How Makara Compares to Cryptocurrency Funds and Bitcoin ETFs
If you’re looking to invest in crypto, you’ve got a big decision ahead of you. Here’s a quick look at the main choices: Exchanges like Binance and Coinbase are the most common. They tend to be more comfortable for experienced crypto investors—people who already have their own wallets and are willing to do their own research. Another option is called either a trust or index fund. With these, a fund invests in crypto assets and then sells shares of the fund directly to clients, which can then be traded “over the counter” (OTC) on the traditional market. Investors in this category don’t own the actual digital assets, but they do own shares of the trust, and the value of the shares is derived primarily from that of the assets—so as the assets’ prices rise and fall, so does the price of the shares. The option making the most news lately is Exchange-Traded Funds (ETFs). ETFs trade on traditional markets, making them the most familiar and easiest option for many investors. We don’t see a lot of promise in Bitcoin ETFs, since they expose you to only six and a half of the 24 hours per day that Bitcoin trades. Plus, like a trust, ETFs don’t give investors the chance to own crypto; in most cases, the fund invests in futures contracts with crypto as the underlying asset. And then, of course, there’s the fourth category: Makara.
We think Makara is the best way for any type of investor—whether they’ve memorized their private key or have never even heard the term—to easily invest in a broad range of crypto. Our investment baskets provide automated exposure to different thematic areas of cryptocurrencies. We do all the work. And while you could just take our word for it that Makara is the best choice, we’d much rather you come to that conclusion on your own. That’s why we’ve summarized two of the more popular crypto investment options—ETFs and trusts—below, alongside Makara. When you look at what they offer and how much they charge in comparison to Makara, we hope your choice will be a simple one.
Examples: ProShares Bitcoin Strategy ETF (BITO), Valkyrie Bitcoin Strategy ETF (BTF), VanEck Bitcoin Strategy ETF, Bitwise Crypto Industry Innovators ETF (BITQ)
Minimum investment: None (on most brokerages)
Fees: 0.95% for Proshares (BITO) and Valkyrie (BTF), 0.65% for VanEck (XBTF), and 0.85% for Bitwise (BITQ). Trading fees may apply.
What it is: ETFs are collections of assets (like stocks or cryptocurrencies) that are bundled and sold together. They usually attempt to track a particular market sector or index, and they can be traded during the hours an exchange is open, just like stock.
Benefits: Since 2017, crypto fans have been touting a Bitcoin ETF as the moment that will bring crypto into the mainstream, and there is some truth to that. Like index and mutual funds, ETFs are familiar to a majority of investors. There’s no need to know what a crypto wallet is, no need for a key. It’s an easy way in for everyone, whether they’re buying through a fancy broker or a Robinhood account. Also, these types of investments may be available in certain IRA and Roth IRA accounts, giving you broad exposure to a wide range of crypto.
Limitations: We believe the best way to invest in something is to actually own it. That way, as an asset goes up or down in value, your investment goes up or down at exactly the same rate. With a crypto ETF, however, you don’t actually own any crypto. In order to accommodate market regulations, existing ETFs buy crypto futures—contracts that promise to buy or sell a token at a particular price on a particular date. This allows the fund to mimic the movement of a cryptocurrency, but not follow it exactly, which may bother some investors. Another issue that we see is that a market-traded fund is only open when the market is open. Crypto trades 24/7, every day of the year. A crypto ETF, however, trades only during market hours. That means it’s available for only about 20% of the time crypto actually trades. So, it won’t be there for you on Thanksgiving (when some recent big moves have taken place), or New Year’s Eve (when last year’s price popped like a champagne cork), or on a regular old Sunday night.
TRUSTS & INDEX FUNDS
Examples: Bitwise 10 Crypto Index Fund (BITW), Grayscale Bitcoin Trust (GBTC), Osprey Bitcoin Trust (OBTC)
Minimum investment: Depending on the fund, direct placement requires $10,000 to $100,000 for Grayscale and $25,000 to $50,000 for Bitwise. Direct placement is a way for accredited investors to purchase shares directly from the fund prior to shares being traded on the markets. No minimum investment if traded on most brokerages.
Fees: Depending on the crypto asset, funds charge annual management fees from 0.49% to 2.5%. 2.0% for Grayscale (GBTC), 0.95% for Bitwise (BITW), and 0.49% for Osprey (OBTC). Trading fees may apply.
