Are you looking to invest in a relatively new type of asset that is roughly four times as volatile as the S&P 500 index? Then you might be interested in some new ETFs that have come on the market.
The new ETFs, some from venerable names like Franklin Templeton, Invesco, Fidelity, Blackrock and iShares, others from firms like Valkyrie and Bitwise, have one thing in common: they were set up to invest in a cryptocurrency called Bitcoin. They all put their investor money directly into the tokens, which are stored in digital wallets, which means their returns will mirror the bumpy price trajectory of Bitcoins in the crypto marketplace.
Bitcoin tokens, like all of the 1,000+ cryptocurrency tokens circulating on various exchanges, are not backed by any government or tangible asset, and the Securities and Exchange Commissions is telling the world that these are highly speculative investments.
These ETFs allow ordinary investors who would not know how to exchange dollars for Bitcoin on the Coinbase exchange, who don’t have the expertise to move Bitcoins to a cold wallet to protect them from poaching hackers, can now invest in the asset in a relatively convenient manner. It’s helpful to remember the SEC’s characterization of the tokens; most investors would be wise to limit their Bitcoin exposure if they are not willing to invest in something that might (if the detractors are right) vaporize its value and generate a 100% loss.
One other note: Bitcoin holdings are taxed as if they are property, not as investments, under current IRS rules. The term ‘currency’ in cryptocurrency is a bit misleading in this regard; if the dollars in your purse or wallet gained in value, it would not be a taxable event when you spend them at the grocery store. But when you buy or sell Bitcoin, you are subject to ordinary income or capital gains taxes, just like stocks.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.