Fintech Investing

Wondering how to start investing in bitcoin? ETFs may be a method to consider.

Bitcoin is a decentralized digital currency whose fluctuating price holds the promise of big payoffs for some lucky investors.
That said, the question of how to start investing in bitcoin is a tricky one. Traditionally, people who wanted to invest in bitcoin had to turn to a bitcoin exchange in order to buy and sell. Unfortunately, taking that route entails making various decisions, including which exchange to buy from and how much to spend on bitcoins.
Now, however, other methods are available for investing in bitcoin, and people don’t have to directly buy and sell bitcoins through an exchange. One bitcoin investing medium that’s gaining popularity is exchange-traded funds, or ETFs. They offer a safe and familiar way for investors to get involved in the bitcoin market, and follow the stock market price of a specific index, commodity, series of bonds or basket of assets.

Winklevoss twins attempt to establish ETF

Back in July 2013, the Winklevoss twins (of Facebook (NASDAQ:FB) infamy) filed for an ETF called the Winklevoss Bitcoin Trust. The process of establishing this ETF is not yet complete, as the brothers are still striving to fulfill all of its regulatory requirements.
According to a Form S-1 filing from their endeavor, “the investment objective of the Trust is for the Shares to reflect the performance of the price of Bitcoins, as measured by Winkdex, less the expenses of the Trust’s operations.” Furthermore, “the Shares are designed for investors seeking a cost-effective and convenient means to gain exposure to bitcoins with minimal credit risk.” Ultimately, the ETF will trade on the NASDAQ under the symbol “COIN.”

Grayscale’s Bitcoin Investment Trust functions like an ETF

While the Winklevoss Bitcoin Trust is still moving forward, other ETF alternatives have sprung up for those still wondering how to start investing in bitcoin.
For example, the Bitcoin Investment Trust (BIT) (OTCMKTS:GBTC) may serve as a good option. BIT’s shares are the first publicly quoted securities solely invested in and deriving value from the price of bitcoin. The trust is sponsored by Grayscale Investments, a subsidiary of Digital Currency Group. In May, it began trading on the OTCQX market under the ticker symbol GBTC. The fund isn’t technically an ETF, but it is designed to work much like one.
Michael Sonnenshein, director of sales and business development at Greyscale, told the Investing News Network, “[BIT] is modeled after similar structures that accomplish similar proxies to other assets that are already out there. The one comparable that we have here in the US is the SPDR Gold Trust (ARCA:GLD), whereby rather than investors purchasing physical gold and then finding a place to store it … investors will often go out to the public markets and purchase shares … as a way to get exposure to gold and to avoid all of the challenges of purchasing, storing, etc. physical gold.”
This investment strategy is beneficial in that it’s easy and familiar. According to Sonnenshein, “rather than investors having to figure out where to buy bitcoin … we offer investors the ability to get exposed to bitcoin through a titled investment.”

Other ETFs move towards bitcoin

Other ETFs are moving towards incorporating bitcoin. On Tuesday, ARK Investment Management (ARK), a manager of thematic ETFs, announced that the ARK Web x.0 ETF (NYSEARCA:ARKW) has purchased publicly traded shares of BIT.
The press release quotes ARK’s Founder and CEO Cathie Wood as saying, “[w]e’re believers in bitcoin, the currency, and Bitcoin, the technology platform. We also believe that current prices present an attractive entry point for our investors. Bitcoin is a disruptive innovation and while still in its infancy, interest has been growing rapidly in Silicon Valley, Wall Street and Washington, D.C.”
All in all, ETFs just might be the best answer to the question of how to start investing in bitcoin.

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.


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