Understanding Fidelity’s Bitcoin ETF (FBTC)

Source : WSJ and VettaFi 

What is FBTC?  

Fidelity’s Bitcoin ETF, FBTC, offers a passive investment strategy by directly holding 100% bitcoin and aiming to mirror its price performance. This exchange-traded product trades on exchanges like a stock, allowing for easy buying and selling during market hours.   

Security is provided by Fidelity Digital Assets, LLC, using a robust security infrastructure to safeguard the underlying bitcoin. While this eliminates the risk of a third-party custodian, it’s important to note that Fidelity’s experience in holding bitcoin is relatively new compared to some competitors like Coinbase. Finally, FBTC does not distribute dividends to investors.  

These are some of the advantages offered by FBTC:  

• Exchange-Traded: FBTC trades on stock exchanges, allowing you to buy and sell shares like any stock during market hours.  
• Fidelity Security: The bitcoin held by FBTC is safeguarded by Fidelity Digital Asset Services, leveraging the company’s extensive security measures. 
• Reduced Fees: Fidelity currently waives the expense ratio for investing in FBTC. However, a 0.25% fee will apply starting August 1, 2024.  

Risks to Consider

Investing in FBTC involves inherent risks, including:  

• Volatility: Bitcoin’s price is known for substantial fluctuations. 

• Trading Hours: Unlike the 24/7 bitcoin market, FBTC can only be bought or sold during market hours. 
• Tracking Errors: Several factors can cause slight variations, including management and index fees, the use of liquidity assets, transaction and storage costs, and rebalancing activities. 
• Price Calculation: FBTC’s price per share is determined by the net asset value (NAV), which reflects the underlying bitcoin price. However, due to fees and rebalancing, the NAV may not perfectly mirror the spot price of bitcoin. 

Source: Yahoo Finance 

This chart compares the tracking price of FBTC to the actual price of Bitcoin. As an example, on March 3rd (Sunday) Bitcoin had a significant price increase however the tracking price did not reflect the change, and investors were unable to capitalize on the opportunity to trade their FBTC shares.  

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 by calling us on 866-570-1947, send us an email us at [email protected]  or schedule a call with a BitcoinIRA Specialist. 

Final Words 

For investors drawn to bitcoin’s core principles like decentralization and the potential for substantial growth, directly holding bitcoin might be a compelling option. This approach offers direct control over your holdings, and through tax-advantaged accounts like Crypto IRAs, you could potentially enjoy enhanced long-term benefits. 

However, if managing your investment directly isn’t your priority, then an exchange-traded fund (ETF) might be a better fit. Remember, thorough research and professional guidance are crucial before navigating the complexities of the cryptocurrency market, regardless of your chosen approach. 

Sources: 

https://www.wsj.com/buyside/personal-finance/best-bitcoin-etfs-9ef2cf6a 

https://www.nerdwallet.com/article/investing/spot-bitcoin-etf 

https://www.fidelity.com/etfs/fbtc#  

Fidelity Prospectus 

https://www.youtube.com/watch?v=fOJ9Z68lNlw 

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: 

• Compounding: The process where interest earned on an investment is reinvested, generating further returns on the accumulated amount over time. 
• Crypto IRA: A specialized retirement account that allows individuals to invest in cryptocurrencies like bitcoin with potential tax benefits. 
• Custodian: A financial institution responsible for safely storing investors’ assets. 
• Expense ratio: An annual fee charged by a fund to cover its operational costs. 
• Net asset value (NAV): The per-share value of an ETF, calculated by dividing the total value of its assets by the number of outstanding shares. 
• Tax-deferred: Contributions grow in the account tax-free until withdrawn in retirement, at which point they are taxed as income. 
• Tracking error: The difference between an ETF’s performance and the performance of its underlying index.