Disclaimer: Your capital is at risk. This is not investment advice.
Newsletter Issue; 147
We often get asked what the best way is to invest in Bitcoin. It should be an easy thing to do. It’s a highly liquid asset that trades 24 hours a day and is owned by tens of millions of people worldwide. But it isn’t.
If you are a retail investor in the UK, the real question is, what’s the best available way to invest in bitcoin. I frame it like that because the best unavailable way to invest in bitcoin is via a regulated and fully physically backed Exchange Traded Fund (or ETF, sometimes also called Exchange Traded Products, or ETPs).
If ever there has been a period when the infrastructure around this new asset class has been tested, it’s the last eight months. A giant stablecoin has been vaporised, a huge exchange has proved fraudulent, massive hedge funds have disappeared without trace, and, let’s face it, do you really trust yourself to store bitcoin on a USB hardware wallets somewhere in the house? And forget about a listed investment vehicle like the Grayscale Bitcoin Trust. One moment it’s at a 40% premium to asset value, the next at a 40% discount. Or an equity proxy like MicroStrategy, which trades all over the place and is comingled with an operating business. You’re not getting the price exposure you asked for.
No, this year, it’s been the ETF that has proved its value; easy to trade, reliable, safe, and accurately priced. To my knowledge, there hasn’t been a single moment of controversy about a crypto ETP anywhere in the world, since, well, ever.
Shame they’re not available then.
Sadly, if you’re a retail investor in the UK and you decide to own a small amount of crypto, you have few options, and none of them are ETFs. Your options are basically two-fold: via an exchange or self-custody. From the collapse of FTX, we’ve just seen how unnerving the former is, particularly if you’re new to the space. And self-custody really is for the specialist/survivalist.
Clearly, the regulator is uncomfortable with retail investment in bitcoin. Aside from the illiberal nannying of such a stance, the end result is similar to any form of prohibition. People will find a way. Only that way is more likely to be via the manipulative paws of bad actors. Already we have seen large sums of money lost because a straightforward and trustworthy investing structure has been banned for the average saver (not to the rich one, mind you).
Crypto ETFs are now available in the US (via futures), Switzerland, Sweden, Canada, Australia, Hong Kong (also futures), France, Germany, the Netherlands, Brazil, Dubai, and Singapore. Except for Dubai, all are democratic bastions that embrace market economics and freedom. In several cases, the ETFs have received a lukewarm reception, and of course, prices have come down a lot this year. But that’s not the point. The point is that they have done what they said they would do, which is track the underlying asset price and protect investors’ money.
Ultimately, a single regulator can no more hold back bitcoin than King Canute could stop the tide. If the antis are right and bitcoin turns out to be worthless, the market will find out anyway, and money will be lost. It happens. But they might not be, and people should be allowed to make that choice in the safest way they can. And that is via properly regulated and structured ETFs.