It is no secret that in late 2023, the market is teeming with anticipation as talks of a looming U.S.-based bitcoin ETF intensify. But how should you prepare for a bitcoin ETF? Continue reading to see how you can be ready to benefit from this new investment option. We cover strategies, preparation tactics, and where to buy and store your BTC ahead of an ETF announcement.
How to prepare for a bitcoin ETF
There are many interested parties chomping at the bit, awaiting ETF approval, and you don’t want to be the last in line. Here are a few strategies to help you prepare for a bitcoin ETF approval.
1. Buy and store bitcoin
To prepare for ETF approval, the first practical step you must take is to purchase bitcoin. Doing this means you can buy BTC before the possibly impending supply shortage and benefit from the increased demand. As the demand increases, the price increases, and you can sell into the market, potentially for a decent profit.
The relationship between the price of an ETF share and its underlying asset value is policed by institutional investors who make money by arbitraging the ETF’s share price and underlying fund asset values.
Wang, Joseph (2021). Central Banking 101. Amazon Digital Services LLC
Where to buy BTC before ETF approval
Naturally, if you are in the market for bitcoin, you will need somewhere to purchase it. Here are our top choice exchanges to buy BTC and prepare for bitcoin ETF approval.
1. Paybis
This might be your time to join the ranks of savvy and experienced traders. And if regulatory and security concerns give you sleepless nights, you would like to touch “base” with a robust and credible exchange like this:
2. Coinbase
What if there was a crypto exchange that hasn’t had a security “crack” ever? Well, if safety and security are of utmost importance, you shouldn’t mind checking out the following platform:
3. Kraken
Tired of swapping your USD or even USDT for BTC? If you have a host of cryptocurrencies lying idle in your wallet(s), the following exchange, with support for diverse trading pairs, might be the answer:
Where to store BTC before ETF approval
Acquiring bitcoin leads to the need for secure storage. Below, you’ll find a selection of crypto wallets suited to safeguarding your BTC.
The first wallet on the list promises and even delivers next-level security. So, if you want a keyless marvel that balances simplicity with peace of mind or rather “Zen,” go for the following option:
Wallets can be confusing. But what if there was a versatile option that even promises zero complexity and exclusive rewards? As a crypto newbie, this is where our next BTC wallet outshines the competition:
2. Wirex
What if there was one BTC wallet that could help you make fiat conversions, earn interest on the stored BTC, and even borrow funds — all while you remain the HODLer? If all that reads exciting, check this wallet out:
3. YouHodler
Offline BTC is safe BTC. If you are one of those old-school BTC HODLers prepping for the ETF approval or any other long-haul, the following wallet, boasting top-of-the-line hardware, steals the show. No apologies for the lack of connectivity tools:
4. GridPlus
2. Develop a strategic investment plan for ETFs
After you have bought BTC, you must develop an investment strategy. Note that steps one and two can be switched around, depending on your timeliness. If you’re uncertain about your investment decisions, consider seeking advice from a Registered Investment Advisor (RIA) specializing in cryptocurrencies or ETFs.
Additionally, when preparing for the potential approval of a bitcoin ETF, it’s essential to consider the tax implications of your investments. Tax-advantaged accounts, such as Individual Retirement Accounts (IRAs) or 401(k)s, can play a significant role in optimizing your investment strategy.
Looking for a crypto focused IRA? Check our comprehensive review of iTrustCapital, a fintech company that specializes in providing cryptocurrency investment and retirement account services.
By using these accounts, you may benefit from tax advantages, including tax-deferred growth or tax-free withdrawals, depending on the account type. Be aware of the tax implications of your investments, such as capital gains tax. Consult a tax advisor to optimize your tax strategy and reduce crypto tax.
Lastly, managing crypto trading emotions is a big part of investing. Some people opt for RIA’s to mitigate the potential to trade on a whim. Nevertheless, it is still important for you to find a perfect balance between your emotions and investments.
2. Assess your investment goals and risk tolerance
An often overlooked aspect of investing is creating realistic investment goals and determining risk tolerance. If you are unsure how to structure your portfolio so that it aligns with your investment goals and risk tolerance, there are a few time-tested strategies that you can use.
