If you have the choice, buying real Bitcoin is a better bet than paper Bitcoin.
Since January when the SEC finalized their approvals, billions of dollars of capital have flowed into Bitcoin ETFs.
And it’s easy to see why. Bitcoin has crushed the S&P 500 over the last decade, and it’s not even close. Bitcoin ETFs have opened the door to a flood of institutional capital and have made exposure to Bitcoin’s “number go up” attribute accessible with the click of a button on your online brokerage.
But how should one think about buying real Bitcoin directly versus investing in Bitcoin ETFs?
In my view, the people that should consider an ETF include the following:
If you don’t fall into one of these groups, real Bitcoin is probably your better bet.
Why?
There are a few reasons. First, by acquiring real Bitcoin, you are, at least to some degree, betting against our current, broken financial system. Simultaneously betting on Bitcoin’s rise (and, therefore, on the dollar’s fall) in hopes of accumulating more dollars through an ETF seems an odd thing to do.
It would be like believing in your heart of hearts that a greyhound can outrun a bulldog, but putting money on the bulldog to win a race anyway. It doesn’t make sense.
Bitcoiners know that the value of Bitcoin doesn’t go up by magic, but rather as a flight to safety and as an opt-out of the status quo. As adoption increases and Bitcoin appreciates in value, we’ll continue to see the dollar and other fiat currencies fall out of favor. (Though the timeline on this could be years or decades).
A second reason to buy real Bitcoin is related to fees and taxes. When you buy Bitcoin, you’ll pay a transaction fee either on purchase, to move into secure storage, or both.
But with an ETF, you will pay a higher fee, every year, for as long as you own the asset. As Bitcoin’s price rises, the nominal value of those fees do as well.
Additionally, to get your value out of the ETF will require selling at a higher price than you paid. In the US, this means capital gain taxes, which, in 2024, could amount range from 15% to 20%, depending on your income and how long you’ve held the asset.
That is a major chunk of change.
On the other hand, any self-respecting Bitcoiner would tell you never to sell your Bitcoin stack. Instead, many are using it to buy things where they can and still others are holding it long-term until its use is of no tax consequence.
Finally, by my estimation, there is a high probability over the next 10 to 20 years that owners of Bitcoin will be able to utilize their BTC holdings for additional financial gain.
For example, using your Bitcoin to provide liquidity to second layer solutions for payments or enabling Bitcoin lending are possible when you own the real thing, but not when you’re tied up in an ETF.
In other words, owning Bitcoin could likely earn you more Bitcoin in the future. And if you view the world as increasing in Bitcoin adoption, this is a major upside to having custody of the real thing.
As a quick summary, I’d contend that if you meet the following criteria, you probably ought to consider owning real Bitcoin instead of exclusively buying the ETFs:
This is intended as a thought exercise and not financial advice, but makes a lot of sense to me.
Of course, people come to the table at different stages of life and under unique financial circumstances. Acquiring more dollars for particular purposes or at particular times through something like a Bitcoin ETF might make a lot of sense for some people.
There are downsides, like fees, taxes, lack of optionality… sure. But more importantly, owning and taking custody of your own Bitcoin is a bet against a system whose cracks are becoming increasingly apparent each day.
And it is a bet for a better form of money and a more equitable future.
Michael is the Chief Revenue Officer of The Bitcoin Way and host of The Bitcoin Way Podcast.
To schedule a call with The Bitcoin Way to learn more about proper Bitcoin self-custody, you can do so here.
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