Hedging against the financial system requires more than a spot bitcoin ETF

This is an opinion editorial from David Waugh, business development and communications specialist at bitcoin investment platform Coinbits.

A few weeks ago, BlackRock and other major financial companies filed for permission To offer a spot bitcoin exchange-traded fund (ETF).

Although the US Securities and Exchange Commission (SEC) where did it go that these initial filings were insufficient, forcing the companies to file again, Many investors believe that they will will be finally approved, creating the first product of its kind in the market. These new financial instruments will allow institutional and retail investors to access the price of bitcoin without having to purchase actual bitcoin.

On the surface, this would appear to be a huge win for bitcoin adoption as it would become easier for financial advisors, who were previously hesitant or unable to enter this market, to assist clients in the form of bitcoin allocations.

Banks and other traditional financial players will also use spot ETFs to increase their exposure, which could lead to an increase in the exchange rate of bitcoin against the dollar. However, for households and individuals, shares of a bitcoin product through a spot ETF are not an option for holding bitcoin in self-custody.

Ultimately, bitcoin ETF products still exist within the traditional financial system and do not provide complete protection from market, government, or compliance risk. Thus, market forces can influence ETF issuers, and governments can create and enforce regulations. by decree Which devalues ​​or devalues ​​the consumer’s property.

In contrast, holding actual bitcoin allows individuals to use it. digital carrier asset Outside the control of governments and traditional financial institutions. Although this introduces new risks associated with private key management, each diversified portfolio must have a true bitcoin allocation, regardless of any additional allocations to bitcoin ETFs.

Self-custody has no substitute for bitcoin as investors seek to diversify to spread risk and protect themselves from geopolitical and market shocks.

advice outside the financial system

For years, financial advisors have dutifully allocated clients’ money among a variety of traditional financial assets (stocks, bonds, real estate, insurance). Overall, he has done very well. Vanguard Analyst have calculated Advisors can increase the value of client portfolios by up to 3% simply by ensuring they follow best practices rather than trying to chase returns. consultants benefit Standard 1% annual fee on assets under management (AUM).

Yet good financial advisors are much more than outsourced portfolio allocators who recommend the right “mix” of assets to match a client’s goals and risk profile. They work with clients to ensure protection against a variety of outcomes and ensure wealth preservation through retirement and for future generations.

Some advisors overlook the reality that allocations within the traditional financial system are generated solely by risk. “boom and bust” financial market cycles. As a result, customers sometimes run the risk of being unable to retire or change jobs until the market picks up again, causing a significant lifestyle shock.

Proper diversification requires liquid assets outside the traditional financial system. For generations, the best asset to do this was physical gold, However, in 2009, Satoshi Nakamoto released the next best bearer asset, bitcoin, and with it an innovative system. reliably fixed monetary policy, Now, anyone can use bitcoin for free liquidity during a crisis.

A Spot ETF Vs. real bitcoin

Potential spot bitcoin ETFs would provide benefits, such as exposure to bitcoin’s price movements, some diversification from traditional financial markets, and ease of purchase. Despite these advantages, it falters salabilityA key feature of a diversified portfolio.

Bitcoin operates on a monetary network that operates 24 hours per day, 365 days per year. Individuals and institutions can use it to transfer value instantly without third party approval. They can sell bitcoin for fiat currencies at any time through centralized exchanges or peer-to-peer.

In contrast, individuals and institutions may exchange shares of the Spot Bitcoin ETF for fiat liquidity only when financial markets are open, which, for retail investors, begins at 9 a.m. Eastern Standard Time on weekdays, excluding holidays. :30 a.m. to 4:00 p.m. Exchange may stop trading at its discretion or even on receipt a regulatory orderThis will further limit the sale potential of ETF shares.

In another scenario, if a government tries to restrict the acquisition of bitcoin, it may be able to confiscate the asset manager’s bitcoin or order the ETF to liquidate. Owning actual bitcoin by managing your private keys provides the ability to opt out of a system with strong capital controls, rather than suffer unforeseen future consequences.

Essential Security, Meaningful Diversification

Owning shares of a bitcoin product is not the same as directly holding bitcoin. Spot Bitcoin ETFs will remain tied to the traditional financial system. This has some mild advantages, but ultimately limits bitcoin’s ability to be used as a shield against the risks inherent in the traditional financial system.

A diversified portfolio is required to include actual bitcoin, even if that portfolio already has spot bitcoin ETF positions.

This is a guest post by David Waugh. The opinions expressed are solely his own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.