The cryptocurrency market is currently worth $1.6 trillion Bitcoin (Crypto: Bitcoin) It represents 50% of this total. Bitcoin dominance (i.e. the market capitalization attributed to Bitcoin) was also at 50% five years ago, although it ranged from 38% to 70% during that time period.
With that in mind, Morning star Analyst Michael Miller expects the cryptocurrency market to rise 300% to $6.4 trillion by 2032. If Bitcoin dominance remains at 50%, the implied upside for Bitcoin will also be 300%. Alternatively, the implied upside would be closer to 200% if Bitcoin dominance declined to 38%, and the implied upside would be closer to 460% if Bitcoin dominance increased to 70%.
Regardless, cryptocurrency bulls have good reason to invest in Bitcoin, and it can be done in a number of ways. The most obvious way is to exchange cryptocurrencies Coinbase (NASDAQ: Currency). But creating and managing an account can be a headache, especially for investors with existing brokerage accounts.
Fortunately, there is a new type of investment product that removes this friction: Bitcoin ETFs.
Bitcoin ETFs reduce friction for investors
Earlier this month, the US Securities and Exchange Commission (SEC) approved 11 Bitcoin ETFs, which are funds that track the price of Bitcoin. This landmark decision could attract more individual and institutional investors to the market, and the influx of capital could cause the price of Bitcoin to rise significantly in the coming years.
Spot Bitcoin ETFs are particularly attractive because they eliminate the hassle of managing multiple accounts. Investors no longer need to purchase Bitcoin through a specialized exchange, nor do they have to worry about storing the cryptocurrency in a blockchain wallet. Alternatively, spot Bitcoin ETFs make it possible to add Bitcoin exposure to existing brokerage accounts. This convenience is why spot bitcoin ETFs can push the price of the cryptocurrency higher.
For context, analysts at Bernstein believe that the price of Bitcoin could reach $150,000 by 2025, which would mean a 252% rise from its current price of $42,600. Likewise, analysts at Standard Chartered Bank believe that the price of Bitcoin could reach $200,000 by 2025, which would mean a rise of 369%.
The Best (and Worst) Bitcoin ETFs
In general, all Bitcoin ETFs do the same thing. They buy Bitcoin from a cryptocurrency exchange (often Coinbase), divide the Bitcoin into shares, and sell those shares on the stock market. In other words, this is not a situation where a team of experienced asset managers can create significant value for fund holders by trading the right securities at the right times.
For this reason, buy-and-hold investors should focus on fees or expense ratios. As previously mentioned, the SEC has approved 11 Bitcoin ETFs, but fees vary widely between specific funds, as detailed below:
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Bitwise Bitcoin ETF (NYSEMKT: BITB): 0.20%
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Arc21 Shares Bitcoin ETF (NYSEMKT:ARKB): 0.21%
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Fidelity Wise Origin Bitcoin Fund (NYSEMKT: FBTC): 0.25%
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iShares Bitcoin Trust (NASDAQ:EBIT): 0.25%
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Valkyrie Bitcoin Fund (NASDAQ: BRRR): 0.25%
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Van Eck Bitcoin Trust (NYSEMKT:HODL): 0.25%
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Franklin Templeton Digital Foundation (NYSEMKT:EZBC): 0.29%
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Wisdom Bitcoin Fund (NYSEMKT:BTCW): 0.3%
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Invesco Galaxy Bitcoin ETF (bat-chixe:BTCO): 0.39%
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Hashdex Bitcoin ETF (NYSEMKT:DEFI): 0.94%
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Grayscale bitcoin box (NYSEMKT: GBTC): 1.5%
Personally, I would cross off the bottom half of that list based on fees alone, and none more so than Grayscale Bitcoin Trust. There is simply no reason to pay 1.5% for an ETF – meaning investors will pay $15 annually for every $1,000 invested – when it is possible to buy a similar product for a fraction of that cost.
Next, I’ll consider the issuer of the ETF. Many of the funds mentioned above are run by asset managers with significant experience, including Ark Invest and Fidelity. But iShares Bitcoin Trust would be my top choice, because it’s managed by the fund Black stonethe world’s largest asset manager.
To be clear, the issuer shouldn’t matter that much, but ETFs managed by larger asset managers may be less susceptible to liquidity problems caused by insufficient demand. For example, the iShares Bitcoin Trust ended January 18 with a 0.08% premium to its net asset value. This means that investors value ETFs at a premium of 0.08% to the price of Bitcoin. This indicates strong demand. Conversely, Grayscale Bitcoin Trust traded at a 0.27% discount to its net asset value, indicating weak demand.
Here’s the bottom line: I would avoid spot Bitcoin ETFs with expense ratios greater than 0.25%, and I would completely avoid the Grayscale Bitcoin Trust, simply because there are less expensive alternatives. As such, I would feel comfortable buying spot Bitcoin ETFs managed by Ark, BlackRock, and Fidelity, but the iShares Bitcoin Trust would be my first choice.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
The Best Bitcoin ETF to Buy Before Cryptocurrency Market Surges 300%, According to Wall Street Analyst Originally published by The Motley Fool