First up, this article is going to feel contradictory, heavy with irony, or even like a spicy take. Yes, we’re talking about Bitcoin ETFs.
Second…up, we aren’t here to promote or suggest or change your mind, but we see it as our role to provide balanced guidance. Our aim is to help you to pause, do your research, and make decisions that are right for Future You.
In case you missed it, the U.S. Securities and Exchange Commission (SEC) recently approved Bitcoin spot price exchange-traded funds (ETFs). Since then, 11 have started trading on the New York Stock Exchange, Nasdaq, and Cboe Global Markets.
This means that pretty much anyone with a US shares account can now invest in ETFs that hold and track the price of Bitcoin. Hence, this article…
Before we go any further, here’s a reminder from our hero Warren Buffett: “Wall Street makes money, one way or another, catching the crumbs that fall off the table of capitalism.” Buffett also said: “They don’t make money unless people do things, and they get a piece of them. They make a lot more money when people are gambling than when they are investing.” (April ’22).
Make of that what you will (but we get it – it’s what drove us to build Pearler to rewrite investing in favour of the investor…). Remember, though: this is a series of ETF managers popping Bitcoin into an ETF, raising money off retail investors, and charging fees whether it goes up or down. They find a way to win either way.
In the spirit of being balanced, it's entirely possible that, after a lifetime of being smarter than everyone else when it comes to investing, Mr Buffett may just not get it. Like with all investing, time will tell. And because we are a free people, each on our own journey, there is generally no absolute right or wrong. So, we’re here to help you forge a path that suits you.
If you’re planning to move from crypto exchanges to ETFs, or you’re even just a bit Bitcurious, we’ll cover a “how-to” at the end of this email. First, though, we want to explore three themes:
- What’s Pearler’s investing philosophy?
- How do Bitcoin ETFs work?
- As a platform that believes in ETFs and has historically avoided crypto, what does Pearler think of them?
What's Pearler's investing philosophy?
Since we launched, we’ve maintained a clear investing philosophy: sensible, buy & hold, long-term investing. And this community has run with it, investing incremental amounts into ETFs and shares. Whilst everyone in our community is unique, their investing approaches have something in common: they’re all diversified and well thought out. We’ve gone on and on about it, but here’s a short list of our thoughts:
- Pearler’s general philosophy
- How to create a diversified portfolio when investing
- The investing strategy we back for everyday Australians
- Diversifying with other assets
How do Bitcoin ETFs work?
Now that we’ve laid that groundwork, let’s take a look at Bitcoin ETFs. A Bitcoin ETF offers a new way to hold Bitcoin without trusting a random crypto trading app or hard or soft wallet. These ETFs are traded just like regular ETFs / stocks on US exchanges, and are provided by some well known ETF providers and fund managers.
In Australia, the option already exists to hold a similar ETF from Global X; most of what we talk about from here is also relevant to these options if you’re curious.
At the moment, there are two types of Bitcoin ETFs available: spot Bitcoin ETFs, and Bitcoin futures ETFs. Spot Bitcoin ETFs are like baskets which hold actual Bitcoins – these are the new ones that have many people excited. The spot ETF's value is linked to the price of Bitcoin as it fluctuates. In this way, it works similarly to other passive ETFs that hold stocks or commodities.
In contrast, Bitcoin futures ETFs are a different beast. They don't own any actual Bitcoins; instead, they deal with Bitcoin futures contracts. These contracts agree to buy or sell Bitcoin at a set price on a future date. You’ll also notice the management fees on these futures ETFs are much higher than for the spot ETFs.
If you’re feeling confused, that’s not uncommon, but if you’re determined to pursue something in this space, (please) try to get to a point where you’re not confused.
What does Pearler think of Bitcoin ETFs?
As we mentioned earlier, Pearler is all about investing incremental amounts in diversified portfolios. Among our community, ETFs have proven to be the most popular vessel for enacting this strategy. It’s fair to say, then, that we’re fans of ETFs. On the other hand, we’ve never promoted speculative trading of any kind – and crypto has historically fallen into that category. At a glance, from a philosophical standpoint, Bitcoin ETFs might seem like a paradox for us.
While it might feel like a cop-out, we don’t think it’s constructive to have a specific stance on the topic of Bitcoin ETFs, because as we’ve said, there’s rarely an absolute right or wrong for everyone.
We’ve probably gone on enough about our general investing philosophy, and it’s weird to be talking about an ETF (something that’s done so much good for people) in this highly conditional way. This is because Bitcoin ETFs have one very material difference to the most-invested ETFs on Pearler.
Note: These next few paragraphs might cause some to take offence, but it’s not meant to. We think this is a pretty valid point, even if it’s not a reason not to invest for many people.
This is not a prediction, but…the chances of a broad-based ETF that hold companies on an established exchange, like the S&P 500 or ASX, going to zero or near zero over the long term are unfathomably low. This is because they hold the most valuable companies as the list changes over time. They don’t hold on to losers forever (and we're not saying BTC is a loser!).
The difference with a Bitcoin ETF is that if the asset collapses due to demand or some other tech issue, so does the ETF. Again, in the spirit of balance, the same could technically be said about commodity ETFs; say, if people no longer had any use for gold or silver.
We think conversation and respectful disagreement is a great thing, and we think this topic has and will continue to stoke vibrant chats, DMs, even arguments between friends, family members, baristas and colleagues. If you’re interested, we suggest you get into it, do your research, and stay safe!
Some ways to start your research
If we’re talking about diversified investing, a Bitcoin ETF could theoretically fit into a larger portfolio. However, before you go adding it to your wishlist, we should highlight the value of doing your own research. To begin, you can browse Bitcoin ETF listings on Pearler and click on each one of them. These are the available Bitcoin spot price ETFs available on Pearler:
This isn’t where your research should end, though. Beyond considering your own aims and risk tolerance, you should also seek further info on the ETF in question, including:
- The fund’s website to find the ETF's key numbers, manager, and other info
- Reviews and media articles about both the fund itself and the fund’s manager
- Any other relevant details on the ETF that may affect your decision.
At the end of the day, only you can know whether this (or any) investment is right for you. And the more you research, the better equipped you’ll be to make that decision.
If I’m interested, how can I invest in Bitcoin ETFs?
If you have a Pearler account, investing in Bitcoin ETFs is easy. Simply head to pearler.com/explore/invest/us-shares and search “Bitcoin”. From there, you’ll find a list of recently approved Bitcoin ETFs, which you can buy via your Pearler account.
Have any questions about Bitcoin ETFs? Feel free to email us any time at help@pearler.com. Alternatively, you can ask any questions over at the Pearler Exchange, where real Pearler investors share their thoughts.
Happy investing (and researching),
Nick
