6 Ways to Invest in Bitcoin in 2024

If you're reading Bankless, you probably know how to buy some BTC, and with spot BTC ETFs now trading in America, it has never been easier to get exposure to Bitcoin, but not every investment route was created equal…

Today, we’re exploring the six of the most prominent methods individual investors employ to gain exposure to Bitcoin and discussing the merits of each to help you determine which is the best fit for you!

⛏️ Bitcoin Miners

Bitcoin miners race to solve complex cryptographic problems using energy-intensive computing rigs in hopes of guessing a number – or hash – that allows them to solve the problem and gives them the ability to add the next block to Bitcoin’s blockchain in exchange for BTC from inflationary token rewards and transaction fees.

Miners do not hold most of the BTC they earn on their balance sheets, instead selling it to cover their costs of operations (electricity bill) or expansion (new mining rigs), but as their revenue is denominated in BTC, miner share prices are intrinsically linked to the price of Bitcoin!

With the halving inches closer, it is important to keep in mind that many miners are likely to struggle with profitability, as their revenues from inflationary network rewards, which currently comprise 97% of the total reward for mining a Bitcoin block, will be cut in half.

Consolidation resulting from unprofitable companies taking their rigs offline or selling will benefit the miners that remain, whose increased control over the Bitcoin network’s hash power will allow them to mine a higher percentage of Bitcoin’s blocks.

Popular Bitcoin Miners:

• Marathon Digital Holdings Inc. (MARA)
• Riot Platforms Inc. (RIOT)
• CleanSpark Inc. (CLSK)

⚡ MicroStrategy

Michael Saylor put on his legendary BTC bet in August 2020, transforming his business intelligence technology company into a behemoth Bitcoin custody vehicle that today possesses nearly 1% of all BTC scheduled to exist!

While MicroStrategy custodies a large amount of Bitcoins, it does not charge a management fee for doing so to shareholders, instead using profits derived from the operations of its software business to cover these costs.

The residual value that can be ascribed to MicroStrategy’s BTC holdings (i.e., its market capitalization less the value of its core software business) has a tendency to trade at either premium and discount to the actual market value of the company’s BTC holdings, as there are no hard mechanisms to enforce a peg.

When MSTR trades at a premium, management typically dilutes equity holders by selling shares to raise additional capital to purchase even more Bitcoins in the future, placing a soft ceiling on how much the market cap of MSTR can exceed the real value of its software business and BTC holdings.

With Saylor reiterating time and time again that he will not sell, MSTR lacks any real mechanisms to protect against downside, and the company’s market cap could feasibly trade at a discount to the market value of its Bitcoin holdings for a prolonged period of time, a major risk for holders.

MicroStrategy’s swings between discount and premium present a lucrative opportunity for traders willing to take the other side of the market when price diverges and hold back to par, but holding this stock does not make sense for investors seeking pure exposure to Bitcoin in an era where spot BTC ETFs are readily available.

📜 Spot ETFs

The approval of spot BTC ETFs earlier was a landmark accomplishment for the crypto industry made in January 2024 that enabled anyone in the United States to access pure crypto exposure through a traditional brokerage account, and these products have existed in Canada and Europe.

Issuers of spot BTC ETFs hold actual Bitcoins on behalf of their ETF’s shareholders with specialized crypto custodians, like Coinbase Custody, whose sole responsibility is to store their clients’ digital assets.

Shares of spot ETFs can be created or redeemed at any time by authorized participants, meaning the market price of a share closely tracks its net asset value, unlike in the trust-based regime that caused Grayscale’s Bitcoin Trust (GBTC) to trade at both a premium and discount as demand for BTC waxed and waned.

While some issuers are currently offering fee waivers on their spot BTC ETS, these will eventually all expire, after which point holders will be paying anywhere from 0.19% to 1.5% per year in management fees, depending on the product they invest in.

 One of the most compelling traits of spot BTC ETFs is their integration with the traditional financial system, which allows investors to purchase shares in these instruments from their existing TradFi brokerage alongside more traditional investments like stocks and bonds.

Additionally, the ability to hold these ETFs in existing tax-advantaged accounts, like 401(k)s or IRAs, presents a significant benefit for long-term investors looking to optimize for tax efficiency.

Popular US Spot BTC ETF Tickers:

• iShares Bitcoin Trust (IBIT)
• Bitwise Bitcoin ETF (BITB)
• VanEck Bitcoin Trust (HODL)
• Valkyrie Bitcoin Fund (BRRR)
• Grayscale Bitcoin Trust (GBTC)

🏦 Exchange Custody

Whether you’re a crypto newcomer purchasing your first fraction of a Bitcoin or a BTC fanatic committed to religiously stacking sats, a centralized exchange can serve as your gateway into the world of crypto assets!

Centralized exchanges make it easy to convert between fiat and crypto assets while abstracting away the technical sophistication associated with storing your crypto assets and swapping between tokens on different networks.

Instead of charging users a fee to store assets on their platforms, centralized exchanges earn revenues from trading fees and the other ancillary exchange services they provide.

For their non-US users, many centralized exchanges offer perpetual products, which allow traders to speculate on the prices of crypto assets with leverage to boost returns and give their users the ability to pick up yield on their assets with lending and structured products.

While storing your Bitcoin on a centralized exchange comes with its benefits, it is important to remember you are entrusting another party with the security of your crypto and keep in mind the mantra: not your keys, not your crypto.

📆 Futures ETFs

Like their spot ETF brethren, Bitcoin futures ETFs also offer exposure to BTC and trade on centralized exchanges but hold BTC futures contracts as their name suggests instead of “physical” Bitcoin.

Futures-based ETFs are viewed as suboptimal Bitcoin investment vehicles compared to spot products, as the need to roll expiring futures contracts exposes investors to contango and backwardation effects, which causes the prices of futures-based instruments to deviate from the prices of the assets they are intended to track.

Issuers of Bitcoin futures ETFs charge management fees on their products, amounting to 0.95% annually for holders of ProShares’ Bitcoin Strategy ETF (BITO), the largest US-based BTC futures ETF by AUM.

Popular US Futures BTC ETFs:

• ProShares Bitcoin Strategy ETF (BITO)

🪙 Self-Custody

The crypto industry has seen more than its fair share of exchange implosions – be it from fraud or exploit – making storing your BTC on the centralized exchange you purchased from a risky proposition…

With just a little more effort and technical know-how, regular crypto users can employ self-custody to eliminate the litany of risks associated with exchange custody!

Besides the upfront expense associated with purchasing a hardware wallet, the physical device that stores the private keys needed to access your crypto assets, self custody has no additional costs.

While modern hardware devices from companies such as Ledger come with an easy setup process that make self custody accessible to anyone with a basic level of online sophistication, key management poses a challenge for users, as those who improperly record or secure their wallet’s recovery phrase risk the loss of 100% of their funds with no possibility for recovery!

As Bitcoin is not equipped to support smart contracts, those who self-custody their BTC must first send it to a centralized exchange to sell, increasing the length of time it takes to get liquidity on an investment, particularly for whales making large deposits that risk setting off compliance red flags.

Additional Resources:

• The Bankless Guide to Ledger