We currently live in the wealthiest period of human history despite all of the claims for an oncoming “apocalypse”. Those who are living in a developed country have all of their basic needs met and are able to enjoy the unlimited amount of conveniences that technology provides them. Financial independence is now more available than ever for those willing to put in the effort and learn how to leverage the available technologies. This is especially true for those in the Bitcoin overlay. Bitcoin is much farther along than it was four years ago and with more time, it will continue to improve because more capital and human ingenuity are being utilized for teaching people how to navigate the space more efficiently. With resources like Coinbeast, more readers will have the chance to learn about the current monetary system and be more well informed about the available methods for obtaining bitcoin. We will cover how to purchase bitcoin directly and how to gain exposure to bitcoin through other investment vehicles. The percentage gains from bitcoin are not guaranteed to happen every year, but the massive gains that occur on a cyclical basis give us a fairly good indication of what the future holds for Bitcoin.
Option 1: Buy Bitcoin directly
To self-custody or not to self-custody?
Most people are familiar with using a custodial account if they have direct access to a bank or brokerage service. Custodial accounts are used by centralized platforms to store their client’s assets. Generally, institutions receive payment through fees or will make interest off of client stored funds. In contrast, self-custody (non-custodial) means that a person is responsible for managing and storing their own funds, in this case Bitcoin, outside of an exchange or third-party platform. A user is capable of doing this by transferring ownership from an exchange onto a mobile, desktop, or hardware wallet where the private keys are stored. Below are the benefits and the risks of self-custody:
Benefits of self-custody
- You are responsible for storing and controlling your own Bitcoin.
- A more secure method. Exchanges are the biggest targets for hackers and criminals. Individuals are far from convenient to compromise.
- Depending on the fees you are willing to pay, you may send your Bitcoin to anyone on the planet within a few hours or less. Be aware that you must always send a test transaction (anything less than $10) before sending the full amount of Bitcoin. By not doing this, you risk transferring that Bitcoin to the wrong address and possibly losing all funds.
- By memorizing the private key or seed phrase to your wallet, you can take your Bitcoin with you anywhere without letting anyone know.
- If you are unable to open accounts with institutions for whatever reason, you can still participate in the Bitcoin economy.
- You are able to participate in receiving airdrops, also known as crypto dividends, which may then be converted to more Bitcoin.
Risks of self-custody
- Losing your hardware wallet or device that you store your Bitcoin on. Hopefully you will have the seed phrase for your funds but that must also be stored in a secure location with multiple copies in multiple locations.
- Losing your seed phrase. Once your seed phrase is lost, there is a high chance your funds will never be recovered.
- Sending Bitcoin to the wrong address.
- Phishing attacks. Someone may pose as a hardware wallet manufacturer and send an email requesting the seed phrase of an unsuspecting Bitcoiner. The email may also require the receiver to download malicious software that will compromise their hardware wallet.
- If your Bitcoin is lost, there is no third-party to help recover your funds.
Places to buy bitcoin directly and store it yourself
Places that offer a custodial account to manage your bitcoin
If none of the listed exchanges are in your territory, you may want to check out this thorough list of exchanges around the world. You do also have the option to purchase your Bitcoin directly from an exchange and then leave your Bitcoin in the exchange account until you are comfortable enough to transfer all funds.
Option 2: Buy into a Bitcoin fund
My 401k/RRSP/PPP or retirement account offers BTC exposure
This route for exposure may make sense if your employer matches the non-taxable contribution you make to your 401k with every paycheck. This is not an available option for everyone but this is definitely worth looking into. There are still benefits to a 401k even if you cannot gain exposure to Bitcoin. An employer will match your contribution up to a certain percentage depending on your company. Contributions may be made during every paycheck and will not be taxed until you start withdrawing from your account. The tax rates will depend on your income bracket but in most cases, 401k withdrawals are taxed as ordinary income. Please also be aware that if you withdraw from your 401k early, you will be penalized with a number of fees and a percentage on top of your income tax. You may end up losing up to half of what you withdraw early to taxes and fees.
