Potential pros of spot bitcoin ETPs
May make crypto more accessible to the public
Those new to crypto can find it hard to understand the details behind buying bitcoin and other cryptocurrencies. Which platform should I use to buy crypto? Was my purchase recorded on the blockchain? Where are the coins I just bought stored? These questions can be daunting for first-timers.
Then, once you’ve made your purchase, there are financial planning considerations that differ from those of traditional assets. For example, when it comes to reporting taxes for traditional assets, your gains and losses can often be synced to tax preparation software with a single click through your brokerage platform. Reporting crypto taxes, however, may require uploading documents to your tax preparation software, as the ability to sync seamlessly with platforms offering crypto may not yet exist. Apart from taxes, there are also unique steps necessary for fitting crypto into your estate plan.
These factors may make those who are unfamiliar with crypto’s nuances hesitant to invest. They can also make it harder for financial advisors to incorporate crypto into an investment plan for clients.
Buying spot bitcoin ETPs, however, operates much like buying an index fund or sector ETF. Investors can complete everything through more traditional routes, including brokerage accounts, IRAs, and trusts, which simplifies many of the questions above. Tax and estate planning considerations may also be simpler to manage through this route.
Note: Despite the potential advantages, remember that spot bitcoin ETPs hold bitcoin as their underlying asset. Bitcoin and other cryptocurrencies are highly volatile and may be more susceptible to market manipulation than other securities.
Nevertheless, in general, the ETPs remove significant hurdles for investors who want exposure to bitcoin.
May have fewer security considerations compared to buying bitcoin
Those who aren’t familiar with the nuances of crypto cybersecurity may also find it confusing to learn how to keep their bitcoin secure. Protecting your bitcoin requires knowing the difference between hot and cold wallets, ways to avoid scams, features of reliable custodians, and other best practices.
These aspects are critical knowledge for bitcoin owners because there is no central customer service team in crypto. If you’re hacked or scammed, or if the crypto exchange you’re storing your coins on collapses, you may lose access to your investments forever.
For those who have been hesitant about buying crypto because of these risks, spot bitcoin ETPs are an alternative that potentially comes with fewer of these risks. With the ETP, you only need to protect the login to your financial platform, rather than learn and manage multiple cybersecurity nuances. However, note that you are still trusting that the ETP issuer is managing these cybersecurity nuances effectively.
Additionally, ETPs in general are subject to certain regulatory oversight from government agencies. This contrasts with the crypto market, which is currently less regulated. Some investors may feel more confident buying an asset that is subject to regulation.
