6 Ways to Invest in Bitcoin in 2024

You probably know how to buy some BTC, and now that spot BTC ETFs are trading in the US, it’s never been easier to get exposure to Bitcoin, but not all investment avenues are created equal…

Today, we’re exploring the six most important ways for individual investors to invest in Bitcoin and discussing the merits of each to help you decide which is best for you!

Bitcoin Miner

Bitcoin miners use energy-intensive computing equipment to solve complex cryptographic puzzles in the hope of guessing a number, or hash, that will solve the puzzle and gain the ability to add the next block to the Bitcoin blockchain, in return for which they receive Bitcoin from inflationary token rewards and transaction fees.

Miners do not keep most of the Bitcoin they earn on their balance sheets, but rather sell it to cover operating costs (electricity bills) or expansion (buying new mining machines), but since their income is denominated in Bitcoin, miner profitability is intrinsically linked to the Bitcoin price!

As the halving approaches, it is important to remember that many miners may face difficulty turning a profit as their income from inflationary network rewards, which currently account for 97% of the total reward for mining a Bitcoin block, will be cut in half.

Consolidation due to unprofitable companies going offline or selling their mining machines will benefit the remaining miners, whose increased control over the Bitcoin network’s computing power will enable them to mine more Bitcoin blocks.

Popular Bitcoin Miners:

• Marathon Digital Holdings Inc. (MARA)

• Riot Platforms Inc. (RIOT)

• CleanSpark Inc. (CLSK)

MicroStrategy

Michael Saylor made his legendary BTC bet in August 2020, transforming his business intelligence technology company into a massive Bitcoin custody tool that currently owns nearly 1% of all BTC estimated to exist!

Although MicroStrategy holds custody of a large amount of Bitcoin, it does not charge management fees to shareholders, but instead uses profits from its software business operations to cover these costs.

The residual value of MicroStrategy's BTC holdings (i.e., its market value minus the value of its core software business) tends to trade at a premium or discount to the actual market value of the BTC held by the company because there is no hard mechanism to enforce the peg.

When MSTR trades at a premium, management typically dilutes shareholders by raising additional capital through the sale of stock to purchase more Bitcoin in the future, which places a soft cap on how much MSTR's market cap can exceed the actual value of its software business and Bitcoin holdings.

Since Saylor has repeatedly reiterated that he will not sell, MSTR lacks any real protection against downside risk, and the company's market capitalization could be below the market value of its Bitcoin holdings for a considerable period of time, which is a significant risk for holders.

MicroStrategy oscillates between discounts and premiums, providing profitable opportunities for traders willing to go against the market when prices diverge and fall back to parity, but in an era where spot Bitcoin ETFs are available, owning this stock does not make sense for investors seeking pure Bitcoin exposure.

Spot ETFs

The Bitcoin spot ETF, approved in January 2024, was a landmark achievement for the cryptocurrency industry, allowing anyone in the United States to gain pure cryptocurrency exposure through a traditional brokerage account. Such products already exist in Canada and Europe.

Issuers of spot Bitcoin ETFs hold actual Bitcoin on behalf of their ETF’s shareholders and hand it over to a professional cryptocurrency custodian, such as Coinbase Custody, whose sole responsibility is to store its customers’ digital assets.

Authorized participants can create or redeem spot ETF shares at any time, which means the market price of shares is closely tied to their net asset value, unlike trust-based institutions such as Grayscale’s Bitcoin Trust (GBTC), which incur premiums and discounts as demand for Bitcoin changes.

While some issuers are currently waiving fees on their spot bitcoin ETFs, these fees will eventually expire, after which holders will pay annual management fees ranging from 0.19% to 1.5% depending on the product they invest in.

One of the most attractive features of spot Bitcoin ETFs is their integration with the traditional financial system, enabling investors to purchase shares of these instruments from their existing traditional financial brokerage accounts in the same way they purchase more traditional investments such as stocks and bonds.

Additionally, the ability to hold these ETFs in existing tax-advantaged accounts, such as 401(k)s or individual retirement accounts (IRAs), is a significant advantage for long-term investors seeking to optimize tax efficiency.

Popular US Spot BTC ETF Codes:

• iShares Bitcoin Trust (IBIT)

• Bitwise Bitcoin ETF (BITB)

• VanEck Bitcoin Trust (HODL)

• Valkyrie Bitcoin Fund (BRRR)

• Grayscale Bitcoin Trust (GBTC)

Exchange custody

Whether you are a newbie who has just stepped into the world of cryptocurrency and want to buy your first share of Bitcoin, or you are an avid Bitcoin enthusiast who is committed to accumulating Bitcoin relentlessly, then centralized exchanges can be your gateway into the world of crypto assets!

Centralized exchanges make it easy to convert between fiat currencies and crypto assets while shielding the technical complexities involved in storing crypto assets and exchanging tokens between different networks.

Centralized exchanges do not charge users for asset storage, but instead earn revenue through transaction fees and other auxiliary trading services.

For non-U.S. users, many centralized exchanges offer perpetual products that allow traders to speculate on the price of crypto assets using leveraged trading to increase returns, and allow users to earn returns on assets through lending and structured products.

While there are certain benefits to storing your Bitcoin on a centralized exchange, it is important to remember that you are entrusting the security of your crypto assets to another party and to keep in mind the principle “not your keys, not your crypto.”

Futures ETFs

Similar to spot Bitcoin ETFs, Bitcoin futures ETFs also allow investors to buy and sell Bitcoin on centralized exchanges, but they hold Bitcoin futures contracts instead of physical Bitcoin.

Compared with spot products, futures ETFs are considered to be suboptimal investment tools for Bitcoin because futures contracts expire and need to be continuously rolled over, which exposes investors to the effects of contango and backwardation, causing futures prices to deviate from the price of the underlying asset.

Issuers of Bitcoin futures ETFs will charge investors management fees. For example, the largest Bitcoin futures ETF in the United States, ProShares Bitcoin Strategy ETF (BITO), has an annual management fee of 0.95%.

Popular US Futures BTC ETFs:

• ProShares Bitcoin Strategy ETF (BITO)

Self-Hosting

The cryptocurrency industry has seen many exchanges collapse, whether due to fraud or vulnerabilities, storing your Bitcoin on a centralized exchange where you purchased the platform is a very risky move.

With a little more effort and technical know-how, the average cryptocurrency user can adopt self-custody and eliminate the various risks associated with exchange custody!

Aside from the initial expense of purchasing a hardware wallet (a physical device that stores the private keys needed to access your crypto assets), there are no additional costs for self-custody.

While modern hardware devices from companies like Ledger come with an easy setup process that makes self-custody possible for anyone with basic internet knowledge, key management is a challenge for users as those who fail to properly record or protect their wallet recovery phrase face a 100% risk of losing their funds with no way to recover!

Because Bitcoin does not have the ability to support smart contracts, those who self-custody Bitcoin must first send it to a centralized exchange to sell it, which increases the time required to obtain investment liquidity, especially for whales who make large deposits, which poses the risk of raising compliance red flags.