Summary/TL;DR
Ways to invest in Bitcoin include purchasing it through an exchange and storing it on a wallet (known as direct investment), investing in the new exchange traded funds (ETFs) approved by the SEC last year, and investing in companies which are purchasing Bitcoin. Each method carries its own merits and risks and will be more or less appropriate for different investors depending on their individual circumstances. I personally find the ETFs to carry the most advantages for the average investor, followed by direct investment and, finally, investment in corporations who own Bitcoin.
Introduction
With Bitcoin making headlines almost daily over the past year, this is a question I have been getting a lot from those who are curious about investing in it. It’s important to know what you’re doing when you decide to invest in Bitcoin, as different methods could yield different results, and there are also plenty of fraudulent offers to “invest” in “crypto” that many fall victim to everyday.
In today’s post, I’ll be discussing three ways that you can invest in Bitcoin, along with some of the pros and cons of each approach.
Buy And Store Bitcoin Directly
It wasn’t until very recently that the only way that one could purchase Bitcoin was directly on an exchange, which is simply a “marketplace” that matches buyers with sellers, such as the New York Stock Exchange and NASDAQ for stocks. Today, Coinbase is the most recognizable crypto-exchange, although many others exist which are much older. Due to the inherent danger of storing one’s Bitcoin on the exchange (we’ve all heard seen the headlines of various exchanges that had been hacked or failed due to financial instability in the past), it is also best practice to transfer newly purchased Bitcoin to a “wallet” which requires obtaining at least a temporary familiarity with the basics of cryptography, particularly as the subject is applied in the blockchain. Finally, this method of storing Bitcoin can be extremely risky if you are careless with it. If you lose or forget your “private keys”, you will lose your Bitcoin forever.
To many, this way of buying and storing a novel digital asset (which itself can be difficult to understand) was, understandably, too much, and presented a tall and strong barrier to entry that would take many years to break through.
Nevertheless, as foreign and intimidating as it can seem, buying and storing Bitcoin directly remains the only way (outside of mining Bitcoin or receiving it in an outright gift) to own the asset outright. Fortunately, thanks to technological advancements and growing cultural recognition of Bitcoin as a legitimate asset, these onboarding hurdles are slowly fading and other, more familiar, means of buying and storing Bitcoin are appearing.
Buy Bitcoin Funds
By far the most accessible method of investing in Bitcoin is to do so through the recently approved Bitcoin Exchange Traded Funds (ETFs). These funds are managed by some of the most well-respected names in asset management, with Blackrock and Fidelity having by far the largest funds. These custodians buy Bitcoin and issue publicly traded shares representing partial ownership of their fund, allowing investors to participate in Bitcoin’s returns without going through the hassle of owning the coins directly.
This method of owning Bitcoin only became available in early 2024, but its success has been completely unprecedented. It also provided individuals with the ability to invest in Bitcoin through their retirement accounts alongside the rest of their portfolio. For the first time, Bitcoin can easily be bought and sold within the tax-free environment of a Roth IRA. Finally, the risk of “losing your Bitcoin” has been transferred to the custodians in question who are, in most cases, much better suited to securely store it.
The simplicity, ease, and familiarity of investing in Bitcoin in this way is attractive to many, myself included. Fortunately, this method also comes with minimal drawbacks, the primary of which is the cost of owning the fund. In the case of every Bitcoin ETF, these costs are very modest.
Buy Companies Which Buy Bitcoin
This third method is also a relatively new way of investing in Bitcoin, as companies purchasing it for inclusion in their corporate treasury have only recently begun doing so. Companies such as Michael Saylor’s Microstrategy (MSTR) have made headlines time and again for the bold convictions underlying their Bitcoin treasury strategy. Beginning in August 2020, Microstrategy began issuing massive amounts of debt to purchase Bitcoin, and Saylor intends on accelerating his purchases intensely in 2025 and beyond. At the time of this writing, Microstrategy holds about $46B worth of Bitcoin on its balance sheet, making it by far the largest corporate shareholder of Bitcoin. The precise mechanisms behind Saylor’s treasury strategy are beyond the scope of this piece, but to say that it has been simply “successful” would be to undersell reality. Since it began to buy Bitcoin, MSTR’s stock has increased a total of 2,600%, which is an average of 108% per year. In 2024, a few additional companies followed Saylor’s lead and adopted “The Bitcoin Standard” for themselves, including Block (Square) and Semler Scientific.
While Microstrategy’s results have been unfathomable, it’s important to highlight that this method of investing in Bitcoin has an important qualitative difference when compared to the two methods discussed above. That is, it is investment in Bitcoin and a corporate entity, which may or may not have a business model related to Bitcoin.
Therefore, additional risks associated with owning the company are also present. If the company goes belly-up, it’s doubtful that any of the Bitcoin on their balance sheet would go to common shareholders. Therefore, investing in Bitcoin through Bitcoin-affiliated companies, while potentially intriguing, should only be undertaken by those with the stomach for extreme volatility and the capacity to lose their shirts. I have personally refrained from investing in Bitcoin in this way up to this point.
Conclusion – The “Best” Way
For those who are new to Bitcoin and are primarily interested in purchasing it in their retirement accounts, the Bitcoin ETFs are by far the best way to invest. Those with a deeper technical understanding of how Bitcoin operates might find that they prefer to own some portion of their “stack” directly, but even they will likely still use the ETFs. Finally, only those who are comfortable accepting the additional risk that comes with owning a corporate entity that is buying Bitcoin might consider adding small bits of these companies to their portfolio, although I would never recommend this being one's sole or primary approach to investing in Bitcoin.