To most cryptocurrency investors, the idea of buying “bitcoin stocks” is anathema to their strategies. Why an extraordinary premium for owning funds linked to blockchain reward tokens when you can purchase the asset itself?
When we talk about bitcoin stocks, the often maligned Bitcoin Investment Trust (GBTC) enters front and center stage. Aside from the broad criticism that the GBTC is a traditional asset class attempting to mimic the revolutionary cryptocurrency, it also raises ire for its more than 60% premium over the bitcoin price.
Again, the question is, why should anyone pay that exorbitant premium when buying the original blockchain asset represents far greater value, and is easier to acquire? Are buyers insane to purchase bitcoin stocks and bitcoin ETFs, the latter which is rapidly increasing in popularity?
Far from being completely irrational, here are three reasons why you might want to consider bitcoin stocks.
Why Buy Bitcoin Stocks? Recourse
Unlike purchasing a cryptocurrency, buying into bitcoin stocks provides some official level of recourse. That’s just something that you’re probably not going to find in the blockchain investing space should the smelly stuff hit the fan.
We only need to consider the dreadful case of Mt.Gox, which collapsed after an alleged hack attack siphoned off bitcoin units. Though the case went into court, early investors who had a significant portion of their portfolio inside the exchange essentially lost everything.
That wasn’t the only scam related to this sector, which will likely continue to manifest like the plague. Just look at the BitConnect fiasco – people again got swindled.
While the premium in bitcoin ETFs may not be pleasant, at least you should have some recourse if illegalities or other improprieties occur.
Why Buy Bitcoin Stocks? Taxes
One of the benefits of buying traditional-based platforms such as bitcoin ETFs is that it’s extremely helpful for tax purposes.
On surface level, that sounds like an absurd statement. Part of the underhanded reasons why people love cryptocurrency assets is that it’s easier to hide trading profits from the government. With a few clever (read totally illegal) arrangements, you can enjoy tax-free investing rewards.
However, running afoul of the IRS and other financial-related agencies is a major pain. If the violation is severe enough, you could end up in jail. In my opinion, it’s just not worth it.
With bitcoin stocks, your trading activity is a matter of official record. Thus, if you do make windfall profits, you don’t have to explain yourself to the IRS – they already know.
Why Buy Bitcoin Stocks? Security
I’ve heard so many horror stories with cryptocurrency investing, and I’m not just referring to the all-too-common hack attacks.
There was a very poignant story years back about a young man who accidentally threw away his hard drive, a hard drive that contained millions of dollars worth of bitcoin at the time. Today, that value is well into the multiple millions of dollars.
Then there are more mundane but still very painful cases of people losing their passwords and are unable to access their portfolio. These stories are emotionally jarring because we know that it could just as easily happen to any one of us.
The practical reality is that bitcoin stocks are simply safer than their original counterparts.
Is it worth the premium? To some people, the answer is yes.