🏦 Bitcoin or the ETF - which is better?

GM everyone. This is 2036. We scroll for gems all day so you don’t have to.

Here’s what we’re serving up today 🍲: the bitcoin ETF has a 90% chance of approval within the next 80 days. But is it superior to owning actual bitcoin?

Let’s dig in.

Bitcoin’s value proposition is simple. It is the first global, rules-based, digital, private monetary system the world has ever seen.

A Swiss bank account in the cloud you can access from anywhere 🇨🇭.

But soon, you’ll be able to own bitcoin through an ETF.

So which one is better: bitcoin or the Bitcoin ETF?

Let’s look at the difference.

Option #1: Owning bitcoin directly 💳.

When you buy bitcoin, you own the actual cryptocurrency you can store in a digital wallet.

You can convert it instantly into cash or crypto on exchanges like Coinbase or Uniswap.

You can swap it for ETH, Solana, or buy an NFT with it.

No one can take it from you. And you can cross borders with millions of dollars without restriction.

This is the true ethos of bitcoin: sovereign money for sovereign individuals. You become your own bank.

But here’s the problem: not everybody wants to be their own bank.

If you send crypto to the wrong wallet or lose your seed phrase, it’s lost forever (like ∼20% of all bitcoin in existence).

Self-custody can be tricky. Most exchanges (outside of Coinbase Vault) are not safe places to store your crypto.

So you have to store it in cold storage and make sure your seed phrase doesn’t get lost or stolen.

That’s why even famous investors like Chamath Palihapatiya, Naval Ravikant, or Tim Ferriss use third-party custodians. The downside of loss is just too big.

And if it’s risky for you - imagine institutions. 

Pension funds, hedge funds, or sovereign wealth funds managing trillions of dollars can’t just buy bitcoin and pray it doesn’t get lost.

They need structures, security protocols, and mandates to be able to own particular assets.

And that’s why the Bitcoin ETF was invented.

Option #2: Owning bitcoin through a Bitcoin ETF 🏦.

A Bitcoin ETF has a lot of benefits:

• A regulated custodian (e.g. Coinbase) holds bitcoin in cold storage on your behalf.

• Institutions that can own stocks can also buy the ETF.

• Hedge funds can borrow money to buy the bitcoin ETF and borrow money against it (using the ETF as collateral)

• Companies and individual investors can easily convert part of their treasury/cash/retirement funds into bitcoin through a regulated broker.

But there’s ONE problem: with a bitcoin ETF, you don’t own the bitcoin; you simply get exposure to its price.

You can’t tell the Bitcoin ETF provider you want your bitcoin. You also can’t use the underlying bitcoin for anything.

You can’t play around in DeFi, stake ETH, or participate in crypto in any real way.

Instead, you’re trapped in the traditional financial system.

Financial regulators can freeze your funds.

You can only trade the bitcoin ETF during the opening hours of the stock exchange.

If the government outlaws crypto, your ETF will also get outlawed.

So, which one do you pick?

Ultimately, the choice depends on:

• how you think the next decade will play out

• how much risk you’re willing to take

• your openness to learning new things

In 1933, banks collapsed left and right, and FDR banned the private ownership of gold to keep American citizens from hoarding gold.

In 2023, SVB collapsed in March, Bank of America has a $131 billion hole in its book, and the German Central Bank is underwater.

Governments may try to ban crypto - the ultimate offramp from the financial system.

If you think there’s a chance that could happen, owning bitcoin directly is a no-brainer.

But the risk has to be worth it for you. Even sophisticated investors lose their crypto every day.

Storing your bitcoin requires some learning. You have to:

• open an account with an exchange

• buy crypto and self-custody it on a cold wallet (or with something like Coinbase Vault, Casa, etc.)

• risk your bank closing your accounts for making transfers to exchanges

So, if you only want exposure to the price of bitcoin, a bitcoin ETF makes sense.

But if you want to enjoy all the benefits of genuine sovereign money and play around in crypto, owning bitcoin directly is the way to go.

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