Since the start of 2024, Wall Street’s new Bitcoin Exchange-Traded Funds (ETFs) have totally changed the game for crypto investing. If you’ve got a grand to put into Bitcoin, you’re now standing at a fork in the road.
Especially in light of the fact that just recently, the world’s largest cryptocurrency hit a new all-time high on the price charts. This, despite the crypto undergoing a brief bout of price depreciation at press time.
In fact, given that a new ATH was hit recent, the market has also been seeing a lot of profit-taking of late.
Source: TradingView
You could go the old-school route through a crypto exchange, or you could take the new, more traditional path using your regular brokerage account. One way gives you total control, the other offers pure simplicity.
So, what’s the right move? We’ll pull apart what really separates these two choices—looking at who actually owns the Bitcoin, what it costs, how it’s kept safe, and how you’ll handle taxes.
Owning it vs. Owning a piece of it
The heart of this choice comes down to a classic crypto saying – “Not your keys, not your coins.” It perfectly captures the massive gap between holding Bitcoin yourself and buying an ETF.
- Buying Bitcoin Directly – When you purchase Bitcoin from a place like Coinbase or Kraken and move it to your own digital wallet, you actually own the stuff. You hold the private keys, which are the digital proof that it’s yours. This means you have final say over your money. You can send it to anyone, use it in the growing world of decentralized finance (DeFi), or just hold it privately. The flip side is that you’re also the head of security. If you lose your keys, your Bitcoin is gone for good.
- Buying a Bitcoin ETF – Investing in an ETF, like BlackRock’s IBIT or Fidelity’s FBTC, is different. You’re buying a stock that tracks Bitcoin’s price, not the coin itself. This gives you exposure to Bitcoin’s price swings inside a system you already know, but you never touch the underlying crypto. The company that runs the ETF, through a big-name custodian like Coinbase, holds the actual Bitcoin for you. It’s way more convenient and skips the technical setup, but it means you’re placing your trust in a third party to protect the asset.
Following the money – A cost breakdown for your $1,000
With a smaller investment, every fee chips away at your potential profit. The costs for buying Bitcoin directly versus through an ETF are built completely differently.
Let’s follow the money on a $1,000 investment – Buying it on a crypto platform like Kraken Pro or Coinbase Advanced might cost you between $2.60 and $6.00 right off the bat. If you use the simpler “buy now” button, the fee can be even higher.
In contrast, buying an ETF through many big brokerages is often free, with no commission.
However, there are ongoing costs. Holding your own Bitcoin costs nothing year after year. An ETF, however, charges an annual management fee. For funds like IBIT (0.12%) or FBTC (0.25%), you’d pay about $1.20 to $2.50 a year on your $1,000, though many are waiving these fees for a while.
Then there’s security. If you want to truly control your own Bitcoin, you need a hardware wallet – A small physical device that keeps your keys offline. A Trezor or Ledger sets you back $79 to $149, a big one-time hit on a $1,000 investment. With an ETF, that institutional-level custody is just baked into the management fee.
Finally, if you ever want to move your personally owned Bitcoin from an exchange to your wallet, you’ll pay a network fee, which can swing from $5 to $25 depending on how busy the network is. With an ETF, you can’t withdraw the Bitcoin, so this cost doesn’t exist.
So, while the ETF looks cheaper upfront, holding your own Bitcoin for years could be less expensive if you’re willing to pay for a hardware wallet to cut out those annual fees.
Who keeps it safe – You or them?
The security question boils down to a trade-off – Do you prefer to be in charge, or do you want to rely on institutional protection?
- Holding It Yourself – When you hold your own Bitcoin, you’re the vault. A hardware (or “cold”) wallet keeps your keys disconnected from the internet, making you nearly immune to the online hacks that sometimes hit crypto exchanges. The real danger here is you. Losing the paper copy of your recovery phrase or getting tricked by a clever scam can mean your funds vanish forever. Keeping your coins long-term on an exchange is widely seen as a bad idea, given the history of platforms like Mt. Gox and FTX collapsing.
- Relying on an ETF – With an ETF, you’re outsourcing the security headaches to professional, regulated custodians. This removes the risk of you fumbling your own keys. But it creates a different kind of risk—counterparty risk. Your investment’s safety depends on the ETF company and its custodian running a tight ship. While they are heavily regulated, having so much Bitcoin concentrated in just a few hands is a new, untested risk for the system. One critical point: the SIPC insurance that protects your brokerage account if it fails does not cover the actual Bitcoin held by the ETF.
Tax headaches
The tax rules for each path are worlds apart and can make a huge difference. The IRS sees crypto as property and ETFs as standard securities.
- Direct Bitcoin – Any time you sell, trade, or even spend your Bitcoin, it could trigger a tax event. If you swap some Bitcoin for another crypto or use it to buy a coffee, you have to calculate and report any capital gain or loss. This can turn into a record-keeping nightmare. One murky advantage has been that crypto isn’t typically subject to the “wash sale” rule, meaning you could sell for a loss to lower your tax bill and buy it right back. Regulators are looking closely at this, though.
- Bitcoin ETF – The tax picture here is much cleaner. You only worry about taxes when you cash out your ETF shares, and your broker sends you a simple Form 1099-B to report it. The killer feature is that you can hold these ETFs in tax-sheltered accounts like a Roth IRA. This opens the door to letting your Bitcoin gains grow and be withdrawn completely tax-free in retirement. ETFs do fall under the wash sale rule.
Other ways to get in on the action…
If neither of those paths feels right, there are other, more indirect ways to get exposure.
- Bitcoin Mining Stocks – You could buy stock in companies that mine Bitcoin, like Marathon Digital (MARA) or Riot Platforms (RIOT). Think of these as Bitcoin on steroids—they’re often much more volatile than Bitcoin itself because you’re also betting on the company’s ability to operate efficiently.
- Futures & Leveraged ETFs – Products like BITO track the price of Bitcoin futures contracts, not Bitcoin itself, which can cause its performance to drift. Then there are ultra-high-risk leveraged funds like BITX that try to double Bitcoin’s daily moves. These are dangerous tools meant for professional traders, not for someone looking to invest for the long haul.
Bottom Lin – Match the atrategy to who you are
For someone putting in $1,000, there is no single “best” answer. It all depends on what you value most.
The path of the purist (Direct Spot Bitcoin) is for you if,
- You believe in the “not your keys, not your coins” mantra and want true ownership.
- You’re comfortable with technology and ready to be your own bank.
- You want the freedom to use your Bitcoin anytime, anywhere, for anything.
The path of the pragmatist (Spot Bitcoin ETF) is for you if,
- You just want a piece of the action without the tech tutorials.
- You prefer the familiarity and perceived safety of your regular brokerage account.
- You want to tuck Bitcoin into your Roth IRA and let it grow tax-free.
The arrival of Spot Bitcoin ETFs has certainly made it easier for anyone to invest. They’ve brought in a flood of new money and added a layer of Wall Street structure. However, they’ve also introduced a new kind of centralized power.
For today’s investor, deciding between the original vision of financial freedom and the new bridge to traditional finance is the first real choice to make.