Around 2013, one common way to buy Bitcoin was to go to a public place like Union Square in lower Manhattan. There, buyers brought cash and sellers brought their phones to issue codes that would transmit the digital currency. Sometimes they would write off what they were willing to pay or receive, such as a trading pool.
These were known as Buttonwood meetings, after the buttonhole treehouse where 24 stockbrokers met in 1792 to find what became the New York Stock Exchange.
I am very frustrated that the SEC has not yet approved a Bitcoin ETF.
Today, you can still meet a guy in a park (socially remote, of course), or go to a Bitcoin ATM, but there are other ways to get cryptocurrencies. Bitcoin trades on liquid exchanges 24 hours a day, seven days a week – some exchanges are even regulated now. Smartphone apps give users one-touch access. Demand for Bitcoin is shooting higher along with the price, which has more than trebled this year to $ 23,000 recently.
And yet for investors who want to buy directly through a more traditional brokerage account, the options are still limited. Most importantly, there is no Bitcoin exchange trading fund, and there may not be one for years.
“I’m very frustrated that the SEC [Securities and Exchange Commission] not yet approved Bitcoin Bitcoin ETF, ”said Ric Edelman, founder of Edelman Financial Engines. His company manages more than $ 200 billion for 1.27 million inclined but not wealthy investors.
Without an ETF, Edelman cannot invest in Bitcoin for clients, though he is convinced that it is an essential part of a modern investment portfolio. (Edelman Financial invests in ETFs and mutual funds only.) It started buying Bitcoin for itself in 2014, and now has more than 1% of its net worth in cryptocurrencies.
For its clients, ETFs will “change everything” he adds.
As a result, the way most Americans buy and sell Bitcoin today is on apps like Robinhood, Coinbase, and
The largest group of potential buyers is on
(ticker: PYPL), which began rolling out crypto-buying in October to its US customers, and plans to add the service in other countries next year. There are no special requirements; consumers simply sign up for the service and start trading. Starting next year, however, fees will be based on transaction size that can rise above 2%.
Square (SQ) also makes it easy to buy. It charges variable fees that can rise as high as 1.76%. The company did not respond to questions on its average and highest fees.
Robinhood offers free Bitcoin trading, and makes money by directing customer trades through market makers and taking a cut of the spread between bid and asking prices.
Each company has different rules on what you can do with your crypto once you buy it. Square lets buyers move their Bitcoin to a contactless “wallet” that they can use to trade with other people, but PayPal and Robinhood make consumers keep their crypto on the platform and sell out in cash.
“The advantages of these are that they are retail friendly, they are intuitive; some of the disadvantages are that they can incur significant fees, ”said Matt Hougan, chief investment officer of Bitwise Asset Management, a cryptocurrency fund provider. “And then the big disadvantage is safety. If your phone gets hacked or your password is stolen, you can lose your assets. “
The biggest app that focuses solely on crypto is Coinbase, which secretly filed to go public. Coinbase offers dozens of cryptocurrencies and services such as lending that are not available from more plain vanilla services. It charges a 0.5% spread on transactions, as well as fees starting at 1.5% depending on which source customers use to buy in.
There are also a few ways for investors to trade cryptocurrencies in their brokerage accounts. The
Grayscale Bitcoin Trust
is a security created by Grayscale Investments that consists entirely of Bitcoin and is structured as a private placement. SEC rules allow investors to sell the trust on public markets six months after buying it. It trades under the GBTC ticker and can be purchased in most traditional brokerage accounts.
However, there is a big difference between the trust and an exchange traded fund. GBTC trades for a substantial premium to its net asset value, which means buyers are not just taking a risk on Bitcoin; they can also lose money if the premium declines. Grayscale has benefited from a lack of other options – it is now the largest crypto-asset manager in the world, with $ 13 billion in assets under management. GBTC is up 240% this year. Bitwise also has a publicly traded crypto security called the Bitwise 10 Crypto Index fund (BITW), which tracks 10 digital coins and likewise trades for a large premium – more than 200% recently.
For wealthy investors, there are also several crypto-focused hedge funds. Pantera Funds started Pantera Bitcoin fund in 2013, and has since returned over 27,000% – probably the best-performing hedge fund in history. There is a minimum investment of $ 100,000 and a management fee of 75 basis points, but no performance fee. Dan Morehead, CEO of Pantera, calls it “the most efficient way for high-net-worth individuals or organizations to gain exposure to Bitcoin – it’s structured as an ETF in the sense that it has daily liquidity.” Pantera also offers funds that invest in coins and early stage companies.
Like others, Morehead sees ETFs as the holy grail for the industry, but he’s not ready to speculate when it might arrive. In the meantime, investors may have to settle for products that feel a little foreign or expensive. Of course, if Bitcoin continues to rise, expenses may not be a concern.
Write to Avi Salzman at [email protected]