Don’t Be Hasty When It Comes to the New Bitcoin ETFs

Colin’s note: Last week, the U.S. Securities and Exchange Commission approved 11 Bitcoin ETFs…

Among the ETFs approved is one from the world’s largest asset manager, BlackRock. The Wall Street titan has been going toe to toe with regulators for years trying to bring a spot Bitcoin ETF to the public…

These ETFs will make it easier for folks to buy, hold, and own the cryptocurrency… well, sort of.

See, I’ve done my research… And I’m here to tell you these ETFs are a trap.

And if the cryptocurrency community isn’t careful, they could mean the end of the once-decentralized asset class.

I get into all the details in today’s video. Just click below to watch. Or, if you prefer to read, I’ve provided a transcript my team and I have edited for flow.

$4.6 billion…

That’s how much money flowed into the long-awaited Bitcoin ETFs the very first day they went live last week.

After years of back and forth with regulators, popular ETF providers like BlackRock and Ark Invest are now being promoted as an alternative way to gain exposure to the popular cryptocurrency.

Anyone who rushed to buy Wall Street’s latest attempt to hijack an asset class for their benefit… I don’t feel sorry for you.

That’s because each fund is required to publish a prospectus. It’s a lengthy document with different types of financial security disclosures and risk factors.

Now, I realize these documents are supposed to read like a horror movie script where every possible known risk factor is outlined in excruciating detail.

If you read virtually any ETF prospectus, it will make you think twice about buying into the fund.

But the new spot Bitcoin ETFs prospectuses are particularly revealing… And if the crypto community isn’t careful, these ETFs are set to take down the once-decentralized asset class for good.

The first disturbing aspect of these new Bitcoin ETFs is you don’t actually own Bitcoin.

Now this isn’t particularly surprising to true Bitcoin experts. As the old saying goes… Not your keys, not your crypto.

In cryptocurrency, your key is a string of characters used by an encryption algorithm. Like a physical key, it locks – or encrypts – data so that only someone with the right key can unlock – or decrypt – it.

When you buy crypto on popular exchanges like Coinbase or Robinhood, you don’t hold the encryption key, the exchange does. That’s why serious buyers of crypto pull their tokens off exchanges and store them on a physical device known as cold storage.

[Cold storage isn’t like your standard crypto wallet. A hot wallet is software you download to store your crypto keys and access them via the internet. Cold storage keeps your crypto keys offline and accessible only through the hardware. It’s less convenient but generally preferred by serious crypto investors for the added security.]

That might seem like a pain considering you need to not only remember your encryption key… but you must also protect the physical device from theft, damage, or fire.

But this extra step has saved many buyers of crypto from being robbed by fraud-riddled crypto exchanges like FTX and Mt. Gox, which either ran off with customers’ crypto or mismanaged their assets.

Of course, BlackRock and Ark Invest CEO Cathie Wood wouldn’t run off with our crypto, right?

Except they don’t own the crypto keys either.

That’s because the ETF providers are also using a custodian – most notably Coinbase. So even BlackRock won’t have any control over the bitcoin in its ETF.

This is scary for many reasons.

First, Bitcoin was supposed to be a ‘decentralized’ asset that wasn’t bound by any one particular group.

Instead, these ETFs are centralizing the asset class on exchanges with terrible track records as custodians of the asset.

Even if Coinbase doesn’t do anything nefarious, it can be compromised… And the crypto can be stolen.

Other than theft, not owning the actual Bitcoin excludes you from benefiting from forking or the creation of new crypto.

[A fork is simply what happens when there’s a change to the protocol, or basic set of rules, of the blockchain that powers the cryptocurrency. In the past, forking has been used to add new features to the blockchain… to address bugs… or even to reverse problems that have cropped up.]

Inside the ETFs prospectus it explicitly states:

With respect to any fork, airdrop, or similar event […], shareholders will not receive the benefits of any forks, and the Trust is not able to participate in any airdrop.

So in the event of a “fork” or a Bitcoin Cash-type event, shareholders won’t receive the benefits of any forked or airdropped assets.

Remember, these new Bitcoin ETFs are simply meant to mimic the price of Bitcoin.

You’re not only paying a management fee on every dollar the fund takes in… You also have double the counterparty risk, as both the ETF provider and the custodian of the Bitcoin could run off with the crypto or go out of business.

Not to mention you don’t benefit from forking, which usually results in acquiring additional tokens at no cost.

The new bitcoin ETFs are meant to benefit Wall Street which will collect management fees for doing very little.

The truth is Wall Street has been doing this for years in the gold market.

Gold ETFs like GLD are meant to mimic the price of gold. But since its inception in 2004, the GLD ETF has underperformed physical gold by nearly 50%.

But that’s not your biggest worry.

Bitcoin is a volatile asset. We all know this. When it goes up, it’s all good. But what will happen to many of these ETFs when crypto embarks on its next inevitable downtrend?

Asset outflows will be swift… volume will dry up… and the ETF will close up shop at the exact time you should be buying Bitcoin. But instead, you’ll be forced to sell.

Don’t be fooled. These new ETFs are nothing but a money grab by large Wall Street firms like BlackRock.

Your performance will always lag behind the performance of those who actually own the crypto.

And instead of less counterparty risk, there’s more since you’re adding another intermediary between you and the actual cryptocurrency.

Worse yet, you won’t benefit if Bitcoin forks and produces offspring like it did in 2017 with Bitcoin Cash.

Before and after these ETFs launched, your best bet to owning crypto was acquiring tokens on an exchange and immediately transferring them to a cold storage device.

Just like physical gold, you should have a high-quality, fireproof safe and explicit instructions on how to access both the safe and the tokens, just in case something happens to you.

While this may seem like too many hoops to jump through just to own some exposure to one of the best-performing asset classes over the past decade, history has proven this is the best method to own Bitcoin.

Lastly, crypto’s promise was a decentralized digital currency. Handing your money to BlackRock and Wall Street defeats the purpose of the asset altogether. And if enough people give up the freedom Bitcoin offers, it will simply become the next asset class Wall Street completely owns and controls.

I was an early buyer of Bitcoin, and I believe the future is bright for cryptocurrencies. But the new Bitcoin ETFs are a step backward. They take away all the benefits of owning a digital currency.

My name is Colin Tedards, let me know what you think about these new ETFs at feedback@browstoneresearch.com. I’d love to hear your thoughts. That’s it for today’s Bleeding Edge.

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