Long-term investors know the key to success is time in the market. But as the recent performance of the new bitcoin exchange-traded funds shows, over the short term, timing the market has an impact, too.
If you bought into one of the new bitcoin ETFs within the first few weeks of their January 10 approval by the Securities and Exchange Commission, congratulations! In the six months that ended July 31, the median return for the first 10 funds that invest directly in bitcoin was 53.5%.
Nine of the 10 have nearly identical returns, ranging from 53.7% by Franklin Bitcoin (symbol EZBC) to 53.3% for Fidelity Wise Origin Bitcoin ETF (FBTC). All 10 trounced the 14.8% return of the S&P 500 over the period. (Bitcoin itself was up some 52%, measured by closing prices. Funds buy throughout the day, which accounts for some of the discrepancy.)
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you waited a few months and jumped into the bitcoin pool at the end of March, condolences. You’re down about 7% over the past four months; investors in the S&P 500, meanwhile, gained 5.5%.
The similarity in the funds’ performance is not surprising, considering that expenses are also (mostly) comparable. Franklin’s fees are 0.19%; three of the ETFs currently charge 0.25%.
The outlier is the first bitcoin fund, Grayscale Bitcoin Trust (GBTC), charging 1.5%. Its six-month returns appear to lag significantly, but it’s important to note that on July 30, Gray-scale converted 10% of its shares into shares of its newly issued Grayscale Bitcoin Mini Trust (BTC), which has a low expense ratio of 0.15%. Investors in the original fund received shares in the new ETF, and the original fund’s returns were reduced by the spin-off. Prior to the spin-off, the Grayscale Bitcoin Trust’s returns were at the rear of the pack, but still competitive.
Buying stampede. Despite the funds’ volatility, investors have poured a cumulative $17.5 billion into digital-currency ETFs so far this year, according to fund research firm VettaFi. The iShares Bitcoin Trust (IBIT) has become the single most successful ETF launch in history, rising from nothing to $21.5 billion in assets in seven months.
The flow of dollars has sparked the launch of other cryptocurrency funds. On July 22, the SEC approved eight ETFs that invest directly in the second-largest digital currency, ethereum.
Crypto funds can add a little diversification to portfolios and give intrepid investors an easy way participate in the growth of new financial technologies, says Aniket Ullal, head of ETF data and analytics at CFRA Research. But he warns that cryptocurrencies are more than twice as volatile as the S&P 500, and they aren’t a perfect counterweight to stocks. Bitcoin plunged along with stocks in 2022, and struggled in this year’s summer sell-off.
Even the most enthusiastic cryptocurrency investors should pay close consideration to basics such as cost and volatility, says Bryan Armour, head of index fund and ETF research at Morningstar. He suggests keeping an allocation to crypto below 3% of portfolio holdings. “And if investors are wary of or don’t understand crypto, it’s completely okay not to invest,” he says. “Fear of missing out is never a good investment strategy.”
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
-
Don't Waste Your Money on Bad Gifts. Try This Instead.Holiday Happiness These strategies, backed by behavioral finance, can help you find presents that your loved ones will truly enjoy.
-
5 Unique Book-Inspired Trips Across AmericaThere are five great trips to take across America that can immerse you in the culture of your favourite books.
-
I'm a Financial Planner: This Retirement GPS Helps With Navigating Your Drawdown PhaseReady to retire? Here's how to swap your 'peak earnings' mindset for a 'preserve-plus-grow' approach instead of relying on the old, risky 4% rule.
-
Donating Stock Instead of Cash Is the 2-for-1 Deal You'll Love at Tax TimeGiving appreciated stock or using a donor-advised fund (DAF) this year would be smarter than writing a check to support your favorite causes. Here's why.
-
Traveling With Purpose: What Zambia and Zimbabwe Taught Us About Slowing DownDon't treat retirement trips like they're an exercise in ticking off boxes. Slowing down and letting adventure unfold can create more meaningful memories.
-
Investment Expert: Is Your Retirement Portfolio Too Late to the Profit Party?If you're following the usual retirement investment model, you could be missing out on a potential profit period that companies see in the run-up to their IPOs.
-
Losing Your Job? A Financial Planner's 6 Steps to Survive and ThriveWhether pink slips are just rumors at your company or layoffs have already landed, there are things you can do today to make the best of a tough situation.
-
Oil Prices vs Investor Returns: It's What's Beneath the Surface That CountsEngineering, geology and operating discipline can determine the success of oil and gas projects as much as the cost per barrel.
-
Dow Soars 493 Points in Fed-Fueled Bounce: Stock Market TodayNew York Fed President John Williams struck a dovish tone Friday, which eased Wall Street's worries over a potential December pause.
-
What Made Warren Buffett's Career So RemarkableWhat made the ‘Oracle of Omaha’ great, and who could be next as king or queen of investing?
