6 Ways to Invest in Bitcoin in 2024, See Which One Suits You Best
You have other options to invest in BTC.Original Title: "6 Ways to Invest in Bitcoin in 2024"
Original Author: Jack Inabinet, Bankless
Original Translator: Luccy, BlockBeats
Editor's Note: Bankless analyst Jack Inabinet explores several key methods for individual investors to gain exposure to Bitcoin from multiple angles, covering Bitcoin miners, well-known Bitcoin mining companies, popular Bitcoin ETF products in the market, as well as self-custody and centralized exchanges. BlockBeats has compiled the original text as follows:
Now in the United States, spot Bitcoin ETFs have begun trading, making it unprecedentedly easy to acquire Bitcoin, but not all investment avenues are the same.
Today, we will introduce six prominent methods used by individual investors to acquire Bitcoin and discuss the advantages of each method to help you determine which one is best for you.
Bitcoin Miners
Bitcoin miners compete to solve complex cryptographic problems using energy-intensive computing equipment, hoping to guess a number known as a hash to solve the problem and gain the ability to add the next block to the Bitcoin blockchain, receiving Bitcoin rewards from inflationary token rewards and transaction fees.
Miners typically do not store most of the Bitcoin they mine in their accounts but sell it to cover operational costs (such as electricity) or for expansion (buying new mining equipment). Since their income is denominated in Bitcoin, the stock prices of miners are closely related to the price of Bitcoin.
As the halving approaches, it is important to remember that many miners may face declining profitability, as their current income from inflationary network rewards accounts for 97% of the total rewards for mining Bitcoin blocks, and this portion of income will be halved.
With unprofitable companies ceasing operations or selling mining equipment, the entire market may undergo consolidation, benefiting the remaining miners who will have greater control over Bitcoin network hash power, allowing them to mine a higher proportion of Bitcoin blocks.
Popular Bitcoin Mining Companies:
Marathon Digital Holdings Inc. (MARA)
Riot Platforms Inc. (RIOT)
CleanSpark Inc. (CLSK)
MicroStrategy
Michael Saylor initiated his legendary Bitcoin bet in August 2020, transforming his business intelligence technology company into a Bitcoin custodian giant, and today the company holds nearly 1% of all Bitcoin that will ever be issued.
Although MicroStrategy holds a significant amount of Bitcoin, it does not charge management fees to shareholders but uses profits from its software business operations to cover these costs.
The value balance of MicroStrategy's Bitcoin holdings often trades at a premium or discount because there is no hard mechanism to enforce the peg.
When MSTR stock trades at a premium, management typically raises additional funds by selling shares to purchase more Bitcoin in the future, setting a soft cap on MSTR's market value, which exceeds the true value of its software business and Bitcoin holdings.
Saylor has repeatedly emphasized that he will not sell, and MSTR lacks any real mechanism to protect against downside risk, meaning the company's market value may trade at a discount for a considerable time, posing a significant risk to shareholders.
The fluctuations of MicroStrategy stock between discounts and premiums provide a profitable opportunity for traders willing to hold the market's other side during price discrepancies, but in today's era with spot Bitcoin ETFs available, holding this stock does not make sense for investors seeking pure Bitcoin exposure.
Spot ETFs
The approval of spot Bitcoin ETFs in January 2024 marked a significant milestone for the cryptocurrency industry, allowing anyone in the U.S. to gain pure cryptocurrency investment opportunities through traditional brokerage accounts, products that have long existed in Canada and Europe.
Issuers of spot BTC ETFs hold actual Bitcoin on behalf of ETF shareholders through specialized cryptocurrency custodians (such as Coinbase Custody), whose sole responsibility is to store clients' digital assets.
Shares of spot ETFs can be created or redeemed at any time by authorized participants, meaning the market price of the shares is closely related to their net asset value, unlike trust-based systems where the trading value of Grayscale's Bitcoin Trust (GBTC) fluctuates due to changes in Bitcoin demand.
While some issuers currently offer fee waivers on their spot BTC ETFs, these waivers will eventually expire, at which point holders will pay annual management fees based on the products they invest in, with rates ranging from 0.19% to 1.5%.
One of the most attractive features of spot Bitcoin ETFs is their integration with the traditional financial system, allowing investors to purchase shares of these tools from their existing traditional financial brokerage firms, alongside more traditional investments like stocks and bonds.
Additionally, placing these ETFs into existing tax-advantaged accounts, such as 401(k) or IRA, offers significant benefits for long-term investors seeking to optimize tax efficiency.
Popular U.S. Spot Bitcoin ETF Tickers:
iShares Bitcoin Trust (IBIT)
Bitwise Bitcoin ETF (BITB)
VanEck Bitcoin Trust (HODL)
Valkyrie Bitcoin Fund (BRRR)
Grayscale Bitcoin Trust (GBTC)
Exchange Custody
Whether you are new to cryptocurrency, purchasing your first small portion of Bitcoin, or a dedicated Bitcoin enthusiast committed to continuously accumulating Bitcoin, CEX can serve as a gateway into the world of crypto assets.
CEX simplifies the conversion between fiat and crypto assets while eliminating the technical complexities involved in storing your crypto assets and swapping tokens across different networks.
CEX does not charge users for storing assets but generates revenue through trading fees and other additional trading services provided.
For non-U.S. users, many CEXs offer perpetual products that allow traders to speculate on crypto asset prices using leverage to increase returns and provide users with opportunities to earn asset returns through lending and structured products.
While there are advantages to storing Bitcoin on CEX, it is important to remember that you are entrusting another party with the security of your cryptocurrency and keep in mind: no private key, no cryptocurrency.
Futures ETFs
Similar to spot ETFs, Bitcoin futures ETFs also provide BTC and trade on CEX, but unlike "physical" Bitcoin, they hold BTC futures contracts, as their name suggests.
Compared to spot products, futures-based ETFs are considered a suboptimal choice for Bitcoin investment tools because rolling futures contracts expose investors to contango and backwardation effects, causing futures-based tools to deviate from the asset prices they aim to track.
Issuers of Bitcoin futures ETFs charge management fees for their products, with ProShares Bitcoin Strategy ETF (BITO) being the largest BTC futures-based ETF in the U.S. by assets under management, requiring holders to pay an annual fee of 0.95%.
Popular U.S. Futures BTC ETFs:
- ProShares Bitcoin Strategy ETF (BITO)
Self-Custody
The cryptocurrency industry has experienced several exchange collapses, whether due to fraud or exploiting vulnerabilities, making it a risky decision to store Bitcoin on the CEX where you purchased it.
With a bit of extra effort and technical knowledge, ordinary cryptocurrency users can adopt self-custody to eliminate a range of risks associated with exchange custody.
Aside from the upfront costs of purchasing a hardware wallet, which is a physical device needed to store access to your crypto assets' private keys, self-custody does not incur additional costs.
Modern hardware devices from companies like Ledger come with a simple setup process, allowing any user with basic online proficiency to easily achieve self-custody, but key management can be a challenge for users, as those who fail to properly record or protect their wallet's recovery phrases face the risk of losing 100% of their funds with no way to recover them.
Since Bitcoin does not support smart contracts, those who choose to self-custody Bitcoin must first send it to a CEX for sale, which increases the time to obtain investment liquidity, especially for large deposits that may trigger compliance alerts for large holders.
