A friend of mine brought up the idea to me about a firm creating an exchange traded fund (ETF) or Mutual Fund for Bitcoin; similar to GLD which is an ETF for gold, this fund would only hold Bitcoin. Now on the surface this may seem like a great idea for investors who want to invest in Bitcoin longterm, but at its core this is just an investment strategy that will cost you more money than it is worth.
An investment fund (actively managed or passively managed) makes money from its expense ratio. The definition of an expense ratio according to Investopedia is as follows: “A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual calculation, where a fund’s operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund’s assets and lower the return to a fund’s investors.” [Source] This is why any type of fund created by a third-party investment firm with the sole purpose of holding Bitcoin is a bad idea. Bitcoin can easily be purchased through online wallets already, and for relatively cheap – if not completely free. If you purchase the same Bitcoin value, but within a fund, you are now going to be charged X% per year for that Bitcoin to be held within the fund. This process is essentially adding an unneeded middle man, who is solely there to charge you a fee. So if you’re interested in Bitcoin for the long haul, don’t wait for a fund – the current process is the most cost effective.