Perhaps the most famous is the “60-40 portfolio,” a traditional asset allocation strategy. In a 60-40 portfolio, an investor allocates 60% of their portfolio to crypto, stocks, or equities and 40% to bonds or fixed-income securities.
The reasoning behind this strategy is that the assets that fall under 60% are considered riskier but likely to have a significant price performance.
The assets that fall under 40% are considered safer and pay you to own them. In the event of a market downturn, you shouldn’t have to take a haircut (a significant loss) by selling any assets. You can still make money from dividends or interest, mitigating risk.
It’s worth noting that there are variations of this strategy, such as the “70-30 portfolio” or “80-20 portfolio.” However, in general, the idea is to allocate a portion of your portfolio to assets that could benefit from a thriving market and assets that pay you in intervals so that you aren’t necessarily worried about a market downturn.
Overall, determine how much of your portfolio you are willing to allocate to bitcoin or ETF-related investments. Diversification is key in this scenario.
3. Start DCA-ing bitcoin
Earlier, we suggested buying and storing BTC immediately as the first step toward preparing for an ETF. Individuals who are not able to instantly buy BTC or are unsure about the timing of ETF approval should consider implementing a dollar-cost averaging strategy instead. Rather than timing market entries precisely, this strategy spreads out investment so that risk is distributed more evenly. You can invest a fixed amount of money regularly, regardless of price fluctuations.
This approach can be a prudent way for investors to manage risk and avoid the pitfalls of trying to time the market. Many people anticipate a large influx of institutional investors hopping on the bitcoin ETF train, potentially leading to a high demand for BTC. High demand for bitcoin could lead to an increase in prices and a drop in supply, making it difficult to acquire for retail investors.
5. Get your portfolio tracking underway
It’s common to want to monitor your BTC portfolio frequently, but this can pose a security risk to your wallet. Therefore, it’s advisable to utilize a portfolio tracker for safe and effective crypto portfolio management. A cryptocurrency portfolio tracker is a crucial resource for navigating the dynamic landscape of digital assets.
The first tracker is more than an alpha. From personalized analytics to real-time insights, this should be your go-to tracker if you wish to prepare a diversified portfolio.
Nothing beats a portfolio tracker that can do a lot more than investment monitoring! The following tracker lets you sync wallets, talks about market trends, and delivers one smooth interface. All of your coin stats are listed under one convenient roof.
Coinstats
6. Monitor market trends and news events
If a bitcoin ETF is approved, consider the potential impact on the market. Prices may surge due to increased accessibility for institutional and retail investors. Decide in advance if you plan to hold your BTC, take profits, or adjust your portfolio allocation.
Continuously monitor crypto and financial news sources for updates on ETF approval progress. Be prepared to adjust your strategy based on new information. It is also a good idea to develop a contingency plan for different scenarios. Have exit strategies in place to protect your investments.
Periodically review your investment strategy and adapt it based on changing market conditions and regulatory developments. Here are a few exit strategies that traders often employ.
- Stop-loss orders: Implement stop-loss orders to limit potential losses in case of a significant market downturn. Determine at what price point or percentage loss you’re willing to sell your bitcoin holdings to protect your capital.
- Take profit targets: Set price targets at which you plan to take profits if the market experiences a significant uptrend. This allows you to lock in gains and reduce exposure to potential price corrections.
- Diversification: Consider diversifying your portfolio by holding a mix of assets beyond bitcoin. This can help spread risk and reduce the impact of adverse price movements in a single asset.
- Buy the hype and sell the news: Accumulate bitcoin holdings leading up to the event when anticipation is high, but be prepared to sell or take profits once the news is confirmed to capitalize on short-term price fluctuations.
Institutional involvement in the bitcoin futures market
Now that the groundwork is ready, it is time to dig deeper into the current state of the crypto-focussed ETF market. This will help you understand the reasons for the delay and why a preparatory strategy is what we need at this time!
