Acorns And Bitcoin: Invest In Crypto Via The App?

Bitcoin is a well-known digital currency that is decentralised and not owned or operated by any government. It is the first and largest cryptocurrency and can be used to buy goods and services, transfer values, or to diversify your investment portfolio. Investing in Bitcoin can be done in a few ways, including through ETFs, cryptocurrency exchanges, and by buying stock in Bitcoin companies. One way to invest in Bitcoin is through the micro-investing app Acorns, which offers a Bitcoin-linked exchange-traded fund (ETF) that allows investors to get involved with Bitcoin futures. Acorns does not allow users to directly purchase Bitcoin tokens, but instead, the ETF aims to grow the investment by tracking Bitcoin futures contracts.

How to invest in Bitcoin with Acorns

Acorns is a micro-investing app that allows users to invest small amounts of money without worrying about account minimums. The app recommends an investment plan for its users based on their goals, employment, and income. Acorns offers five diversified portfolios of exchange-traded funds, or ETFs.

Acorns does not allow users to directly purchase Bitcoin. However, it does allow users to invest in a Bitcoin exchange-traded fund (ETF). This means that users are not investing in individual Bitcoin. Instead, they are investing in a fund that tracks the value of Bitcoin and trades on a traditional market exchange, like the Nasdaq.

The Bitcoin ETF offered by Acorns is called ProShares Bitcoin Strategy and trades under the ticker symbol BITO. BITO invests in Bitcoin futures, not directly in Bitcoin. This ETF trades Bitcoin futures contracts in an attempt to provide exposure to Bitcoin pricing.

Acorns customers can invest up to 5% of their Acorns Invest portfolio in BITO. The exact percentage depends on the customer's investment profile, including details like age, income, and money goals. For example, if a customer invests $100 a month and is in the "Moderate" portfolio, $3 per month will be allocated to BITO, and the rest will be diversified across the relevant stock and bond ETF portfolios.

• From your Acorns app, tap "Invest" on the home screen, then tap "Your Portfolio".
• Scroll towards the bottom and tap "Diversify your portfolio with a Bitcoin ETF".
• Review the FAQs, details, and disclosures, then carefully review the information on the screen.
• Tap "Add to your portfolio", then tap "Add" to confirm the allocation.

Any new deposits you add to your Acorns Invest account, such as Round-Ups or Recurring Investments, will go towards your target percentage for BITO. If you don't reach your target by the middle of the month, Acorns will help you get there by rebalancing your portfolio, i.e., buying and selling some investments to keep you on track.

It is important to note that investing in Bitcoin and other cryptocurrencies is considered high-risk due to their volatile nature.

Bitcoin ETFs vs. direct investment

Overview

Bitcoin, the world's leading and most widely adopted cryptocurrency, can be invested in through various avenues, including Exchange-Traded Funds (ETFs) and direct investment. While both options provide exposure to Bitcoin, there are distinct differences between the two that investors should consider before making a decision.

Bitcoin ETFs

Bitcoin ETFs are managed by professional fund managers who handle the buying, selling, and custody of Bitcoin. This simplifies the investment process, especially for investors unfamiliar with cryptocurrencies. ETFs trade on traditional, regulated exchanges like the New York Stock Exchange, bringing familiarity and comfort to investors. Additionally, investors do not need to worry about storing and safekeeping their Bitcoin, as the ETF provider handles this.

However, one of the drawbacks of ETFs is that investors do not own the underlying Bitcoin. The ETF is a synthetic asset built on top of Bitcoin, tracking its price. ETFs also come with management fees, which can reduce overall returns over time.

Direct Investment in Bitcoin

Direct investment in Bitcoin provides investors with direct ownership and control over their cryptocurrency. This option eliminates ongoing management fees associated with ETFs. However, direct ownership comes with the responsibility of managing purchases, sales, and custody, which can be complex and time-consuming. Investors need to consider the security of their Bitcoin, employing solutions such as digital wallets and storing private keys.

Another advantage of direct investment is the ability to trade Bitcoin 24/7 on cryptocurrency exchanges, providing access to a global market. However, the downside is the potential complexity and higher fees associated with some exchanges.

The decision between investing in Bitcoin ETFs or opting for direct investment depends on the investor's preferences, knowledge, and needs. ETFs offer a simplified, regulated approach with the convenience of traditional exchanges but come with management fees and a lack of direct ownership. In contrast, direct investment provides ownership and control but requires more active management and security considerations.

Pros and cons of investing in Bitcoin

Investing in Bitcoin has its pros and cons. It is important to understand the risks and potential benefits before investing in Bitcoin.

Pros of Investing in Bitcoin:

• Bitcoin is the first-ever cryptocurrency, making it a prestigious and desired asset.
• It is the most well-known cryptocurrency, and most crypto traders start with Bitcoin.
• Bitcoin is decentralised, meaning there are no centralised authorities or central banks that may impose high fees or restrictions.
• It is global, so there are no exchange rates to deal with.
• Anyone can invest in Bitcoin, regardless of their financial situation.
• It is highly liquid, making it easy to trade or buy and hold for long periods.
• It is transparent, as all transactions are stored permanently on the blockchain.
• It is a great way to diversify your portfolio.
• Some believe that Bitcoin is immune to economic turmoil, geopolitical problems, and inflation due to its supply cap and decentralised nature.
• It has valuable business features such as multi-signature authorisation, which can improve transparency and security.
• It has a significant ROI compared to other assets.
• It is the safest crypto asset to invest in due to its large number of users.
• It is backed by major investors such as Michael Saylor, CEO of MicroStrategy, and Mark Cuban.
• It can handle more than just transactions, with smart contracts and DeFi capabilities.

