manage their own investment accounts, not to mention setting up CEX accounts and learning to understand cryptocurrencies. Bitcoin ETFs give them an easy way to invest in bitcoin from their existing savings accounts.

A 2021 Gallup poll found that 51% of Americans own stocks. However, most of these people do not trade, but allow banks to manage their portfolios and access without hands. Bitcoin ETFs allow more people this hands-free approach with BTC — and you don’t even have to move your funds to a new exchange.

Conclusion

For investors who are new to crypto, they are more likely to choose the Bitcoin ETF for the above reasons. However, owning Bitcoin ETFs also has drawbacks. We will list them in the next article.

Published in: Bitcoin, Analysis
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