Last week, the first U.S. bitcoin futures exchange-traded fund was launched.
Traders hurried in. When the ProShares Bitcoin Strategy ETF (BITO) launched on October 19, it had the second-largest trading debut ever. Its stock price surged 4%. The Valkyrie Bitcoin Strategy ETF (BTF) debuted Friday.
Some financial experts advise cost-conscious investors to buy bitcoin and other cryptocurrencies outright rather than via a futures ETF.
Buying and holding stocks for the long term saves money, according to advisers.
“They should always acquire bitcoin directly,” said Ivory Johnson, CFP and founder of Delancey Wealth Management in Washington, D.C.
For example, the ProShares and Valkyrie ETFs have 0.95 percent cost ratios. For every $10,000 invested, the asset managers keep $95 every year.
This may not seem like much, but it adds up over time. The investor loses the fee, the fee income, and compound interest.
Here’s an example from the SEC: With a 4% annual return and a 0.25 percent yearly fee, an investor with $100,000 would have $30,000 more after two decades than with a 1% fee (which is about the cost of the bitcoin futures ETFs).
“For a mutual fund or ETF that will be in your portfolio for one, five, ten years or more, 1% is a large fee,” said Charlie Fitzgerald III, CFP, principal and founder of Moisand Fitzgerald Tamayo in Orlando.
Buying bitcoin or other cryptocurrencies directly (not through an ETF) isn’t always free. Crypto exchanges and services like Coinbase often impose a one-time fee that varies by supplier. According to Johnson, it would be cheaper than the annual fund charge for buy-and-hold investors.
Fees aren’t the sole factor. If investors are concerned about hackers or losing passwords or private keys, they may prefer to use an ETF managed by a professional.
This is a tiny price to pay for having an easily available, secure, and regulated product traded on a stock exchange that tracks a regulated investment vehicle.
Short-term investors who expect to sell the ETF within days or weeks may not mind the 0.95 percent cost. (A $10,000 investment is 26 cents per day.)
“The charge is negligible if you hold for two weeks and sell,” Fitzgerald added.
In that instance, a broker’s one-time trading cost is perhaps more important.
Investing fees are generally decreasing. It was 0.41 percent in 2020, compared to 0.93 percent in 2000, according to Morningstar. (Asset-weighted expenses account for relative fund popularity.)
Also, bitcoin futures ETFs do not directly own bitcoin; they buy “futures” contracts, which are agreements to buy or sell the commodity at a later date. Fitzgerald says these funds will often mirror bitcoin values.
(It’s like oil and gold futures.) These investors don’t possess gold or oil.)
But paying 0.95 percent for a fund that may or may not reflect bitcoin’s price is risky, Johnson says.