The Ultimate Guide: Invest In Bitcoin Without Third Parties

Bitcoin is a dominant force in the cryptocurrency market, but investing in it can be challenging due to its volatility and the fact that it is not regulated by the Securities Investor Protection Corporation. However, there are several ways to invest in Bitcoin without using a third party.

One way is to use a peer-to-peer money transfer app, such as PayPal, Venmo, or Cash App, to purchase, store, send and receive Bitcoin. Another option is to use a Bitcoin exchange-traded fund (ETF), which is an investment vehicle that trades on the stock market and is proportional to the price of Bitcoin. While spot ETFs are only offered in a few countries, the US Securities and Exchange Commission (SEC) has approved several Bitcoin futures ETFs.

You can also invest in Bitcoin mining companies, which validate transactions and add them to the blockchain, or blockchain technology companies, which develop and implement the technology that underpins Bitcoin and other cryptocurrencies.

Bitcoin exchange-traded funds (ETFs)

Bitcoin ETFs are exchange-traded funds that track the value of Bitcoin and trade on traditional market exchanges rather than cryptocurrency exchanges. They allow investors to gain exposure to the price movements of Bitcoin without actually owning the asset itself. Shares of a Bitcoin ETF are traded on traditional stock exchanges, making it easier for investors to participate in the cryptocurrency market.

A Bitcoin ETF works like any other ETF, where the price of one share of the fund fluctuates with the price of Bitcoin. If Bitcoin increases in value, so does the ETF, and vice versa. However, instead of trading on a cryptocurrency exchange, a Bitcoin ETF trades on a market exchange like the NYSE or TSX.

There are two main types of Bitcoin ETFs: spot and futures. A spot Bitcoin ETF aims to provide investors with direct exposure to the current market price of Bitcoin, while a futures Bitcoin ETF uses Bitcoin futures contracts to gain exposure to the cryptocurrency without holding the actual asset.

Advantages of Bitcoin ETFs

Investing in a Bitcoin ETF provides several advantages:

• Ease of Access: Bitcoin ETFs are traded on traditional stock exchanges, making it more accessible for mainstream investors to buy, hold, and trade Bitcoin-related assets through their existing brokerage accounts.
• Regulatory Oversight: Bitcoin ETFs are subject to regulatory oversight, providing investors with a level of protection and transparency. This can help reduce concerns about fraud and market manipulation, which are more prevalent in unregulated cryptocurrency markets.
• Portfolio Diversification: Bitcoin ETFs allow investors to incorporate Bitcoin into their investment portfolios without directly holding and managing digital assets.
• Convenience: Bitcoin ETFs simplify the process of investing in Bitcoin, eliminating the need to learn about how Bitcoin works, sign up for a cryptocurrency exchange, or take on the risks of owning Bitcoin directly.
• Tax Efficiency: As Bitcoin ETFs trade on traditional exchanges, they are likely to be regulated by the SEC and may offer tax benefits compared to holding cryptocurrencies directly.

Disadvantages of Bitcoin ETFs

There are also some disadvantages to consider:

• Management Fees: Bitcoin ETFs typically charge management fees, which can accumulate over time, especially for investors holding a significant amount of shares.
• Tracking Error: While Bitcoin ETFs aim to mirror the performance of Bitcoin, there can be differences between the ETF share cost and the value of Bitcoin due to factors such as liquidity, delayed rebalancing, and management fees.
• Lack of Direct Ownership: Bitcoin ETFs do not provide direct ownership of Bitcoin, and investors may prefer to own the underlying asset instead.
• Limits to Cryptocurrency Trading: Bitcoin ETFs are not eligible to trade for other cryptocurrencies since they are investment funds that track the price of Bitcoin.

Examples of Bitcoin ETFs

• ProShares Bitcoin Strategy ETF (BITO): Traded on the NYSEArca, this was one of the first Bitcoin futures ETFs approved by the SEC.
• Grayscale Bitcoin Trust (GBTC): This was a popular investment vehicle that allowed investors to gain exposure to Bitcoin without directly owning it. GBTC functioned as a publicly traded trust, and its conversion into an ETF offered advantages such as lower fees and greater liquidity.
• ARK 21shares Bitcoin ETF (ARKB): One of the first spot Bitcoin ETFs approved by the SEC in January 2024.
• Fidelity Wise Origin Bitcoin Fund (FBTC): Another spot Bitcoin ETF approved by the SEC, offered by Fidelity.

Bitcoin ETFs offer a convenient and regulated way for investors to gain exposure to Bitcoin without the complexities and risks associated with direct ownership. They provide ease of access, regulatory oversight, and portfolio diversification opportunities. However, investors should also consider the disadvantages, such as management fees and the lack of direct ownership. As with any investment, it is essential to carefully consider your financial goals and risk tolerance before investing in Bitcoin ETFs.

Bitcoin mining companies

Some of the largest Bitcoin mining companies by market capitalisation include Marathon Digital Holdings, Bitdeer Technologies Group, HIVE Blockchain Technologies, GRIID Infrastructure, and Stronghold Digital Mining.

