Understanding Blackrock’s Bitcoin ETF- iShares Bitcoin Trust (IBIT)

Source : WSJ and VettaFi  

The iShares Bitcoin Trust (IBIT), launched by BlackRock, is an exchange-traded fund (ETF) designed to track the price of Bitcoin offering a familiar investment vehicle tradable through existing brokerage accounts. BlackRock partners with the experienced custodian Coinbase to securely store the underlying Bitcoin holdings of IBIT. But is IBIT the key to unlocking easy Bitcoin riches? Before diving in, let’s explore the performance history, potential advantages, and inherent risks associated with this new investment option. 

Performance Snapshot  

IBIT became the first Bitcoin ETF to reach $1 billion in assets within the first four days of trading. This trend highlights its appeal to investors familiar with BlackRock’s reputation. 

As of April 11, 2024, IBIT holds the number two spot among Bitcoin ETFs in terms of total assets at $18.32 billion. It trails only the Grayscale Bitcoin Trust (GBTC) at $21.81 billion, with Fidelity’s Wise Origin Bitcoin Fund (FBTC) following in third at $10.38 billion. 

Looking at performance over the past week, IBIT came in ninth out of 11 providers with a 4.40% return. While this trails Bitcoin’s return of 6.59% during the same period, the difference is 2.19%. For the monthly performance, IBIT ranked seventh with a return of -2.86%. This is slightly worse than Bitcoin’s monthly return of -2.53%, representing a difference of 0.33%. 

Source: TradingView 

Source: TradingView 

Benefits

These are some of the advantages offered by IBIT: 

• Exchange-Traded: IBIT enables investors to access bitcoin within a traditional brokerage account, allowing you to buy and sell shares like any stock during market hours.  
• Coinbase Security: IBIT leverages the industry-leading security of Coinbase, a trusted and established cryptocurrency custodian.  
• Reduced Fees: In a bid to attract early investors, BlackRock is offering a reduced fee structure for the iShares Bitcoin Trust (IBIT).  For the first year (starting January 11th, 2024), a management fee of 0.12% will be applied to the first $5 billion of the fund’s assets. However, if the fund surpasses $5 billion within the first year, the fee for assets exceeding that amount will be the standard rate. After the initial 12-month period, the standard 0.25% fee will apply across the entire fund. 

Risks to Consider

While IBIT offers a new way to gain exposure to Bitcoin, it’s important to be aware of the inherent risks involved: 

• Volatility: Bitcoin’s price is known for substantial fluctuations. 
• Trading Hours: Unlike the 24/7 bitcoin market, IBIT can only be bought or sold during market hours. Industry experts like Markus Thielen (CEO of 10x Research) highlight this as a potential drawback. He suggests this new trend of Bitcoin ETFs allows investors to capture frequent small profits that occur outside of U.S. trading hours.  For example, on April 4th, Bitcoin surged roughly 2.6% during after-hours trading. However, IBIT investors could only benefit from a 0.6% price increase the following day due to limited market access. Bloomberg ETF analyst Eric Balchunas further emphasizes this by pointing out that a significant portion of Bitcoin’s gains since January 2024 have occurred outside of regular U.S. market hours. 

• Tracking Errors: While IBIT aims to mirror Bitcoin’s price, slight deviations can occur due to various factors: 
  • • Fees: Management and index fees can reduce your overall returns. 
    • Transaction & Storage Costs: The costs associated with buying and storing Bitcoin can slightly impact IBIT’s price. 
    • Rebalancing: Periodic adjustments to the ETF’s holdings to maintain its target allocation can cause temporary variations. 
• Price Discrepancies: The price of an IBIT share is based on its Net Asset Value (NAV), which reflects the underlying Bitcoin price. However, due to the factors mentioned above, the NAV may not perfectly match the spot price of Bitcoin.  

• Performance Variations: Even among Bitcoin ETFs with similar fees, returns can differ slightly. This can be attributed to: 

• • • Tracking Methodology: Differences in how often the ETF rebalances or the specific pricing mechanism used. 
    • Market Liquidity: Low trading volume can hinder an ETF’s ability to precisely track Bitcoin’s price, leading to minor return variations, especially during volatile periods. 
    • Expense Ratios: Lower expense ratios translate to potentially higher returns for investors compared to ETFs with higher fees. 

