Original Title: "6 Ways to Invest in Bitcoin in 2024"
Author: Jack Inabinet, Bankless
Translation: Luccy, BlockBeats
Editor's note: Bankless analyst Jack Inabinet explores several main methods for individual investors to gain exposure to Bitcoin from various perspectives, covering Bitcoin miners, well-known Bitcoin mining companies, popular Bitcoin ETF products in the market, as well as self-custody and centralized exchanges. BlockBeats has translated the original article as follows:
Currently in the United States, spot Bitcoin ETFs have started trading, making it easier than ever to gain access to Bitcoin, but not all investment approaches are the same.
Today, we will introduce six prominent methods used by individual investors to gain Bitcoin exposure, and discuss the advantages of each method to help you determine which method is most suitable for you.
Bitcoin Miners
Bitcoin miners utilize energy-intensive computer equipment to compete to solve complex cryptographic problems, hoping to guess a number or hash that allows them to solve the problem and gain the ability to add the next block to the Bitcoin blockchain, as Bitcoin rewards from inflationary tokens and transaction fees.
Miners typically don't keep most of the mined Bitcoin in their accounts, instead selling it to pay for operational costs (such as electricity) or expansion (buying new mining equipment), as their income is denominated in Bitcoin, so the price of miners is closely related to the price of Bitcoin.
With the halving approaching, it is important to remember that many miners may face declining profitability, as currently, 97% of their revenue comes from inflationary network rewards, and this portion of revenue will be halved.
Due to unprofitable companies ceasing operations or selling mining equipment, the entire market may consolidate, benefiting the remaining miners who will have greater control over the Bitcoin network's computing power and be able to mine a higher proportion of Bitcoin blocks.
Popular Bitcoin mining companies:
· Marathon Digital Holdings Inc. (MARA)
· Riot Blockchain Inc. (RIOT)
· CleanSpark Inc. (CLSK)
MicroStrategy
Michael Saylor initiated his legendary Bitcoin bet in August 2020, transforming his business intelligence technology company into a Bitcoin holding giant, now owning nearly 1% of all upcoming issued Bitcoins.
Although MicroStrategy holds a large amount of Bitcoin, it does not charge management fees to shareholders, but instead uses profits from its software business operations to cover these costs.
The value balance of MicroStrategy's Bitcoin holdings often trades at a premium or discount, as there is no hard mechanism to enforce anchoring.
When MSTR stock trades at a premium, management typically raises additional funds by selling shares in order to purchase more Bitcoin in the future, thus setting a soft upper limit for MSTR's market value, exceeding the true value of its software business and Bitcoin holdings.
Saylor repeatedly emphasizes that he will not sell, and MSTR lacks any real mechanisms to protect against downside risks, which means the company's market value may trade at a discount for a considerable amount of time, posing a significant risk to shareholders.
The fluctuation of MicroStrategy's stock between a discount and a premium provides a profitable opportunity for traders willing to hold the other side of the market during price discrepancies, but in today's era where there are Bitcoin ETFs available, holding this stock is not reasonable for investors seeking pure Bitcoin exposure.
Spot ETF
The approval of a spot Bitcoin ETF as early as January 2024 is a significant milestone for the cryptocurrency industry, allowing anyone in the United States to access pure cryptocurrency investment opportunities through traditional brokerage accounts, which have already existed in Canada and Europe.
The issuer of a spot BTC ETF holds actual Bitcoins on behalf of ETF shareholders through dedicated cryptocurrency custody institutions (such as Coinbase Custody), whose sole responsibility is to store clients' digital assets.
Shares of spot ETFs can be created or redeemed by authorized participants at any time, meaning the market price of shares is closely tied to their net asset value, unlike trust-based systems where the trading value of Grayscale's Bitcoin Trust (GBTC) fluctuates due to Bitcoin demand.
Although some issuers currently offer fee waivers for the creation or redemption of their spot BTC ETFs, these waivers will eventually expire, at which point shareholders will pay annual management fees based on the product they invested in, ranging from 0.19% to 1.5%.
One of the most appealing features of spot Bitcoin ETFs is their integration with the traditional financial system, which allows investors to purchase shares of these instruments from their existing traditional financial brokerage firms, alongside more traditional investments such as stocks and bonds.
In addition, putting these ETFs into existing tax-advantaged accounts such as 401(k) or IRA can be beneficial for long-term investors seeking to optimize tax efficiency.
Popular spot Bitcoin ETFs in the United States:
· iShares Bitcoin Trust (IBIT)
· Bitwise Bitcoin ETF (BITB)
· VanEck Bitcoin Trust (HODL)
· Valkyrie Bitcoin Fund (BRRR)
· Grayscale Bitcoin Trust (GBTC)
Exchange Custody
Whether you are just getting started with cryptocurrencies, buying your first fraction of Bitcoin, or a committed Bitcoin enthusiast dedicated to accumulating Bitcoin over time, CEX can serve as a gateway for you to enter the world of crypto assets.
CEX makes it simple to convert between fiat and crypto assets, while also eliminating the technical complexities involved in storing your crypto assets and exchanging tokens across different networks.
CEX does not charge users for storing assets but rather earns revenue through transaction fees and additional trading services provided.
For non-U.S. users, many CEX platforms offer perpetual products, allowing traders to speculate on the price of crypto assets with leverage to increase returns and provide opportunities for asset gains through lending and structured products.
While storing Bitcoin on CEX has its advantages, it is important to remember that you are entrusting another party with the responsibility of securing your crypto assets and to always keep in mind that without private keys, you do not have control over your crypto assets.
Futures ETF
Similar to spot ETFs, Bitcoin futures ETFs also offer BTC and trade on CEX. However, unlike "physical" Bitcoin, they hold BTC futures contracts, as their name suggests.
Compared to spot products, futures-based ETFs are considered a suboptimal choice for Bitcoin investment tools because rolling expiring futures contracts expose investors to contango and backwardation effects, leading to price deviations from the value of the underlying assets they aim to track.
The issuers of Bitcoin futures ETFs charge management fees for their products. ProShares Bitcoin Strategy ETF (BITO) is the largest BTC futures-based ETF in terms of assets under management in the United States, with holders having to pay an annual fee of 0.95%.
Popular BTC futures ETFs in the United States:
· ProShares Bitcoin Strategy ETF (BITO)
Self-custody
The cryptocurrency industry has experienced a number of exchange collapses, whether due to fraud or exploiting vulnerabilities, making storing Bitcoin on a CEX you purchased from a riskier decision.
By putting in a little extra effort and technical knowledge, typical cryptocurrency users can adopt a self-custody approach to eliminate a range of risks associated with exchange custody.
Aside from the upfront cost of purchasing a hardware wallet, the physical device that stores the private keys needed to access your cryptographic assets, self-custody does not incur any additional expenses.
Modern hardware devices from companies like Ledger come with a straightforward setup process, making self-custody easily achievable for any user with basic online proficiency. However, key management is a challenge for users as those who fail to properly record or protect their wallet's recovery phrase face the risk of losing 100% of their funds with no chance of recovery.
Since Bitcoin does not support smart contracts, those choosing to self-custody Bitcoin must first send it to a CEX for liquidation, which adds time to obtaining investment liquidity, especially for large deposits that may trigger compliance alerts for high-net-worth individuals.
Reference Reading: "Bankless Guide to Ledger Wallet"
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