1 ETF I Wouldn’t Touch With a 10-Foot Pole

I’ll admit it, I’ve been tempted to jump into the cryptocurrency space. But I haven’t because of the negatives associated with digital currencies like Bitcoin (CRYPTO: BTC). That was why the iShares Bitcoin Trust ETF (NASDAQ: IBIT) was so tempting to me, since it seemed to offer an easy way into the crypto space.

iShares’ exchange-traded fund (ETF) does make it easy, but what it doesn’t do is change the negatives associated with cryptocurrencies. And the iShares Bitcoin Trust ETF comes with its own problems, too. Here’s why some investors might want to buy it, and why I won’t touch the iShares Bitcoin Trust ETF with a 10-foot pole.

There’s a good reason to buy the iShares Bitcoin Trust ETF

One of the most notable drawbacks associated with buying cryptocurrencies can be the complexity of the buying process. If you think a wallet is something you keep in your back pocket, well, you might not be ready to buy Bitcoin. And you don’t have to be a Luddite, like me, to find the whole thing kind of baffling. The marketplaces that have sprung up around cryptocurrencies were created from the ground up. It is a bit chaotic and, seemingly, unnecessarily complex as the relatively new industry continues to try to hash out a standard business model.

That’s where the iShares Bitcoin Trust ETF shines. It is simple. If you get the concept of buying, owning, and selling stocks and exchange-traded funds (ETFs), you will be able to wrap your head around buying, owning, and selling the iShares Bitcoin Trust ETF. It trades just like any other exchange-traded fund. So, if the only thing keeping you from buying Bitcoin was the need to figure out how to actually do that, well, you’ll probably want to do a deep dive into the iShares Bitcoin Trust.

There’s a good reason to avoid the iShares Bitcoin Trust ETF

That said, the iShares Bitcoin Trust ETF is not perfect by any stretch of the imagination. For starters, you are paying for the privilege of owning the product. Sure, the expense ratio is only 0.25%, which is pretty modest in the grand scheme of things. But Bitcoin doesn’t generate any income so that cost is coming out of your principle. And it will keep coming out no matter what the price of Bitcoin is on any given day, month, or year. Like gold, Bitcoin is always just going to be Bitcoin. There’s no ability for the asset to “grow” like a business might thanks to capital investments.

Then there’s the fact that the iShares Bitcoin Trust ETF is highly concentrated. Granted, that’s the point of the product, to own Bitcoin. However, don’t think that this is in any way a diversified investment just because the structure is an exchange-traded fund. The iShares Bitcoin Trust ETF owns Bitcoin and just a little bit of cash and that is all it will ever own. By design, your performance will be just as volatile as the performance of Bitcoin. Although the ETF is too young to have good volatility statistics (it only came public in January 2024), you can pretty much assume the volatility is going to be elevated relative to the S&P 500 index.

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Then there’s the prospectus, which clearly states, “The Shares are intended to constitute a simple means of making an investment similar to an investment in Bitcoin rather than by acquiring, holding and trading Bitcoin directly on a peer-to-peer or other basis or via a digital asset platform.” The key phrase in there is “an investment similar to.” You don’t own any Bitcoin if you buy the iShares Bitcoin Trust ETF. You own an ETF that is intended to track the price of Bitcoin. It’s subtle, but it’s different. If you actually want to own Bitcoin, perhaps thinking of it as an alternative asset like gold, you should go directly to the source and avoid the iShares Bitcoin Trust ETF.

One more reason to avoid the iShares Bitcoin Trust ETF

All of that said, Bitcoin appears to be a valuable currency that has weathered the early years of the crypto space well. At this point, it looks like it has staying power. But that staying power is only as good as investor sentiment because that is all that backs Bitcoin. If the people who own Bitcoin suddenly decide that Bitcoin is worthless, well, its price will collapse and it could end up being just another meaningless cryptocurrency. The sector, if you can call it that, is littered with such currencies.

To be fair, you can make a similar claim about other assets out there. Gold is one example and, frankly, so is any fiat currency. But there’s more backing gold, which is actually a physical product, and fiat currencies, which are created by a country’s government. For Bitcoin, it’s just a group of people online that say Bitcoin has value. This could just be a prolonged fad that leaves the last people buying it holding the bag. It’s a cynical view, and one that younger generations might look down on, but finance is littered with fads that have ended badly.

I get it, but the iShares Bitcoin Trust ETF isn’t for me

I really want to like Bitcoin, but I just can’t get past my concerns about cryptocurrencies. And I want to like the iShares Bitcoin Trust ETF because it takes the complexity out of trying to figure out how to buy Bitcoin. But the exchange-traded fund structure isn’t exactly the same thing as owning Bitcoin. At this point in my life, as I get closer and closer to retirement, taking a leap of faith with a new thing, like Bitcoin, and an ETF that’s dedicated to that thing, like the iShares Bitcoin Trust ETF, just isn’t in the cards for me. I’m OK with that, though I do understand why some investors might be tempted to buy in.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

1 ETF I Wouldn’t Touch With a 10-Foot Pole was originally published by The Motley Fool