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The iShares Bitcoin Trust continues to stand out among a growing field of Bitcoin ETF contenders.
If you are thinking about investing in Bitcoin (BTC -2.62%)you now have plenty of options when it comes to exchange-traded funds (ETFs). In fact, there are now two dozen different ETFs that invest in Bitcoin, either via direct Bitcoin holdings or with the use of futures contracts. The choice of which one to pick can appear overwhelming at first.
One clear standout is the new iShares Bitcoin Trust (GO 0.03%)which started trading in January. While it is still relatively new and does not have the historical track record that one would normally look for in a traditional ETF, there’s plenty to like. Here’s why the iShares Bitcoin Trust could be right for you.
Exposure to the upside potential of Bitcoin
The iShares Bitcoin Trust is a spot Bitcoin ETF, meaning that it buys Bitcoin directly in the spot cryptocurrency market. It does so without the need for complex financial derivatives, such as futures, forwards, or swaps. This is what sets iShares Bitcoin Trust apart from all other Bitcoin ETFs that existed prior to January 2024.
Thus, the iShares Bitcoin Trust provides an easy, convenient way to get exposure to the upside potential of Bitcoin. You no longer have to open an account with a cryptocurrency exchange or create your own blockchain wallet. You simply buy the ETF and let it do all the heavy lifting.
Over the long run, the performance of the iShares Bitcoin Trust should mirror the performance of Bitcoin on a 1:1 basis. In other words, if Bitcoin goes up 50% in a year, then this ETF should also go up 50% in a year.
This is important because, over the past decade, Bitcoin has been one of the best-performing assets in the world. In fact, in seven of the past 10 years, Bitcoin has been the top-performing asset. So, if you are looking for a way to boost the performance of your portfolio, it’s worth considering adding even just a tiny allocation to Bitcoin via this ETF.
Of course, prior performance is no guarantee of future performance. And Bitcoin can experience some very severe downturns. However, many industry analysts are convinced that Bitcoin’s next decade may be just as impressive as its first decade. For example, Cathie Wood of Ark Invest thinks the price of Bitcoin might soar to $3.8 million by the year 2030. Michael Saylor, founder and executive chairman of MicroStrategythinks that the price of Bitcoin could soar as high as $13 million by the year 2045.
Unique diversification benefits
The iShares Bitcoin Trust also provides important portfolio diversification benefits. This might sound counterintuitive at first, given that this ETF only invests in a single asset: Bitcoin. By way of contrast, most ETFs invest in a broad cross-section of stocks in order to provide diversification.
In this case, the diversification comes from the unique properties of Bitcoin, which has historically been uncorrelated with other assets. In short, Bitcoin can zig when other assets zag. Even when the overall market may be performing poorly, Bitcoin can still shine. Of course, there will be periods when Bitcoin’s correlation with other asset classes may increase, but these are likely to be short-lived.
Image source: Getty Images.
In fact, BlackRock (BLK -0.19%)the $10 trillion asset management company behind the iShares Bitcoin Trust, recently published a white paper on Bitcoin’s unique diversification benefits. One key, says BlackRock, is that Bitcoin is much more insulated from the types of macroeconomic factors that impact other asset classes. As a result, Bitcoin can become a safe haven asset during times of economic uncertainty.
Low costs and convenience
The final key selling point for the iShares Bitcoin Trust is that it makes the cost of owning Bitcoin cheaper than if you had purchased it directly via a cryptocurrency exchange. That’s due in large part to the fact that annual expenses for this ETF come in at only 0.25%. That’s low by ETF standards (which can sometimes be more than 1%).
Just as importantly, the expenses for the iShares Bitcoin Trust are competitive with those of other spot Bitcoin ETFs. In fact, all of the new spot Bitcoin ETFs have expense ratios ranging from 0.19% to 0.30%. So, even if you pride yourself on being a bargain-hunter, it’s going to be difficult to find any meaningful cost savings by choosing another spot Bitcoin ETF.
Is this the best Bitcoin ETF?
For me, the factor that tips the scales in favor of BlackRock’s ETF is its sheer size. That makes sense, of course, since BlackRock is the largest asset manager in the world, and iShares is a trusted ETF management name. So, it’s no surprise that the iShares Bitcoin Trust is the largest of the new spot Bitcoin ETFs, with more than $17 billion in assets under management. As a result, it has become the bellwether fund for the nascent Bitcoin ETF industry.
There’s a lot to like about the new iShares Bitcoin Trust. It gives you exposure to the upside potential of Bitcoin while also providing important diversification benefits. It makes buying Bitcoin as easy and convenient as buying your favorite tech stock.
If you are optimistic about the long-run potential of Bitcoin, and are willing to stomach some volatility along the way, then you might consider adding the iShares Bitcoin Trust to your portfolio.