By understanding these potential drawbacks, you can make informed investment decisions regarding IBIT. 

Crypto IRAs: A Tax-Advantaged Alternative to Bitcoin ETFs 

For investors seeking to own bitcoin directly with tax benefits, Crypto IRAs emerge as a compelling alternative to Bitcoin ETFs. 

Tax Advantages: While Bitcoin ETFs face tax implications similar to stocks (ranging from 20% to 40% depending on your holding period), Crypto IRAs provide distinct tax benefits: 

• Traditional IRAs: Contributions grow tax-deferred, meaning taxes are paid upon withdrawal at retirement. 
• Roth IRAs: Contributions are made with after-tax dollars, allowing for potentially tax-free withdrawals in retirement. 

These tax benefits can significantly boost the power of compounding over time, leading to greater returns in the long run.  

Beyond Tax Benefits: Crypto IRAs offer additional advantages: 

• Direct Control: Unlike ETFs, Crypto IRAs grant you direct management of your cryptocurrency, offering greater control over your investment strategy. 
• 24/7 Access: Some Crypto IRA platforms offer continuous trading, allowing you to react to market movements around the clock, unlike conventional ETFs which are restricted to stock market hours. 
• Diversification: Some Crypto IRA providers, like BitcoinIRA¹, allow you to diversify your portfolio beyond bitcoin by including additional assets, potentially unlocking broader growth opportunities.  

Ready to take the next step? 

BitcoinIRA empowers you to invest in Bitcoin and 60+ cryptocurrencies within a secure, tax-advantaged Crypto IRA. Here’s what sets us apart: 

• Industry-Leading Security²: Your assets are safeguarded with military-grade cold storage and robust security features. 
• Tax-Advantaged Investing: Grow your wealth faster within a qualified IRA, allowing for tax-deferred or potentially tax-free growth depending on your IRA type. 
• 24/7 Self-Trading: Enjoy the flexibility to manage your investments anytime, anywhere. 
• Diversification Opportunities: Build a robust retirement portfolio with access to over 60 cryptocurrencies. 

Open your BitcoinIRA account today! Here’s how to get started: 

• Open an account here for a quick and easy online signup. 
• Contact our top-rated customer support: 
  • • Call us on 866-570-1947. 
    • Email us at [email protected] 
    • Schedule a call with a BitcoinIRA Specialist. 

Final Words 

While BlackRock’s iShares Bitcoin Trust (IBIT) offers a familiar way to invest in bitcoin through a traditional brokerage account, it comes with limitations like restricted trading hours and potential tracking errors. For investors seeking more control, tax benefits, and 24/7 access, Crypto IRAs present a compelling alternative. Ultimately, the choice between IBIT and Crypto IRAs depends on your individual investment goals. 

1. Bitcoin IRA is a platform that connects consumers to qualified custodians, digital wallets and cryptocurrency exchanges. The company is not a custodian, is not a digital wallet and is not an exchange. The information provided in this article is for educational purposes only. We encourage you to consult an adviser or professional to determine whether Bitcoin IRA makes sense for you.   
2. Security may vary based on asset chosen and custody solution available.   

Glossary: 

• Custodian: A financial institution that holds assets for other institutions or individuals. 
• Expense Ratio: The annual fee of an ETF, expressed as a percentage of assets. 
• Short-Term Capital Gains Rate: The tax rate applied to profits from selling investments held for less than one year. 
• Long-Term Capital Gains Rate: The tax rate applied to profits from selling investments held for more than one year (typically lower than short-term rates). 
• Net Asset Value (NAV): The per-share value of an ETF, reflecting the underlying assets’ value. 
• Tracking Error: The difference between the performance of an ETF and its benchmark index. 
• Crypto IRA: An IRA that allows you to invest in cryptocurrencies. 
• Tax-Deferred: Taxes are not paid on contributions or earnings until withdrawn in retirement. 
• Tax-Free: No taxes are paid on contributions or earnings when withdrawn in retirement (with certain qualifications).