It’s official.

As promised, there is now a fully regulated spot bitcoin ETF. The SEC and its fearless leader, Gary Gensler, ‘pulled the trigger’ (with some encouragement from the courts) and approved several spot bitcoin ETFs. Oh Yippee and Woo Hoo. Now investors and traders can be assured they will be protected by the very fact the SEC has said; “hey, we have  reviewed all the pertinent legal issues and all is OK for you to dabble in bitcoin.” Well, OK then.

So now there are multiple ways to gain exposure to bitcoin (which is probably more than needed) and each with pluses and minuses for investors. But this ‘variety’ of bitcoin exposure vehicles is not dissimilar from the ‘variety’ of gold offerings. Which by the way makes it so difficult to understand the long holdup on the spot bitcoin ETF. Ah, but I digress. If bitcoin is now regulatory-safe, why invest in gold? In my very humble opinion either should be a portion of any portfolio……but which? Gold or bitcoin?

In reality, gold and bitcoin are eerily similar.

Yeah, I know there are gold lovers and bitcoin haters. But still, think about it. Say you were walking around 5,000 years ago and you stumbled across a rock with shiny metal in it. You go “WOW,” this rock will revolutionize the way people pay for things, invest in and hold for investment. You take your rock into the village and explain to others your great find/idea. What do you think happens? YPeople think you are a nut case. A rock, for crying out loud? Nope, never catch on and people go about their business, continuing to trade corn for bread, all the while mocking you. Damn. Sound like the early ‘discovery’ of bitcoin (a digital asset?).

So fast forward to today. You were right. Gold caught on. You look at your shiny rock and realize after 5,000 years you are up a little more that 2,000%. Hmmmm! But you didn’t lose money. You take your gold and head to Starbucks for a latte, but they don’t take gold. Damn.

A guy behind you in line offers to pay for your latte and holds his phone up to the payment screen and pays in….bitcoin. Damn. He leaves and drives off in a red Ferrari. Double damn as you hold your shiny rock.

So, back to which product is better? What took 5,000 years to accomplish has happened in just 15 years. Bitcoin is up 391,250%. OMG. And now you have several ways to participate in this “new” digital asset. It’s SEC-blessed too. But, before you get all excited and buy that really cool BlackRock (or others) ETF lets take a look. Is the new ETF a good deal?

After combing through the BlackRock spot bitcoin ETF prospectus, it has some interesting points. And I am pretty sure all the folks trading that new ETF last week didn’t read the prospectus….nor do they care. Perfectly normal. That vehicle is more for trading than investing.

Consider. You are NOT buying bitcoin (as you probably knew….or did you?) but rather a fund that holds bitcoin to get some bitcoin exposure. You are not getting a one to one bitcoin/cash investment. Currently it looks like the ETF holds roughly 50% bitcoin and 50% cash (or probably cash equivalents). Why is that important? Well, a TRUE spot ETF would hold ALL of the underlying asset in the fund. A great example is the Goldman Sachs Physical Gold ETF (AAAU) that they acquired a few years ago from the Perth Mint (Australia). It is passively managed with a very low (.18%) management fee. It was designed, and does, track the price of gold extremely closely. Why is that important? Quote from Goldman’s prospectus;

“It is expected that the Trust will not hold any (or minimal) cash but instead only (or mostly) gold, thereby seeking to minimize any resulting gold price tracking error”

So inherently the new spot bitcoin ETF will not be a perfect bitcoin tracking vehicle. In BlackRock’s power point presentation it points out;

“The Trust seeks to reflect generally the performance of the price of bitcoin.”

Additionally, since bitcoin has a fixed limit of 21M it may be that demand for the new ETFs may make acquiring additional bitcoin difficult with the result being the ETFs could wind up owning only 30%, 25% or even less bitcoin. The rest in cash, meaning at some point you may be investing/trading your own cash……less fees of course. And remember, the fund (a/k/a BlackRock, et al) invests the cash in T-Bills and gets YOUR interest. Nice.

Now the new spot bitcoin ETFs are great for trading but maybe not so great for investing in bitcoin. And remember, those low introductory management fees rise after a period of time. Trading? Yeah. Makes it easier and cheaper for active traders. Investing? Not so good (except for BlackRock and the others). Maybe a better option is a stock like MicroStrategy. It has huge bitcoin holdings, no fees (cheap initial brokerage commission….maybe zero), great liquidity and direct exposure to spot bitcoin. Just thinking.

If, IF, the SEC truly wanted to help and protect investors they would allow investors to buy, hold and invest in actual bitcoin (a one time execution fee) and store it at, say Coinbase (?) or another reputable exchange. I mean if it’s safe enough for BlackRock to custody their bitcoin there, it should be OK for you right? But that sure doesn’t contribute to poor little BlackRock does it?

But to paraphrase a thought from a huge money manager…

‘The SEC is there to ensure the public, and protect investors, that the regulators have their best interest at heart.’ Bernie Madoff