In addition, GBTC, the primary way today to get bitcoin exposure in a traditional brokerage account, has a 2% management fee and has traded at significant premiums and discounts to NAV in its history.
Despite the higher costs associated with the cash model, ETFs are still a low-cost wrapper, and a spot bitcoin ETF approval will bring more competition to the market for bitcoin exposure vehicles. With spot bitcoin ETF products available, the fees different platforms charge their customers for acquiring bitcoin will likely come down across the board.
Importantly, though, all of the options on the above graphic represent ways to acquire bitcoin with the option to send to an external address or take custody on-chain, while the ETF will only be a price exposure vehicle, with no way for end investors to take custody of their bitcoin.
Bitcoin ETF: What It Is, What It Isn’t
While some “bitcoin maximalists” will eschew and deride a spot bitcoin ETF, it is important to have some perspective on what it is and what it isn’t.
What it is is a relatively low-cost, accessible, price exposure vehicle for institutions and retail investors. It promises to be a far superior product to GBTC, a product that has amassed $24 billion in assets at current and over $40 billion at peak, proving the market demand for access to bitcoin in a fund wrapper.
Many investors’ primary or sole investment accounts are a traditional brokerage account and an IRA, and having access to a spot bitcoin ETF can be an important first step in their bitcoin journey.
With several ETFs on the market, bitcoin as an asset is going to have an army of investment advisors getting themselves up to speed, and in turn educating their clients. Public awareness and appreciation of bitcoin is likely to go up and to the right. This is a net good for the bitcoin ecosystem, and a necessary step on the long path to a potential global bitcoin standard.
Critics will point to the fact the ETF is just a paper claim on bitcoin, and choosing an ETF over self- or multi-signature custody centralizes custody of bitcoin among a few large institutions. Both of these are valid critiques.
Critics might also see the ETFs as potential honey pots managed by compliant institutions, able to be frozen and seized by threatened governments. Threat of government seizure is one risk factor among many for those who choose to hold bitcoin or bitcoin exposure, and each individual must assess the risks in relation to their own situation. For many, the risk of government seizure pales in comparison to the risk of mishandling their bitcoin while attempting to take custody on-chain, or losing their private key.
Like it or not, a bitcoin standard will require that bitcoin is integrated into every nook and cranny of our global financial system, and this includes being offered in an ETF wrapper.
What an ETF is not is a substitute for self- or multi-signature custody solutions, allowing individuals to assume direct ownership of, spend and use their bitcoin as they see fit.
Onramp’s multi-institutional custody solution and bitcoin investment fund offerings serve to bridge the best of both worlds.
With Onramp, clients get the low cost, ease of use and convenience of an ETF wrapper but with the ability to redeem and take custody of their bitcoin in-kind in a non-taxable way, along with the security and elimination of single points of failure that comes with multi-signature custody.
Onramp provides bitcoin investment solutions built on top of multi-institution custody. To learn more about our products for individuals and institutions, schedule a consultation to chat with us about your situation and needs.
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Until next week,
Zack Morris
