Bitcoin futures ETF could be an expensive way to acquire cryptocurrencies in the long run
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Crypto enthusiasts had reason to rejoice last week as the cryptocurrency achieved another milestone: the first fund to trade on the US Bitcoin futures exchange.
Investors rushed to. ProShares Bitcoin Strategy ETF (Beto) has the The second largest commercial appearance For any ETF registered at launch on October 19. its share price jump 4%. A similar fund, the Valkyrie Bitcoin Strategy ETF (BTF) , Friday.
However, cost-conscious investors who want exposure to bitcoin and other cryptocurrencies in their portfolios may be better off buying them directly rather than via futures ETFs, according to some financial advisors.
Advisers said this is primarily the case for buy-and-hold investors, who will save money in the long run.
“It is always better to buy bitcoin directly,” he said. Ivory Johnson, Certified Financial Planner and Founder of Washington, DC-based Delancey Wealth Management
For example, ProShares and Valkyrie ETFs each have a spend ratio of 0.95%. These are the asset manager fund fees; For every $10,000 someone invests, managers keep $95 a year.
This may not sound like much, but the costs can accrue over decades of savings. The investor loses fees and profits on those compound fees and interest.
here it is Example From the Securities and Exchange Commission: An investor who saves $100,000, earns 4% annually and pays a 0.25% annual fee, will have $30,000 more after two decades than the same person who pays a 1% fee (which is the cost of ETFs in Bitcoin futures contracts).
“If it’s going to be part of your portfolio for one, five, 10 or more years, 1% is a huge fee you pay for a mutual fund or ETF,” he said. Charlie Fitzgerald III, CFP, principal and founding member of Moisand Fitzgerald Tamayo Corporation, headquartered in Orlando, Florida.
Of course, buying bitcoin or other cryptocurrencies directly (not via ETFs) is often not free. Cryptocurrency platforms and exchanges like Coinbase usually charge a one-time fee (but not always) which varies by provider. It will generally be much less expensive for buy-and-hold investors than the fund’s annual fee, Johnson said.
And fees are not the only consideration. Investors may feel safer Get crypto access with a professionally managed ETF if they are concerned about hackers or lost passwords or private keys necessary to access the funds.
Short-term investors may also not mind the 0.95% fee if they plan to sell the ETF within days or weeks. (The fee is 26 cents a day on a $10,000 investment.)
“The fee doesn’t make sense if you hold for two weeks and then sell it,” Fitzgerald said.
In this case, he said, the one-time trading fee paid by the broker is likely to be more significant.
In general, there has been a general trend towards lower investment fees. The average expense ratio for mutual funds and ETFs in the United States was 0.41% in 2020, less than half the 0.93% in 2000, according to Morningstar. (These costs are asset-weighted, which means they represent the fund’s relative popularity.)
Another important distinction: Bitcoin futures ETFs You do not directly own Bitcoin; They buy “futures” contracts, which are agreements to buy or sell an asset later at an agreed-upon price. Fitzgerald said such funds will generally track bitcoin prices.
(It’s a similar concept to oil and gold futures contracts, for example. These investors don’t own actual gold or barrels of oil.)
However, Johnson said that investors may ignore paying the 0.95% fee for a fund that may or may not track the price of bitcoin.