Illustration by Bill Butcher
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By 2013, a common way to buy Bitcoin was to head to a public space like Union Square in lower Manhattan. There, buyers brought cash and sellers brought their phones to enter codes that transferred digital money. Sometimes they shouted what they were willing to pay or accept, like a bargaining pit.
They were called Buttonwood Rallies, after the buttonhole tree under which 24 stockbrokers gathered in 1792 to found what became the New York Stock Exchange.
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I am very frustrated that the SEC has not yet approved a Bitcoin ETF.
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Today, you can still meet a guy at a park (socially distanced, of course) or go to a Bitcoin ATM, but there are other ways to get cryptocurrencies. Bitcoin trades in liquid exchanges 24 hours a day, seven days a week; some exchanges are even regulated now. Smartphone apps give users a simple touch. Demand for Bitcoin is rising along with the price, which has tripled this year to the last $ 23,000.
However, for investors who want to buy directly through a more traditional brokerage account, the options are still limited. Most importantly, there is no fund traded on Bitcoin exchanges and there may not be one for years.
“I am just frustrated with the SEC [Securities and Exchange Commission] it has not yet approved a Bitcoin ETF, “says Ric Edelman, founder of Edelman Financial Engines. His company manages more than $ 200 billion for 1.27 million investors who are usually wealthy but not wealthy.
Without an ETF, Edelman cannot invest in Bitcoin for clients, although he is convinced that it is a key part of a modern investment portfolio. (Edelman Financial invests only in ETFs and mutual funds.) He started buying Bitcoin for himself in 2014 and now owns more than 1% of his net worth in cryptocurrencies.
For its clients, an ETF “will change everything,” he adds.
As a result, the way most Americans currently buy and sell Bitcoin is in apps like Robinhood, Coinbase, and
Square‘s
Cash application.
There is the largest group of potential buyers
PayPal
(ticker: PYPL), which began implementing crypto purchasing in October to its U.S. customers and plans to add the service to other countries next year. There are no special requirements; users just need to sign up for the service and start operating. However, from next year there will be fees based on the size of transactions that go above 2%.
Square (SQ) also makes it easy to buy. It charges different rates which, according to reports, can increase up to 1.76%. The company did not answer questions about its average and maximum fees.
Robinhood offers free Bitcoin trades and makes money by routing customer trades through market makers and reducing the spread between bid and buy prices.
Each company has different rules about what you can do with your cryptography once you buy it. Square allows buyers to move their Bitcoin to an unaffiliated “wallet” that they can use to trade with other people, but PayPal and Robinhood make users keep their cryptography on the platform and sell it in cash.
“The advantages are that they are suitable for retail, that they are intuitive; some of the downsides are that they can have significant commissions, “says Matt Hougan, chief investment officer at Bitwise Asset Management, a cryptocurrency fund provider.” And then the big downside is security. If your phone is hacked or stolen, password, you may lose your assets “.
The largest application focused entirely on cryptography is Coinbase, which has just been presented confidentially to be made public. Coinbase offers dozens of cryptocurrencies and services, such as loans, that are not available in simpler vanilla services. It charges a 0.5% spread on transactions, as well as commissions starting at 1.5%, depending on the source customers use to buy.
There are also some ways for investors to trade cryptocurrencies in their brokerage accounts. He
Bitcoin Trust grayscale
is a security created by Grayscale Investments that consists entirely of Bitcoin and is structured as a private location. SEC rules allow investors to sell the trust in public markets six months after buying it. It is traded under the GBTC ticker and can be purchased on most traditional brokerage accounts.
However, there is a big difference between a trust fund and a publicly traded fund. GBTC trades at a substantial premium for its net asset value, meaning buyers don’t just risk Bitcoin; they may also lose money if the premium is reduced. The grayscale has benefited from the scarcity of other options: it is now the world’s largest cryptocurrency manager, with $ 13 billion in managed assets. GBTC has risen 240% this year. Bitwise also has a publicly traded security cryptocurrency called the Bitwise 10 Crypto Index fund (BITW), which tracks 10 digital currencies and trades similarly with a significant premium, recently over 200%.
For wealthy investors, there are also several hedge funds focused on cryptography. Pantera Funds started the Pantera Bitcoin fund in 2013 and has since returned more than 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 there is no performance fee. Dan Morehead, CEO of Pantera, describes it as “the most efficient way for people or institutions with high net worth to be exposed to Bitcoin; it is structured as an ETF in the sense that it has daily liquidity.” Pantera also offers funds that invest in currencies and early stage companies.
Like others, Morehead sees an ETF as the holy grail of the industry, but is unwilling to speculate on when it might arrive. Meanwhile, investors may have to settle for products that feel a little foreign or expensive. Of course, if Bitcoin continues to rise, spending may not be a concern.
Write to Notice Salzman to [email protected]