Let’s get right down to it. The United States has taken a heavy-handed, at many times, antagonistic approach to crypto. That, coupled with the reluctance of retail and institutional investors due to large-scale crypto hacks and scandals, has created an atmosphere where U.S.-based regulatory bodies are slow to approve crypto derivatives.
This reluctance has not stunted institutional interest in bitcoin. As shown below, exchange BTC futures open interest (the total number of outstanding or open futures contracts on exchanges) coincided with large price movements and, subsequently, news around bitcoin ETFs in late June and October.
This is not particularly surprising — institutional investors like to buy the hype and sell the news. Though these actors may have reservations about crypto as a whole, the price performance for bitcoin is undeniable and presents an opportunity to make a profit.
Bitcoin transactions per day
The below chart details the number of bitcoin transactions that exceed $100 million dollars per day. These transactions are typically assumed to belong to institutional investors, as retail investors rarely have the ability to deploy large amounts of capital.
As you can see, bitcoin whales have been fairly active. The amount of bitcoin transactions exceeding $100 million correlates to the bitcoin futures open interest and bitcoin price charts.
For example, you can see large spikes in mid-June, coinciding with the Blackrock ETF announcement, and in October, coinciding with the Cointelegraph false spot bitcoin ETF news, which sent the market into an uproar.
All these spikes and surges are a testament to the eagerness surrounding the bitcoin ETF. So, as and when it shows up, you would want to be ready to make the most of it. But before you do that, it might be appropriate to read through the next bit.
Benefits and risks of investing in a bitcoin ETF
Many people are excited about an impending bitcoin ETF approval; however, there may be both risks and benefits you should remain aware of.
Benefits
- Bitcoin ETFs provide an easy and familiar way for traditional investors to gain exposure to bitcoin without needing to set up and manage a digital wallet or navigate cryptocurrency exchanges.
- ETFs are typically subject to regulatory oversight, which can provide a sense of security for investors concerned about the legitimacy and security of the underlying asset (bitcoin).
- ETFs are traded on traditional stock exchanges, making it easy to buy and sell shares at market prices. This liquidity can be especially attractive for investors who want flexibility in managing their holdings.
- ETFs can offer tax advantages, such as the ability to defer capital gains taxes until you sell your shares. This can be more tax-efficient compared to buying and selling bitcoin directly.
Risks
- Bitcoin is known for its price volatility. While diversification within an ETF can mitigate some of this risk, it does not eliminate the potential for significant price fluctuations.
- Bitcoin ETFs rely on financial institutions and custodians to hold the underlying assets. There is a risk that these intermediaries may face operational or security issues, potentially affecting the ETF’s performance.
- The market price of a bitcoin ETF’s shares may not always perfectly align with the net asset value (NAV) of the underlying bitcoin holdings. This can result in premiums or discounts that impact the investor’s returns.
- Investing in an ETF eliminates the need to manage private keys and securely store your bitcoin. However, it also means you rely on the ETF provider to safeguard your investment.
- Some financial institutions and brokerage platforms may have specific regulations, policies, or restrictions that prevent immediate access to bitcoin ETFs once they are approved. This could delay your ability to invest in these products, potentially causing you to miss out on opportunities during initial market movements.
Bitcoin ETFs: The icing on the crypto cake
When it comes to investing, there are multiple ways to profit. In other words, the bitcoin ETF itself is the icing on the cake, but not the cake itself. The impending ETF approval marks yet another milestone for bitcoin, cryptocurrency, and web3 as a whole. All of this is important to note as you prepare for a bitcoin ETF. Remember that nothing is guaranteed in volatile decentralized markets. Thus, you should never invest more than you can afford to lose and always have clear exit strategies in place.
Frequently asked questions
What is the minimum investment required for a bitcoin ETF?
How are bitcoin ETFs different from traditional ETFs?
What is the historical performance of bitcoin ETFs?
Are there any restrictions on who can invest in a bitcoin ETF?
Can I use leverage when trading bitcoin ETFs?
Is a bitcoin ETF risky?
How do I invest in a bitcoin ETF?
Are bitcoin ETFs profitable?
Top crypto platforms in the US | December 2023
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