Jul. 13, 2021
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe. Reasons for a Bitcoin ETF I strongly believe an ETF would provide better investor protection than the current options to buy Bitcoin at this time. Currently, investors can buy Bitcoin by: 1) Buying directly and self custodian their keys. While this is a good fit for tech savvy investors, it provides a big risk to the average investor. If they lose their keys, their investment is gone. If they get hacked from a wrong link or bad app store purchase, they can lose their investment. In addition, self-custody requires manual tracking of cost basis and selling, making it more difficult to accurately pay taxes (or for the government to enforce) With an ETF, investors can get exposure to Bitcoin through an after tax or pretax account, without the risk of managing their own keys. An ETF also provides lower average cost compared to current bitcoin vehicles. In addition, an ETF would provide much clearer tax reporting in the form of an IRS 1099B: a lot of Bitcoin through exchange and self custody has 0 tracking. 2) Buy on an exchange like Coinbase. For many, this is a good tool, but it still has similar risk of self custody. Investors can fall to various phishing or other scams and possible lose their investment. While Coinbase is a well known and regulated exchange, smaller exchanges are a greater risk to investors as they can go belly up or fly by night. Like self custody, there is limited tax tracking with an exchange: leaving it to investors to manually track and calculate their capital gains. This provides burdensome work for CPA’s and investor, and likely lost revenue to the government. A regulated ETF would provide investors a low-cost investment that provides exposure to Bitcoin, without the risk of using exchanges, and more transparent tax disclosures. Because an ETF is regulated, there is less chance of a fly by night company getting through. 3) Use a vehicle like Grayscale Bitcoin Trust (GBTC) GBTC provides the closest thing to an ETF that U.S. investors can currently use. While it a good current tool to provide exposure to BTC it has a few drawbacks: The fees of 2% per year are higher than average compared to ETF’s, and the working of the trust are overly complicated to the average investor (like the premium or discount to NAV and what drives this). An ETF would reduce the cost to investors, trade closer to NAV, and have clear tax reporting. Other thoughts: VOLATILITY Bitcoin is a volatile asset. However, many investments are highly volatile: an investor can quickly open an account and 3x leverage trade commodities and options or go “all in” to one company’s stock. People have been putting their life savings into GME, AMC, BB, CLOV, NEGG for no other reason than others are doing it. Singling out Bitcoin as volatile, is not an apt comparison. If the concern is investor protection from volatility and leverage, it would need to be across board rules limiting leverage and concentration, not just bitcoin. The person that cannot buy a bitcoin ETF can still buy VIX or a 3x leverage SPY/QQQ with a few clicks. We should have the freedom to choose our investments, and a Bitcoin ETF will provide a lower cost alternative for investors (and open up more competent in the space). TAXES As mentioned,: self custody and exchange Bitcoin is a blind spot in taxation. An ETF will provide clear capital gain information using the established system. COMPETITION Bitcoin ETF’s are being approved in other countries (including North America). We want to attract Capital to the U.S. instead of sending capital elsewhere for Bitcoin investments. MANIPULATION Yes, actors can try to influence the price of Bitcoin, just like any stock, bond, commodity, option, etc. This is no different than any other aspect of the market. Chasing and punishing the bad actors is a better path than denying the whole asset class. We do not ban all stock trading because someone is shilling a penny stock (or large cap stock!) on Tik Tok or Twitter. FUTURE LOOKING Bitcoin is a 500 billion market cap, relatively small but larger than many private companies. With China directly banning Bitcoin with the full force of their authoritarian government, it is a great chance to the U.S. to become a leader in Bitcoin use and investment. If it works well, it provides the government with greater leverage against foreign nations. At the end of the day, using the digital gold example, I feel a Bitcoin ETF is very similar to a Gold ETF that was approved in 2004 (GLD). It provides access without the burden/risk of direct ownership, and provides investors more choices. Thank you! -Matt Apodaca