Investing in Bitcoin directly is an increasingly popular option among Australian investors, thanks to the increasing ease of access via cryptocurrency exchanges.

As of December 8th 2023, one Bitcoin is worth almost $66,000 AUD. However, unlike traditional investments, you don’t need to buy a whole Bitcoin; you can purchase just a fraction, making it a flexible option for both small and large investors.

When you buy Bitcoin directly, you gain full ownership of your investment. Unlike indirect methods such as exchange traded funds (ETFs) or crypto-related stocks, this direct approach provides complete control over your digital assets. Moreover, Bitcoin, as one of the most liquid digital assets, offers the advantage of ease in buying and selling, facilitating quick portfolio adjustments in response to market movements.

However, investment in Bitcoin has its challenges. The most notable is storing it. Owning cryptocurrency requires meticulous management of your digital wallet, which poses its own set of security risks. The cryptocurrency space is prone to hacking and theft, and safeguarding your investment requires diligence.

You can opt for a third-party wallet, which a crypto exchange or other crypto provider generally manages. While convenient for quick transactions, 3rd party wallets require trusting a third party with your money and are not generally considered the best option.

Cold wallets, such as hardware wallets, offer offline storage, significantly enhancing security. Implementing robust security measures like strong passwords and two-factor authentication is essential regardless of the storage method chosen. Additionally, maintaining a backup of your wallet details in a secure location is crucial for asset recovery in case of device failure or loss.

The process of buying Bitcoin on an Australian exchange is relatively straightforward. First, you must choose a reputable exchange that adheres to local regulations and security standards. After creating and verifying an account, you can deposit funds, typically through bank transfer or credit card, and then proceed to buy Bitcoin. This step is crucial, as selecting a trustworthy exchange can significantly mitigate some security risks associated with owning digital currencies.

Buying Bitcoin directly is a viable and potentially rewarding investment method, but it requires a comprehensive understanding of the cryptocurrency market and a robust approach to security. The volatility and regulatory uncertainties of Bitcoin necessitate a risk-aware investment strategy. As with any investment, thorough research and consultation with financial professionals is advisable to navigate the complexities of the cryptocurrency landscape.

For Australian investors looking to participate in the Bitcoin market via a more familiar investment structure, exchange-traded funds (ETFs) offer a convenient and regulated way to gain exposure. These crypto ETFs come in various forms, mainly categorized as futures and spot ETFs, each with its characteristics and ways of reflecting Bitcoin’s market movements.

Futures ETFs

Futures-based Bitcoin ETFs invest in futures contracts rather than holding the cryptocurrency directly. These contracts speculate on the future price of Bitcoin, providing an investment pathway tied to its future market expectations rather than its current price. This approach can sometimes lead to discrepancies between the ETF’s performance and the actual spot price of Bitcoin, especially in volatile market conditions.

However, futures ETFs offer a way to invest in Bitcoin’s potential without directly engaging with the cryptocurrency, adding a layer of abstraction that can appeal to those cautious about direct crypto investments.

Spot ETFs

In contrast, spot Bitcoin ETFs aim to track the current market price of Bitcoin. They provide a more direct exposure to Bitcoin’s price movements by holding the cryptocurrency directly. Spot ETFs offer a closer alignment with the actual performance of Bitcoin, making them a preferred choice for investors seeking an investment that mirrors the cryptocurrency’s real-time value.

Major institutions like BlackRock, WisdomTree, and ArkInvest currently have pending applications for spot Bitcoin ETFs. If approved, these offerings could further diversify the available Bitcoin ETFs, potentially providing more direct and varied exposure to Bitcoin for investors.

On top of this, if the ETFs are approved, these institutions will need to buy significant quantities of BTC to hold as backing due to how spot ETFs work. Many investors speculate that this could drive substantial demand for BTC, potentially increasing the price in the future.

How to Invest in a Bitcoin ETF

To invest in a Bitcoin ETF, you need a brokerage or online share trading account that gives you access to the exchanges your desired ETF trades on. Through this account, they can buy and sell ETF shares just as they would with traditional stocks. This process simplifies the investment in Bitcoin, avoiding the need for digital wallets and the associated security concerns.

In Australia, investors can access a variety of Bitcoin ETFs. For instance, the Global X 21Shares Bitcoin ETF (EBTC) and Ethereum ETF (EETH) available on Cboe Australia (CXA) track the prices of Bitcoin and Ethereum, respectively. These ETFs, particularly the EBTC, align closely with the concept of spot ETFs, providing exposure to the price movements of the respective cryptocurrencies.

Alternatively, for investors looking to gain exposure to the broader crypto industry, the BetaShares Crypto Innovators ETF (CRYP) focuses on companies involved in crypto, providing exposure to the sector without direct investment in cryptocurrencies. CRYP is available on the Australian Securities Exchange (ASX), which most brokerage or online share trading accounts will provide access to in Australia.

Whether futures-based or spot-based, Bitcoin ETFs offer diverse ways for investors to engage with the Bitcoin market. While futures ETFs provide a degree of separation from direct Bitcoin price movements, spot ETFs offer a more immediate reflection of Bitcoin’s market value. Each ETF type has pros and cons, and the choice depends on the individual investor’s strategy, risk tolerance, and preference for direct or indirect exposure to Bitcoin’s performance.

This familiar (and regulated) investment route is attractive for those who prefer the traditional stock market structure but want exposure to Bitcoin and other cryptocurrencies.

Investing in crypto-related stocks is another avenue for investors to gain indirect exposure to the Bitcoin and broader cryptocurrency markets. This method involves investing in companies significantly involved in the cryptocurrency industry, such as Bitcoin miners and cryptocurrency exchanges. Unlike direct investment in Bitcoin or Bitcoin ETFs, investing in crypto stocks means buying shares of companies whose business is closely tied to the performance and adoption of cryptocurrencies.

Crypto stocks offer a different kind of exposure to the cryptocurrency market. For example, stocks of Bitcoin mining companies like RIOT and MARA rise and fall not only with the price of Bitcoin but also with the companies’ operational performance and broader stock market trends. Similarly, investing in a company like COIN (Coinbase), a well-known cryptocurrency exchange, provides exposure to the crypto market’s growth while also being influenced by the company’s business performance, regulatory environment, and investor sentiment in the stock market.

This indirect nature of investment in crypto stocks can be both a pro and a con. On the positive side, these stocks offer a way to benefit from the growth of the Bitcoin and cryptocurrency markets without the complexities and risks associated with directly holding or managing digital currencies. They also allow investors to tap into the expertise of companies deeply embedded in the crypto world.

However, the performance of these stocks is not only tied to the price movements of Bitcoin or other cryptocurrencies. They are also affected by company-specific factors such as management decisions, operational efficiency, and broader market conditions. This adds a layer of complexity, as investors must consider both the prospects of the cryptocurrency market and the fundamentals of the individual companies.

For investors interested in crypto stocks, a traditional brokerage account is the primary tool for buying and selling these shares. This approach offers the familiarity of investing in the stock market while opening up exposure to cryptocurrency businesses.

Bitcoin presents a unique and potentially lucrative opportunity for investors, offering a range of investment methods to suit different preferences and strategies. Whether opting for direct purchase, exploring the diversification of Bitcoin ETFs, or investing in crypto-related stocks, each avenue offers its own benefits and potential risks.

For Australian investors looking to gain exposure to Bitcoin, staying informed, assessing the risks, and aligning investment choices with personal financial goals is essential.

This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class. Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.