Why a Bitcoin Investment Fund is a Horrible Idea

6

A friend of mine brought up the idea to me about a firm creating an exchange traded fund (ETF) or Mutual Fund for Bitcoin; similar to GLD which is an ETF for gold, this fund would only hold Bitcoin. Now on the surface this may seem like a great idea for investors who want to invest in Bitcoin longterm, but at its core this is just an investment strategy that will cost you more money than it is worth.

An investment fund (actively managed or passively managed) makes money from its expense ratio. The definition of an expense ratio according to Investopedia is as follows: “A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation, where a fund’s operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund’s assets and lower the return to a fund’s investors.” [Source] This is why any type of fund created by a third-party investment firm with the sole purpose of holding Bitcoin is a bad idea. Bitcoin can easily be purchased through online wallets already, and for relatively cheap – if not completely free. If you purchase the same Bitcoin value, but within a fund, you are now going to be charged X% per year for that Bitcoin to be held within the fund. This process is essentially adding an unneeded middle man, who is solely there to charge you a fee. So if you’re interested in Bitcoin for the long haul, don’t wait for a fund – the current process is the most cost effective.

Coinbuzz

CoinBuzz provides news and analysis on Bitcoin and other digital currencies. Founded in 2014, the site has quickly become a leading source of information on digital currency technologies, businesses, markets, and regulation.

Leave a Reply

6 Comments on "Why a Bitcoin Investment Fund is a Horrible Idea"

Notify of
avatar
 
smilegrinwinkmrgreenneutraltwistedarrowshockunamusedcooleviloopsrazzrollcryeeklolmadsadexclamationquestionideahmmbegwhewchucklesillyenvyshutmouth
Sort by:   newest | oldest | most voted
Mike Kane
Guest
Member
Mike Kane

Austin, while I agree that putting financial products in ETFs or other funds will cost the investor money, if you want bitcoin to thrive (like we all do), then it needs to be easily distributed. We just launched the first retail bitcoin investment product. We manage the bitcoin as part of the investor’s portfolio and show live analytics, etc, but they still have to open a bitcoin wallet, so the bitcoin is held outside of their IRA, 401(k), or other legal account. To encourage people to invest, we are also buying the first bitcoin for clients in the wallet- https://www.hedgeable.com/blog/2014/12/introducing-bitcoin-as-an-asset-class/

Truegoy
Guest
Member
Truegoy

I totally disagree with this article..
If it is so easy to buy Bitcoin as the article say, why are so many people still perplexed about how to buy them?
Also the U.S. is the biggest market for equities with 401k dominating investment process.So why are there so many etfs and investment funds in the market if it is so easy to invest in shares and equities?

Brian Göss
Guest
Member
Brian Göss

Don’t forget, some institutions cant own commodities but can own funds tracking a commodities value. Getting a hedge fund to buy bitcoin directly is less likely than clicking the buy button on the wiklevoss’ COIN etf

John Cunningham
Guest
Member
John Cunningham

So please explain how easy it is for the average investor to put 10% of their Roth IRA into bitcoins with no ETF yet available. Can they do it with less than one hour of education and effort? How would they go about it? Remember, the average investor does not qualify to use the Second Market BIT.

John Cunningham
Guest
Member
John Cunningham

Hint: as far as I know, the only way that the Average Joe can currently buy bitcoins in an IRA is by creating an IRA LLC, which costs about $1500 and dozens of hours of effort to set up. It’s not something that the average investor would ever do. Having an EFT would make it a thousand times easier and cheaper.

Austin H.
Guest
Member
Austin H.

John, I apologize for the delayed reply. Yes currently the only way for an investor to own Bitcoin through their IRA would be to put money into a self-directed IRA and create the LLC from within. That is one way to address the issue. The alternative way would be for the IRS to re-classify Bitcoin from a collectible to a currency. The reason Bitcoin is unable to be held in its current form is due to this classification. FOREX trading is fair game within retirement accounts.

wpDiscuz
X