Bitcoin Purchasing Pros & Cons

Cryptocurrency seems to be gaining traction as a potential investment alternative, with several recent developments:

• President Donald Trump, during his speech at the Blockwords Digital Summit, outlined his vision for America’s leadership in the cryptocurrency space. He expressed a commitment to protect crypto and eliminate any obstacles hindering its growth.
• March 6, 2025, President Trump signed an Executive Order to create the U.S. Strategic Bitcoin Reserve. This reserve will be funded with Bitcoin seized by the Department of Treasury through criminal or civil asset forfeiture proceedings.
• President Trump has urged Congress to pass legislation that would provide clear, straightforward regulations for stablecoins, creating a framework for institutions to participate in the crypto ecosystem.
• In his address at the Blockwords Digital Summit, President Trump remarked, “Currently, no clear policy exists for managing these assets, leading to a lack of accountability and inadequate exploration of options to centralize, secure, or maximize their value. Taking affirmative steps to centralize ownership, control, and management of these assets within the Federal government will ensure proper oversight, accurate tracking, and a cohesive approach to managing the government’s cryptocurrency holdings.”

For those exploring the idea of adding Bitcoin to their portfolio, two possible approaches, along with their respective pros and cons, are outlined below.

Buying Bitcoin Directly

Bitcoin can be purchased directly through various cryptocurrency exchanges, such as Coinbase, Binance, Kraken, or Gemini.

Pros

• Ownership of Bitcoin: By purchasing Bitcoin, you own the actual cryptocurrency, which means you can store it in your own wallet (whether hot or cold storage), and you have full control over your decisions, such as when to buy, sell, or hold. 
• No Management Fees: Since you are responsible for all buy, sell, and hold decisions, there are no management fees associated with this approach. 
• Access to Bitcoin’s Full Potential: You can explore potential uses for Bitcoin beyond price appreciation, such as using it for payments, lending, and other activities. 
• Transparency: Transactions and holdings can be tracked on the blockchain, which offers a level of transparency that a non-direct purchase option cannot provide. 

Cons 

• Security Risks: Storing Bitcoin in a wallet, especially an exchange wallet, exposes you to potential risks, such as hacking or loss due to insufficient security measures. Additionally, managing private keys can be cumbersome. 
• Tax Reporting: Managing your Bitcoin holdings may require more careful tracking of transactions for tax purposes, especially if you engage in trades or earn interest on your Bitcoin. This can be more complex than with non-direct purchase options (which will be described below). 
• Volatility: Bitcoin is highly volatile, and its price can fluctuate wildly. While this could bring potential gains, it also means the investment could be more unpredictable in the short term. 
• Regulatory Risks: The regulatory environment for cryptocurrencies is still evolving, and owning Bitcoin directly may expose you to changing legal and tax challenges. 
• Complexity: For new investors, the process of buying, storing, and managing Bitcoin directly can be complex and confusing. Gaining a solid understanding of how wallets, exchanges, and security work can be challenging. 
• Price: Bitcoin has been trading at prices around $75,000 $95,000 per unit lately. 

Buying Bitcoin Through an Exchange Traded Fund (ETF)

Bitcoin can also be acquired indirectly through an ETF.

Pros 

• Simplicity and Accessibility: There’s no need to manage wallets, private keys, or worry about the technicalities of cryptocurrency. You simply buy the ETF like you would any other security. 
• Regulated Investment Vehicle: Bitcoin ETFs are regulated financial products, meaning they must comply with established securities laws. This provides an added layer of security for those investors who prefer to invest within the regulated financial system. 
• Diversification: Some ETFs may not only track Bitcoin but could also include exposure to assets like Bitcoin futures or related crypto assets, offering a degree of diversification beyond just Bitcoin. 
• No Security Risk for Holding Bitcoin: Since the ETF is managed by professionals, you don’t need to worry about the technicalities of securing your Bitcoin. You don’t have to worry about losing your private keys or potential hacks, as the ETF takes care of these matters. 
• Tax Reporting Simplicity: The tax reporting process for ETFs follows the same guidelines as traditional investments. 
• Price: Bitcoin ETFs have recently traded within a price range of around $40 per share to $75 per share.

Cons

• No Direct Ownership of Bitcoin: By investing in a Bitcoin ETF, you don’t own the actual underlying Bitcoin. Instead, you hold shares of the fund that tracks Bitcoin’s price or Bitcoin futures. This means you can’t use the Bitcoin for anything beyond its investment value (like spending actual Bitcoin shares to purchase a household item or lending it). 
• Fees: Bitcoin ETFs generally charge management fees (known as the expense ratio). While these fees tend to be low, they still represent a cost to you, unlike buying Bitcoin directly, where you don’t have to pay a fee beyond transaction costs. 
• Potential for Tracking Error: Some Bitcoin ETFs may not perfectly track the price of Bitcoin due to factors like management fees, the structure of the ETF (if it holds Bitcoin futures), or the specific methods used to track the price. This could result in slight deviations from Bitcoin’s actual price performance. 
• No Participation in the Bitcoin Ecosystem: As an investor in a financial product and not directly in Bitcoin, you won’t be able to engage with the broader Bitcoin ecosystem, such as using Bitcoin in transactions or as collateral in decentralized finance applications. 
• Exposure to Futures Contracts: Some Bitcoin ETFs invest in Bitcoin futures contracts, which don’t always perfectly track the spot price of Bitcoin and may involve additional risks. This is less of a concern with spot-based ETFs but can be a drawback with futures-based funds.  

Which is Better?

The answer to the which is better question depends on what’s important to you.

A direct purchase on a cryptocurrency exchange may be more suitable for those who want to truly own Bitcoin and have greater control over their investment. This approach is often preferred by individuals who are comfortable with the technology and understand the risks associated with holding and securing their own cryptocurrency.

On the other hand, purchasing an ETF might be more appealing for those who prefer simplicity, regulatory oversight, and the convenience of investing in a familiar investment vehicle. This option provides exposure to Bitcoin’s price movements without the need to handle the technical aspects of owning and securing Bitcoin directly. 

Each approach has its merits depending on your risk tolerance, time horizon, and investment goals. If you choose to add Bitcoin to your portfolio, it is important to consider how it fits with your overall investment strategy, as its volatile nature can lead to significant price fluctuations.  As a result, investors should be aware that there is a possibility of losing a substantial portion of their investment, sometimes even within a very short period. Active management and monitoring of the investment may also be necessary.

Sourcing: Yahoo Finance, Bitcoin, 3/1/2025 to 4/8/2025; Barchart.com, Ishares Bitcoin Trust ETF (IBIT), 3/1/2025 to 4/8/2025; and Barchart.com, Grayscale Bitcoin Trust ETF (GBTC), 3/1/2025 to 4/8/2025