Illustration by Bill Butcher
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Around 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 to transfer digital money. Sometimes they shouted what they were willing to pay or accept, like a trading pit.
These were called Buttonwood meetings, after the button tree under which 24 stockbrokers met 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 in a park (social distance, 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 rising as the price has tripled to $ 23,000 this year.
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 the Bitcoin exchange and there may not be one for years.
“I am very frustrated that the SEC [Securities and Exchange Commission] has not yet approved a Bitcoin ETF, ”says Ric Edelman, founder of Edelman Financial Engines. His firm manages more than $ 200 billion for 1.27 million investors who tend to be rich but not rich.
Without an ETF, Edelman cannot invest in Bitcoin for clients, even if he is convinced that it is a critical part of a modern investment portfolio. (Edelman Financial only invests in ETFs and mutual funds.) He started buying Bitcoin for himself in 2014 and now has more than 1% of its net worth in cryptocurrencies.
For its clients, an ETF “will change everything”, he adds.
As a result, the way most Americans buy and sell Bitcoin today is on apps like Robinhood, Coinbase and
SquareS
Cash application.
The largest group of potential buyers is active
PayPal
(ticker: PYPL), which began launching the crypto-purchase in October for its US customers and plans to add the service to other countries next year. There are no special requirements; users simply sign up for the service and start trading. However, starting next year there will be fees based on the size of the transaction which can increase by more than 2%.
Square (SQ) also facilitates the purchase. It charges various fees, which seem to be able to increase up to 1.76%. The company did not answer questions about its average and maximum commissions.
Robinhood offers free Bitcoin trading and earns money by targeting customer transactions through market makers and reducing the gap between supply and demand prices.
Every company has different rules about what you can do with your crypt once you buy it. Square allows buyers to move their Bitcoin into an unaffiliated “wallet” that they can use to trade with others, but PayPal and Robinhood make users keep their crypto on the platform and sell in cash.
“Their advantages are that they are friendly to retail, they are intuitive; some of the disadvantages are that they can have significant commissions, ”says Matt Hougan, investment director at Bitwise Asset Management, a cryptocurrency fund provider. “And then the big disadvantage is security. If your phone is broken or your password is stolen, you may lose your assets. “
The largest crypto-focused application is Coinbase, which has just been confidentially made public. Coinbase offers dozens of cryptocurrencies and services, such as loans that are not available from simpler services. It charges a spread of 0.5% for transactions, as well as commissions starting at 1.5%, depending on the source that customers use to buy.
There are also several ways in which investors can trade cryptocurrencies in their brokerage accounts.
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 confidence in public markets six months after purchase. It is traded under the GBTC ticker and can be bought in most traditional brokerage accounts.
However, there is a big difference between a trust and a fund traded on a stock exchange. GBTC trades with a substantial premium up to its net asset value, which means that buyers are not just taking a risk on Bitcoin; they can also lose money if the former shrinks. Grayscale has benefited from the lack of other options – it is now the largest crypto-asset manager in the world, with $ 13 billion in assets under management. GBTC has grown 240% this year. Bitwise also has a publicly traded cryptocurrency, called the Bitwise 10 Crypto Index (BITW) fund, which tracks 10 digital currencies and trades similarly at a high premium – recently over 200%.
For wealthy investors, there are also several cryptocurrency hedge funds. Pantera funds started the Pantera Bitcoin fund in 2013 and have since returned with over 27,000% – probably the best hedge fund in history. There is a minimum investment of $ 100,000 and an administration fee of 75 basis points, but there is no performance fee. Dan Morehead, CEO of Pantera, calls it “the most efficient way for people or institutions with high net worth to get exposure 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 companies in the early stages.
Like others, Morehead sees an ETF as the holy grail of the industry, but is unwilling 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 grow, spending may not be an issue.
Write to Avi Salzman to [email protected]