Bitcoin may be the "future of money," but its future success is no guarantee.
That's true of any investment, and that's why investors frequently flock to mutual funds and exchange-traded funds, which typically hold a diversified selection of stocks or other assets. But in the case of bitcoin, there is no bitcoin ETF available to U.S. investors. The Securities and Exchange Commission has dragged its feet to approve one. In the meantime, investor interest in cryptocurrency doesn't seem to be waning.
Bitcoin ETFs definition
While no bitcoin ETFs are currently approved by the SEC, if they are given the green light, a bitcoin ETF would operate much like any other ETF. But instead of tracking a market exchange like the S&P 500 or the Dow Jones Industrial Average, a bitcoin ETF would track the price of bitcoin. When the price of bitcoin increases, so would the price of a share in the ETF.
If a bitcoin ETF is approved, it will combine the best parts of two popular investments: the ease of investing in an ETF and exposure to the popular cryptocurrency bitcoin.
Why do investors want a bitcoin ETF?
Investing in bitcoin itself can be complicated, but investing in a bitcoin ETF would give investors easy access to the world of cryptocurrency. There are several reasons why a bitcoin ETF could make it simpler to invest in cryptocurrency. First, bitcoin itself can be tricky to store and secure. There have been several instances of investors being blocked from accessing their bitcoin because they forgot their passwords (sometimes with millions of dollars on the line). According to data from cryptocurrency research and software firm Chainalysis, about 18% percent of bitcoin may be lost or stuck in inaccessible wallets.
Another consideration is the fact that ETFs can be traded right from investors’ existing brokerage accounts. Investing in a bitcoin ETF would eliminate the need to learn a new (and potentially complicated) cryptocurrency trading platform.
» Ready to get started? Here are the best online brokerages
Bitcoin ETF regulation
So far, there are no approved bitcoin ETFs in the United States. In a June 16 statement, the SEC said it is further delaying its decision on whether to approve a bitcoin ETF. This is not the only proposal the SEC has received for consideration: The first attempt was in 2013, and there have been a handful since. The commission has publicized its concerns about potential manipulation and fraud that could come with a bitcoin ETF approval.
Foreign exchanges don’t seem to have the hang-ups the SEC has with bitcoin ETFs, and several crypto products have already been approved in Europe and Canada.
Other ways to invest in cryptocurrency
Cryptocurrency is still relatively new and should be approached with caution. But if you’re excited about crypto and feel like you have space in your portfolio to add an investment with a little more pizazz, here are some ways you can invest:
1. Directly in cryptocurrency. Bitcoin is becoming more common — you can even use it to shop on Amazon. There are many types of cryptocurrencies to choose from, including bitcoin, ether and tether. Bitcoin is the largest and most established of all the cryptocurrency players, but that doesn’t make it a safe bet. It’s good to practice caution when adding any new investment to your portfolio. Learn more about how to invest in crypto.
» Ready to invest? Here are our picks for the best bitcoin and crypto exchanges
2. Crypto-related investments. If you don’t want to navigate a whole new form of currency, you can still invest in the future of money. Coinbase, a major cryptocurrency exchange, went public in April 2021, meaning you can buy its company stock. (Learn how to buy Coinbase stock.) And while there may not be a bitcoin ETF yet, there are blockchain ETFs. Blockchain is the central technology behind cryptocurrencies, and there are plenty of companies involved in its development and utilization. There are also several ETFs made up of those companies, which can give investors exposure to crypto technology without investing directly in the currencies themselves.
Disclosure: The author held no positions in the aforementioned securities at the original time of publication.