HIVE Blockchain Technologies, for example, operates Bitcoin blockchain computing centres around the world, running on low-cost energy with long-term contracts. Bitfarms, another global Bitcoin mining company, also runs on hydroelectricity, with farms on 12 sites across two continents.

Investing in these companies can be a way to bet on the long-term potential of Bitcoin and the broader cryptocurrency market without directly purchasing the coins themselves.

Bitcoin futures

Benefits of Trading Bitcoin Futures

Types of Bitcoin Futures

There are two main types of Bitcoin futures contracts:

• Perpetual contracts: These contracts do not have an expiration date. They carry a funding fee, which is a periodic payment made directly between traders.
• Quarterly contracts: These contracts follow a calendar cycle and have an expiration date. For example, a BTCUSD Quarterly 0925 contract will expire on September 25, 2020, at 08:00:00 UTC.

Blockchain technology companies

• Tech Alchemy: An award-winning software design and development agency based in Shoreditch, London, United Kingdom. They work with a mix of large organizations, brands, and ambitious startups.
• Protonshub Technologies: A CMMI Level 5 mobile and web app development company, headquartered in Mountain View, California. They build exceptional and innovative digital solutions for all types of businesses.
• OpenXcell: A top blockchain development company that builds innovative blockchain-based apps and services. Their diversified clientele includes John Hopkins University, Renault Nissan Mitsubishi Alliance, and more.
• SoluLab: A top-notch, experienced blockchain developer based in the US, with over 1500 completed projects and 500 happy clients. They specialize in building Blockchain Games, Ethereum Tokens, Web 3.0, and Defi.
• Idealogic: A top-rated blockchain technology company with 10 years of experience. The company offers pre-designed and white-label custom blockchain solutions for e-wallets, crypto exchange, and DeFi platforms.
• Plavno: A software development company that helps businesses capture AI and blockchain technology opportunities. They offer full-fledged teams of specialists covering each stage of product creation, from product management and analysis to design, development, testing, and ongoing support.
• Infograins: One of the top blockchain development companies, providing core, custom, and enterprise blockchain technology solutions. They hold expertise in developing Web 3.0 applications, Metaverse, POC Development, public and private blockchain, and smart contracts.
• LeewayHertz: A renowned software development company with 15 years of experience. They have designed and developed innovative and future-ready tech solutions for startups, scaleups, and enterprises.
• Peiko: One of the highest-ranked and biggest blockchain companies based in the United States. The company has the best industry experts adept at providing high-quality blockchain development, application development, and game development services.
• Suffescom Solutions Inc: A blockchain development services company with nearly 5 years of experience. They have successfully delivered individual and enterprise projects, like NFT Marketplace, Play2Earn gaming platforms, and cryptocurrency-based solutions.
• Blockchain App Maker: One of the earliest blockchain and cryptocurrency development companies in the United Kingdom. They provide cutting-edge services, strong experience, and in-depth industry knowledge to their customers.

These companies are leading the way in blockchain technology, offering innovative solutions and services to businesses and individuals alike. They are helping to drive the adoption and integration of blockchain across various industries, including finance, healthcare, supply chain, and more.

Bitcoin derivatives

Derivatives are tradeable financial contracts that derive their value from an underlying asset. In the case of Bitcoin derivatives, the underlying asset is Bitcoin. Derivatives allow traders to benefit from the price movement of an asset without actually owning it.

The two main types of crypto derivatives are futures and options contracts. Perpetual futures are a special type of futures contract unique to crypto markets.

Derivatives are mainly used for hedging and speculating. They are complex and best suited for advanced traders.

Trading Bitcoin Futures

Futures involve an agreement between a buyer and a seller to sell an asset in the future. The specific date and amount are agreed on ahead of time. For example, if the current price of Bitcoin is $40,000, an investor may either buy or sell futures contracts in anticipation of either a price decline or an increase.

If a buyer purchases a futures contract worth one Bitcoin ($40,000) and it increases to $60,000 by the time the contract closes, the buyer will have made a profit of $20,000. On the other hand, if the price drops to $30,000, the buyer will have incurred a loss of $10,000.

Trading Bitcoin Options

Options are another type of derivative contract that allows a trader to buy or sell a specific commodity, in this case, Bitcoin, at a set price on a future date. Options give the buyer the opportunity to choose not to buy the asset if they decide against it.

There are multiple types of options: call and put options, as well as American and European options. Call options allow a trader to purchase an asset on a given date, while put options allow a trader to sell an asset. American options can be sold before the contract’s expiry date, whereas European options must be sold on the agreed date.

Traders must pay fees to buy a contract, and these fees are non-refundable regardless of the trade outcome.

Trading Perpetual Contracts

Perpetual contracts, also called perpetual futures contracts or perpetual swaps, are the most prolific type of crypto derivative, especially among day traders. Unlike futures and options, perpetual contracts do not have an expiry date. Traders can keep their positions open as long as they pay holding fees, called the funding rate, and maintain a minimum amount in their account, called the margin.

Crypto derivatives are important because they extend beyond an individual trader’s investment portfolio. Derivatives are part of a mature financial system and play a crucial role in developing the cryptocurrency industry as a recognized asset class. They increase liquidity, attract professional traders and institutional investors, and facilitate portfolio diversification and optimized price discovery.

Frequently asked questions