Bitcoin Can Be Better Than Bitcoin Stocks and ETFs,

→ Shares positioned for the year (From PressReach)

Bitcoin (CRYPTO: BTC) seems to move with a mind of its own. At the time of writing, it has just breached the $28,000 resistance level, a new high for 2023. Coincidentally, this rally coincides perfectly with collapse of certain wires of the fiat banking system, happily defying the broad sell-off in stocks as global uncertainty simmers.

Investors looking to jump on board the bitcoin rally have three options: buying the coin outright, buying bitcoin ETF units, and buying shares in bitcoin companies.

Each investment has advantages, disadvantages and idiosyncratic risks that we will discuss in this article.

Holds bitcoin

Most people interested in crypto would recommend buying and holding bitcoin directly. Owning the asset directly provides investors maximum flexibility with how they store and use their coins, as well as the potential for the highest return – but not without corresponding risk.

You alone are responsible for the coins in your bitcoin walletand there is zero chance of getting them back if you misplace yours private key or if someone steals them. This liability is known as custodial risk, and most people are unfamiliar with it before they start experimenting with digital currencies, which leads to problems.

However, most investors completely relinquish the sovereignty of their coins for simplicity and spread wide open. When your coins are stored on an exchange, app, website or anywhere other than your wallet that is only accessible with your keys, you are taking on counterparty risk and it is very likely that you will lose everything.

Common pitfalls

The only practical solution to secure bitcoin long-term is to guarantee that your wallet is not connected to the internet, known as cold storage. Write your public and private keys on durable parts laminated paper can work, as well as have them engraved stainless steel. Hardware wallets are also popular options, but so is saving them on broken devices that no longer have internet access. Redundancy is key.

The next important precaution is to generate your pair in an “air-gapped” environment. Your computer must be brand new or freshly formatted and it must be impossible for it to connect to the internet during the process. Taking these precautions may sound paranoid, but think about it most devices are infected with malwareand you can bet that anyone coding viruses is also looking at your private key to rob you senseless.

Now that we’ve covered the optics of protecting your bitcoin, unfortunately there are also countless ways you can lose it all through greed and financial development. If you transfer some of your coins from cold storage to an exchange, you can earn absurdly high annual percentage returns by: selling options, staking programs, liquidity pools, cloud mining, high yield investment programs, thinly veiled ponzi schemes and so on and so forth and so on. There is no gain without commensurate risk; taking these risks is not necessary.

Bitcoin already is fastest growing asset mankind has ever witnessed. Bitcoin is money. And some recent predictions from tech hawks like Cathie Wood have also put it at $1 million ball pit within the next decade. These predictions are always made about the coin, but the bitcoin ecosystem is undeniably growing; Internet and finance are evolving; and as more people discover and trust bitcoin, the more valuable it must become in the future. The cold storage buy and hold approach is the right approach for virtually all investors.

Bitcoin ETFs

Securing bitcoin for the long term requires technical knowledge that many people have no interest or motivation to learn. This is where pure-play bitcoin ETFs like ProShares Bitcoin Strategy (NYSEARCA: BITO ) has its uses. With custody and most counterparty risks removed, along with the convenience of being in cash, almost anyone can gain exposure to bitcoin without wading through the technical jargon.

Despite their availability, bitcoin ETFs are built on top of complex financial derivatives which is then built on top of bitcoin. In practice, this means that these funds are not only expensive to maintain (and own), but also that you are not actually investing in bitcoin. It’s just more economic engineering.

The cost ratio of BITO is absurdly high at 0.95%. Similar ETFs are in the same ballpark. It is expensive in terms of cost as well as in terms of what you pay for.

If you started with $10,000 in bitcoin and bought $500 of the coin every month for 30 years, along with an expected annual return of 10%, you would have paid $201,430.81 in fees! That’s 20.93% of the total value of your investment.

And then, since you still have cash, inflation and purchasing power, deflation will have eaten away at that nest egg as well. This was avoidable if you diversified from the fiat system in the first place.

Overall, investors sacrifice a lot in terms of utility and total return for convenience with bitcoin ETFs, and the knowledge to secure and keep your bitcoin safe is readily available to anyone who seeks it.

Bitcoin shares

Bitcoin shares has its own ecosystem consisting of exchanges, blockchain development companies and large bitcoin mining operations. The appeal is that investors can potentially have their cake and eat it too by picking a winning stock in addition to driving bitcoin to the moon.

It almost goes without saying that this introduces all kinds of company-specific, macro, competitive, financial, execution and other risks that are absent from both investing in bitcoin and a bitcoin ETF. But buying a good bitcoin stock with strong fundamentals is still a few levels of abstraction closer to bitcoin than a bitcoin ETF, but it also forces you to make some right assumptions.

Also, a company can easily destroy its fortunes much faster than it makes them, so investing in bitcoin companies will always have that degree of leverage to amplify potential gains and losses.

Owning shares in a bitcoin company doesn’t mean someone is invested in bitcoin, and just because one investment goes up doesn’t mean the other will either. Holding both also does not increase one’s exposure symmetrically, as you could simply only buy more bitcoin if you were optimistic about the coin’s future prospects.

Buying bitcoin shares introduces more risk and assumptions into one’s investment task. Bitcoin can be risky enough as it is without adding more moving parts to your investment strategy.

The bottom line

Understanding the technicalities of how to secure your bitcoin holdings requires some technical knowledge, and it can be difficult for non-tech-addicted people to feel at home using it. There is also plenty of ideology and zealotry that can deter ordinary investors from joining the bitcoin community, and finally, there is always a risk that your coins will be taken – even when you followed all the advice.

Still, bitcoin ETFs are expensive, and bitcoin stocks are basically a form of leverage that is more likely to compound losses than gains because of all the added risk involved through stock investing.

Owning bitcoin directly is the easiest and cheapest way to gain exposure to the bitcoin ecosystem when certain precautions are followed.

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