If you are thinking about investing in Bitcoin (BTC 0.58%), the good news is that it has never been easier to do so. After the Securities and Exchange Commission (SEC) approved the new spot Bitcoin exchange-traded funds (ETFs) in January, investors now have nearly a dozen new options for buying Bitcoin.
Of these new ETFs, the one that has my attention, is the iShares Bitcoin Trust (IBIT 0.71%). Let's take a closer look at two key reasons you might think about adding it to your portfolio.
Direct exposure to Bitcoin's price
The iShares Bitcoin Trust from BlackRock was created with one primary investment goal in mind: To track the price of Bitcoin. Unlike other ETFs, which typically hold a diversified basket of assets, the iShares Bitcoin Trust holds just a single asset: Bitcoin. As a result, this ETF does a remarkably good job of matching Bitcoin's price. Since its launch on Jan. 11, the iShares Bitcoin Trust is up 32.44%, while Bitcoin is up 32.67%.
Bitcoin / U.S. dollar chart by TradingView
The ability to track the price of Bitcoin is so important because, for more than a decade, Bitcoin has been the top-performing asset in the world. From 2011 to 2021, for example, Bitcoin delivered annualized returns of 230%. No other asset class was even close. The next best asset class (tech stocks) delivered annualized returns of just 20%. After a down year in 2022, Bitcoin was back to delivering triple-digit percentage returns in 2023.
CRYPTO: BTC
Key Data Points
Granted, there is no guarantee that Bitcoin will be able to replicate this kind of performance during the next decade. In fact, it's unlikely. But, if you think about Bitcoin as a unique asset class with its own risk-reward profile, then the extra risk of investing in crypto should (theoretically) be made up for with enhanced returns.
Easy and cheap portfolio diversification
Given the historical performance of Bitcoin, you might want to include at least a small allocation to it in your portfolio for diversification purposes. As a rule of thumb, a 1% allocation to Bitcoin is a good starting point for investors new to crypto. But a slightly higher allocation of 2% to 5% could make sense for more experienced crypto investors. Since the iShares Bitcoin Trust is bought and sold just like any other ETF, it's remarkably easy to get the exact allocation you want.
Image source: Getty Images.
Even more importantly, the management fees of this ETF (0.25%) are low. If you do the math, it's cheaper to buy and hold Bitcoin via this ETF than it is to buy the same amount of Bitcoin via a cryptocurrency exchange. That's bad news for the likes of Coinbase Global, but it's fantastic news for the average investor.
Think of this ETF as a loss leader for BlackRock. The company may not make a profit on this ETF, but it will likely help to attract new customers and sell other investment products. That's especially true since the iShares Bitcoin Trust is part of the company's iShares family of ETFs.
Trade-offs
At this point, you're probably wondering: So what's the catch? One trade-off to this ETF is that you're not actually holding Bitcoin. You're getting exposure to Bitcoin's price, but you don't directly own the underling asset. That's true for any ETF, of course, but it has significant implications. That's because Bitcoin is both a financial asset and a digital currency.
Thus, you won't be able to use Bitcoin the way you would if you had purchased Bitcoin via a cryptocurrency exchange. If you plan on using Bitcoin for transactions, say, or sending Bitcoin to other people, you won't be able to do that if you don't hold Bitcoin directly. Plus, if you dig into the core values of Bitcoin, you'll soon realize that many investors are philosophically opposed to anyone -- and especially a big Wall Street institution like BlackRock -- holding onto their Bitcoin.
Buy and hold strategy
Theoretically, you could use this ETF as part of an actively managed portfolio. And there are plenty of hedge funds that are doing exactly that. But it makes more sense to think of this ETF as a buy-and-hold investment for the long haul. You shouldn't be using this ETF to make short-term directional bets on the price of Bitcoin.
Instead, your investment goal should be to get exposure to Bitcoin's price, for as cheaply as possible, for as long as possible. And the iShares Bitcoin Trust lets you do exactly that. For that reason, this ETF might just be a no-brainer buy right now, as long as you are willing to stomach the daily price volatility that comes with investing in crypto.
