Bitcoin ETFs Are Here. Why You Should Buy and Hold Long Term

 

On Jan. 10, the SEC finally approved the first-ever spot Bitcoin (CRYPTO: BTC) exchange-traded funds (ETFs). For good reason, they have been called the most important new product Wall Street has created in nearly 30 years. That's because these ETFs make the process of buying and selling Bitcoin so simple that practically anyone can do it.

As a result, the new Bitcoin ETFs could change the world of crypto investing forever. But there's one thing that they will not change: The need for a long-term, buy-and-hold strategy when investing in Bitcoin.

Capture Bitcoin's long-term price performance

While there are undoubtedly some investors who will actively trade these ETFs, or who will use them as part of sophisticated portfolio hedging strategies, they are designed primarily for only one purpose: To get passive exposure to the long-run price potential of Bitcoin.

The appeal of the newly introduced Bitcoin-backed ETFs lies in their direct correlation with Bitcoin's price movements, as opposed to traditional ETFs that rely on derivatives. By holding these ETFs, investors essentially mirror the performance of Bitcoin itself, benefiting from the cryptocurrency's potential for substantial gains. Unlike diversified ETFs that encompass various stocks, these specialized funds exclusively hold Bitcoin.

The straightforward exposure to Bitcoin's long-term price trajectory attracts investors who anticipate significant upward movement in the cryptocurrency market. Predictions for Bitcoin surpassing previous highs, potentially reaching $100,000 or more by the end of 2024, contribute to the allure. Visionaries like Cathie Wood envision even more substantial growth, projecting a staggering $1.5 million for Bitcoin by 2030.

The key to maximizing returns in this context is adopting a buy-and-hold strategy. Constantly entering and exiting the market may result in missing out on the full extent of Bitcoin's potential gains. The emphasis here is on the simplicity and efficacy of holding onto these ETFs for an extended period, allowing investors to navigate the volatility of the cryptocurrency market while positioning themselves for potential long-term benefits.

Minimize your total cost of ownership

Another crucial aspect of the recently introduced Bitcoin ETFs is their emphasis on minimizing the overall cost for investors. In a competitive race to attract funds swiftly, these new ETFs stand out for their remarkably low expense ratios.

Some offerings feature fees as minimal as 0.20% annually, prompting speculation among analysts that major Wall Street firms may not generate substantial profits from them. However, it's suggested that these financial institutions will likely recoup costs through alternative means.

For those contemplating exposure to Bitcoin, a straightforward calculation becomes paramount. Compare the total expenses of purchasing Bitcoin directly from a cryptocurrency exchange like Coinbase Global (NASDAQ: COIN) to the significantly lower costs of owning the new ETFs. Unless Coinbase opts to reduce its trading fees, opting for cost-effective ETFs tends to be a logical choice. With near-zero expenses, incorporating Bitcoin into your portfolio becomes a financially efficient option.

This underscores the impracticality of adopting a short-term trading strategy for Bitcoin. Such an approach could overlook the cost benefits offered by the new Bitcoin ETFs, potentially inflating the overall cost of ownership. Additionally, there's the risk of missing out on the inherent tax efficiencies associated with the ETF investment vehicle.