What it is: These funds hold an assortment of cryptocurrencies, then sell shares of ownership to investors. It’s kind of like buying a co-op apartment in New York City: You don’t actually own the space you live in, but you do own shares in the building, and those shares give you a right to live in your apartment. The value of the shares in the trust or index fund do change relative to the value of its digital assets, but there’s another factor at play: demand. The more interest people have in the trust (or index fund), the higher the price will be, regardless of crypto’s performance.
Benefits: Like ETFs, trusts and indexes are familiar to nearly all investors, which makes them comfortable options for nearly any investors. As with ETFs, these types of investments may be available in certain IRA and Roth IRA accounts. And because the cost of shares are tied to investor demand as much as they are tied to the value of the crypto the trust holds, shares can sometimes be available at a discount to the actual cost of the assets, which can be a benefit if purchases are timed properly, although we do not recommend trying to time the market.
Limitations: Limitations are similar to that of ETFs. Trusts and index funds cannot be traded 24/7 and the price, as we discussed, does not precisely track the underlying crypto asset. Because the cost of shares are tied to investor demand as much as the value of the crypto the trust holds, you can see lower returns than you would if you’d invested directly in crypto. For example, year-to-date, Bitcoin is up over 70%, but GBTC has returned only 25% at the time of writing (December 7, 2021). Overall, the fact that shares of trusts and index funds trade at a discount or premium is not an ideal way to gain exposure to crypto if you’re expecting the actual performance of a digital asset.
Minimum investment: $50 to open an account and $25 to make a trade
What it is: As one of the first SEC-registered automated investment advisors in crypto, Makara offers one of the simplest ways to invest in digital assets. Expert-curated investment baskets provide instant diversification, with broad exposure to different sectors of the market.
Benefits: We do not charge an annual management fee for Bitcoin and Ethereum baskets compared to fees ranging from 0.49% to beyond 2% for other products. When you invest in a basket, you’re buying actual cryptocurrencies, without the hassle of opening your own wallet or remembering your key. We do that for you, automatically, through our partnership with Gemini, a custodian (founded by the Winklevii twins!) that is subject to the compliance standards of the New York State Department of Financial Services and New York Banking Law. We also automatically rebalance your portfolio every quarter to make sure that your holdings continue to reflect your investment goals. And if you’re a complete newbie (or you just like a little hand-holding), we provide personalized investment recommendations based on your needs—for free—when you open your account.
Limitations: We can think of two. First, if you’re a more advanced crypto investor who enjoys managing their own wallet and using complex DeFi apps, then Makara is not for you. Second, since you’re investing directly in crypto assets, some of your investment accounts (like your 401k or IRA) might not yet be able to participate. But if you want the ease of an ETF combined with the value of owning actual crypto, then we are a perfect match.
At risk of sounding like one of those announcements made when you’re taxiing to the gate in an airplane, we know you have a choice when it comes to investing in crypto. If you’re already a Makara client, thank you. We hope the differences outlined above make you feel good about that.
If you’re not a Makara client and you’re still on the fence, here’s a quick recap:
1. Our fees are low and simple. We charge 1% a year, and if that’s too much, we offer two investment options that are completely free, no matter how much you invest or how long you stay with us. Cryptocurrency ETFs, trusts, and index funds all have fees starting from 0.49% to greater than 2.0%.
2. Our baskets give you immediate diversification, no research required. We even provide personalized investment recommendations that you don't get from an ETF, trust, or index fund.
3. With Makara, you actually own and hold crypto. We set up the wallet for you and handle the transactions. All you have to do is…nothing. (Well, the deposit is still your job. But then: nothing.)
Ready to start investing in crypto?
All company and product information in this article was obtained directly from the websites of the investments listed during the month of December 2021. Alternatives discussed above are provided for illustrative purposes only and should not be construed as recommendations to invest in any of the products described. Investors should conduct their own research to make a decision on the best solution for themselves.
Makara Digital Corporation (“Makara”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration as an investment adviser does not imply a particular level of skill or training. Makara exclusively provides investment advisory services related to investing in cryptocurrencies and other digital assets.
Makara is not a broker-dealer, exchange, custodian, or wallet provider, and is not intended for frequent trading activity. Investing in digital assets is highly speculative and volatile and Makara is only suitable for investors who are willing to bear the risk of loss and experience sharp drawdowns.