With all of that in mind, GrayScale is one of the few investment options that offer BTC exposure for retail investors within their 401k’s. Not all 401k’s will have GBTC (or QBTC in Canada) as an option but most people will be able to purchase shares of GBTC on the over-the-counter market (OTC) where there is no physical market for trading. These digital markets must sell between two parties directly and do not rely on a centralized exchange to determine prices. For example, on Vanguard there is a warning before purchasing where a buyer must set a limit order rather than a market order. By setting a buy limit order, the price can only be purchased at a specified price or lower. A limit order does not have to execute and may never be filled. OTC markets are less liquid than more traditional markets. It is possible to buy GBTC but you may not be able to buy or sell your shares at the market rate you wish.
BTC VS GBTC
The GBTC fund adheres to all of the same rules for the investor as stocks or ETFs do. It will trade during market hours and you do not control or manage it. Buying Bitcoin directly guarantees your actual ownership of that Bitcoin while GBTC is a promise for a certain amount of Bitcoin that Grayscale claims to own. Recently, the BTCC and EBIT Canadian ETFs began trading on the open market. GBTC and QBTC have seen their premiums diminish and are now sold at discounts to previous prices. If more Bitcoin ETFs trade in North America, funds like GBTC and QBTC are less desirable due to their management fees.
Benefits of buying into a Bitcoin fund
- Convenience. All fund management is done by the brokerage you purchase GBTC/QBTC from.
- Exposure to Bitcoin gains.
- With an employer match, one would be able to purchase more than they would initially from buying Bitcoin directly.
- Tax incentives. No taxes will need to be paid on capital gains until retirement.
- Subject to regulations with the intentions of protecting the investor.
Drawbacks of buying into a Bitcoin fund
- Annual fees.
- Trades at a premium to Bitcoin price.
- Cannot buy or sell funds 24/7.
- Low liquidity on some platforms.
Risks of buying into a Bitcoin fund
- The fund may not have the Bitcoin that is claimed.
- The fund’s storage method may be compromised and will then have to go through a period of litigation before clients are able to receive their money back.
- Funds may be seized or a client may lose access to the fund.
Places to buy GBTC
Option 3: Buy Bitcoin stocks
I am only interested in companies with exposure to Bitcoin
If you consider yourself very conservative in your investments and can’t take the highs and lows of BTC or GBTC, then it may be best for you to consider investing in companies with a diversified business model. Many of the companies involved in the Bitcoin space have a time tested track record of generating revenue from products and services that are directly or indirectly related to Bitcoin. You may want to do more research and consider direct exposure, but if you are still skeptical and want to take a calculated risk based on your current knowledge of the space, investing in companies may be the ideal option for your situation.
Public companies with Bitcoin exposure (holding Bitcoin on their balance sheets)
- Microstrategy (MSTR) - 91, 064
- Tesla (TSLA) - 48, 000 BTC
- Galaxy Digital Holdings (GLXY) - 16, 402 BTC
- Square (SQ) - 8, 027 BTC
- Marathon Patent Group - 4, 813 BTC
- Hut 8 (HUTMF) - 3, 012 BTC
- Full list of companies
Benefits of buying Bitcoin stocks
- Convenience. All funds are managed by the company. Holding shares are managed by the investor’s brokerage firm. All you will need to do is provide the funds and select the stocks you are interested in holding.
- Gain exposure to Bitcoin through a registered investment account and benefit from tax incentives.
- For traditional finance, hedge funds are more likely to invest in a company that holds Bitcoin before buying it for their own fund.
- As the price of Bitcoin goes up, so do the company’s earnings.
- By having portions of their reserves in Bitcoin, they have a more diversified portfolio that may avoid the risk of losing value.
Risks of buying Bitcoin stocks
- All companies run the same risks involved with business operations. Some more than others depending on their industry and balance sheets.
- Poor management could deplete or misallocate revenue and profits.
- Mining stocks in particular are subject to Bitcoin price cycle lows. Mining companies will have to have a considerable amount of cash reserves to cover expenses during bear markets.
Keep in mind that as time goes on, there will be more companies that will have Bitcoin on their balance sheets. Do your own due diligence and research into how much Bitcoin they claim to own and what they plan on doing to improve their current operations. Having Bitcoin alone does not mean their share prices will perform well.
You do have the choice to try all three options listed above, or even two with various combinations. Do what works best for your situation because at the end of the day, you have your own best interests. There is no need to jump straight into any of the mentioned options for investing in Bitcoin. Take your time in digesting all of the information that comes your way, it will pay off if you stay diligent with an open mind about Bitcoin and the future possibilities it brings to the world.