Cons of Investing in Bitcoin:

• Bitcoin is highly volatile, making it a risky investment.
• Bitcoin transactions are slow and can take up to 10 minutes or longer on busy days.
• It has limited use and depends on internet availability.
• It is not 100% safe, and Bitcoin can be stolen if held on an exchange.
• There is little regulatory oversight, which can lead to fraud and scams.
• It is misunderstood and associated with illegal services and crypto scams, making cryptocurrency adoption difficult.
• It is not energy-efficient, with high power consumption.
• It is dominated by excessively big investors who can easily influence the price.
• Community disagreements have split Bitcoin in the past, and further splits could be discouraging for investors.
• Quantum computers could potentially overpower the Bitcoin network and render it useless.
• It doesn't work as intended, as not many people use Bitcoin for its original purpose of transferring value.
• The disappearance of Satoshi Nakamoto, the creator of Bitcoin, raises many questions about his possible intentions and the security of the cryptocurrency.

Bitcoin volatility and risk

Bitcoin is a financial tool that carries risks, just like any other payment method or currency. However, with Bitcoin, the risks are slightly different from traditional currencies and payments. One of the main risks is its volatile price.

Bitcoin's volatility was evident in 2021 when it doubled its value, then lost most of that gain in early 2022. This volatility is driven by speculation and the lack of regulation, as Bitcoin isn't classified as a security. Large crypto whales also contribute to Bitcoin's volatility by creating massive swings in prices when they sell off large quantities.

Despite its volatility, Bitcoin has made significant strides in the financial world. Investors view it as a safer method of storing and transferring value compared to precious metals or traditional payment methods.

To reduce the risk associated with Bitcoin's volatility, investors can:

• Understand the difference between uncertainty and volatility: Uncertainty refers to the likelihood of an investment's value changing, while volatility measures the degree of that change.
• Focus on volatility: Instead of worrying about whether future regulation or other factors will change the value of Bitcoin, focus on the potential magnitude of any change.
• Price volatility into your investments: Quantify your measure of volatility and invest around that risk. For example, if you anticipate a 15% change in value, take that same amount of capital and move it into a short position on the Bitcoin futures market.

Additionally, diversifying your portfolio can help protect you against market volatility. You can gain exposure to Bitcoin by investing in a Bitcoin-linked ETF, such as the ProShares Bitcoin Strategy ETF (BITO), which invests in Bitcoin futures without requiring direct ownership of the cryptocurrency. This option is now available on the micro-investing app Acorns, allowing users to allocate up to 5% of their accounts towards a Bitcoin-linked ETF.

Remember, investing in Bitcoin or a Bitcoin ETF involves high risk due to its speculative and volatile nature.

How to diversify your portfolio with Bitcoin

Yes, you can invest in Bitcoin on Acorns. The micro-investing app recently added a Bitcoin exposure option, allowing customers to allocate up to 5% of their accounts to the ProShares Bitcoin Strategy ETF (BITO). This ETF invests in Bitcoin futures, rather than directly in Bitcoin.

Diversify by Coins and Tokens

One of the most straightforward ways to diversify your crypto portfolio is to diversify your direct ownership of digital coins. You can choose from various types of crypto coins, including payment tokens, security tokens, utility tokens, governance tokens, basic attention tokens, gaming tokens, and non-fungible tokens (NFTs).

Diversify by Industry Focus

You can diversify your crypto or blockchain portfolio by investing in cryptocurrency projects focused on different industries. For example, you can explore opportunities in healthcare, supply chain, transportation, entertainment, climate change, and real estate.

Diversify by Market Capitalization

Bitcoin has the largest market capitalization, but there are many other altcoins with varying market caps worth considering. A crypto with a larger market cap may be more stable and have stronger fundamentals, while a smaller market cap crypto might have stronger growth potential.

Diversify by Location

Choosing cryptocurrency projects from different locations can expose you to a wider range of innovations. It is advisable to focus on areas where innovation in crypto is growing, such as Portugal, El Salvador, Texas, Wyoming, New York, and Georgia.

Diversify by Asset Class

You can diversify your crypto portfolio by investing in different asset classes. For example, you can buy stocks of companies focused on the crypto sector or with large cryptocurrency holdings. Additionally, you can explore blockchain-based or crypto-backed bonds and real estate tokens.

Diversify by Investment Vehicle

If you're concerned about portfolio security, you can diversify your crypto holdings across various investment vehicles and account types, such as digital wallets, taxable brokerage accounts, cryptocurrency IRAs, and decentralized financial products.

Diversify with Bitcoin ETFs

You can gain exposure to Bitcoin by investing in a Bitcoin-linked ETF, which tracks the potential value of Bitcoin without requiring direct ownership of the cryptocurrency. This approach can reduce the risk associated with the volatility of cryptocurrencies.

It's important to note that diversification is a key principle of investing, helping to reduce the overall risk of your portfolio. By applying these strategies, you can effectively diversify your portfolio with Bitcoin and other cryptocurrencies.

Frequently asked questions