This is an op-ed by David Waugh, business development and communications specialist at Bitcoin investment platform Coinbits.
A few weeks ago, BlackRock and other major financial companies Apply for permission To introduce Spot Foreign Exchange Traded Funds (ETFs).
Although the US Securities and Exchange Commission (SEC) advertiser that these initial deposits were insufficient, forcing companies to repackage them, Many investors believe they will Finally it is approved, resulting in the creation of the first products of its kind on the market. These new financial instruments will allow institutional and retail investors to gain exposure to the Bitcoin price without having to purchase actual Bitcoin.
Ostensibly, this would be a huge gain for Bitcoin adoption because it would become easier for financial advisors, previously reluctant or unable to enter this market, to assist clients with some form of Bitcoin allocation.
Banks and other traditional financial players will use the spot ETF to increase their exposure, which could lead to an increase in the Bitcoin exchange rate with the dollar. However, for families and individuals, shares of a bitcoin product through spot ETFs are not a substitute for holding bitcoins in self-custody.
Ultimately, Bitcoin ETF products still exist within the traditional financial system and do not provide complete protection from market, government, or compliance risks. As such, market forces can influence issuers of ETFs, and governments can enact and enforce regulations. by decree that reduce or degrade the value of consumer assets.
In contrast, holding real bitcoin allows individuals to access a file bearer digital assets outside the control of governments and traditional financial institutions. Although it introduces new risks associated with private key management, every diversified wallet must have a real allocation of bitcoin, regardless of any additional allocation to the Bitcoin ETF.
As investors seek diversification to spread risk and protect themselves from geopolitical and market shocks, there is no substitute for bitcoin in self-holding.
Tips outside the financial system
For years, financial advisors have duly allocated clients’ wealth across a variety of traditional financial assets (stocks, bonds, real estate, and insurance). All in all, they did reasonably well. Vanguard Analysts I calculated Advisors can increase the value of client portfolios by up to 3% once they are sure they are following best practices, rather than trying to chase returns. Consultants benefit from a Typical annual fee of 1% On Assets Under Management (AUM).
However, good financial advisors are more than external portfolio customizers, recommending the right asset “mix” that matches the client’s goals and risk profile. They work with clients to ensure protection against a wide range of outcomes and to ensure wealth is preserved through retirement and for future generations.
Some advisors ignore the fact that provisions entirely within the traditional financial system are exposed to risks arising from “boom and bust” financial market cycle. As a result, clients sometimes must risk not being able to retire or change jobs until the market picks up again, putting them at a major setback in their lifestyle.
Proper diversification requires liquid assets outside the traditional financial system. For generations, the best assets to do so It was physical gold. However, in 2009, Satoshi Nakamoto released the next best carrier asset, Bitcoin, and with it a new system with A stable and credible monetary policy. Now, anyone can use bitcoin to free up liquidity during a crisis.
against a spot ETF. Real Bitcoin
A potential Bitcoin spot ETF would provide benefits, such as exposure to Bitcoin price movements, some diversification from traditional financial markets and ease of buying. Despite these advantages, however, they stumble voguewhich is a key feature of a diversified portfolio.
Bitcoin operates on a cash network that operates 24 hours a day, 365 days a year. Individuals and organizations can use it to transfer value instantly without the consent of the third party. They can also sell bitcoin for fiat at any time via centralized or peer-to-peer exchanges.
In contrast, individuals and institutions can only exchange shares in a spot ETF for bitcoin for cash when the financial markets are open, which, for retail investors, is from 9:30 a.m. to 4:00 p.m., EST on weekdays, excluding holidays. Exchanges can also stop trading at will or due to their receipt Regulatory orderwhich limits the sellability of ETF shares.
In another scenario, if the government tries to restrict the acquisition of bitcoin, it may be able to seize the asset manager’s bitcoin or order the liquidation of the ETF. Holding real bitcoins yourself by managing your private keys offers you the ability to exit a system with strong capital controls, rather than suffer the consequences of an unpredictable future.
Basic protection, meaningful diversification
Owning shares in a Bitcoin product is not directly equivalent to owning Bitcoin. Bitcoin spot ETFs will remain tied to the traditional financial system. This has some moderate advantages, but ultimately this limits Bitcoin’s ability to be used as a shield against the risks inherent in the traditional financial system.
Including actual bitcoin is essential for a diversified portfolio, even if that portfolio already contains a spot bitcoin ETF position.
This is a guest post by David Waugh. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.