Bitcoin IRA Comparison: Spot ETF vs. No key control vs. physical bitcoin

If you understand why Bitcoin is an asset to hold for the long term, you may also be wondering how you can leverage the retirement tax structure to minimize your tax outlay. There are several ways to hold Bitcoin in an IRA, and like all things Bitcoin, each has its pros and cons. Let’s take a look at how different Bitcoin IRA approaches compare.

sovereignty and gratitude

Before we address these approaches to Bitcoin retirement savings, we need to understand the two most important benefits of holding Bitcoin: financial sovereignty and purchasing power. In other words, the freedom you gain is holds the private key A digital bearer asset that exists outside of the traditional financial system. thanks The assets are measured in fiat currency.

The four most common approaches to holding Bitcoin in an IRA have different pros and cons regarding the following two benefits:

Besides these two factors, other differences are more subtle. Let’s take a closer look.

Four Ways to Hold Bitcoin in an IRA

Bitcoin Futures ETF in Brokered IRA (BITO)

One previously popular way to gain exposure to Bitcoin with minimal effort was through a futures ETF, such as the ProShares Bitcoin Strategy ETF (BITO). The fund plans to provide investors with managed exposure to Bitcoin futures. Futures are financial contracts that require the parties involved to perform a transaction at a specific future date and price. There is no significant control. Futures ETFs like BITO don’t even hold actual Bitcoin itself. BITO is still available, but its popularity has declined since the launch of the Bitcoin Spot ETF in 2024.

Bitcoin Spot ETFs in Brokered IRAs (IBIT, FBTC, GBTC, etc.)

The Bitcoin Spot ETF, launched in 2024, gives investors access to a Bitcoin proxy financial product that provides much more direct exposure to the Bitcoin price than previous futures and trust products. Like Bitcoin trusts and futures ETFs, with these products you do not have primary control over the actual Bitcoin. However, spot ETFs hold actual Bitcoin, with custodians such as Coinbase, Fidelity, and Gemini. Authorized participants closely track the price of Bitcoin because they have the right to create and redeem shares of the ETF, keeping the price in line with net asset value.

Bitcoin IRA without key control (iTrust Capital, BitcoinIRA)

Many Bitcoin IRA products allow you to purchase actual Bitcoin, but do not offer major control features such as iTrust Capital, BitcoinIRA, Swan Bitcoin IRA, etc. Like Bitcoin proxy products, these products have no control over your private keys. The biggest benefit is that you have direct exposure to the Bitcoin price because actual Bitcoins are held on your behalf. In these products, ownership of the Bitcoin remains with you and, in some cases, you can even send it in-kind if you change IRA providers. Trading options may be more flexible compared to spot ETFs.

Bitcoin IRA with Key Control (Unchain IRA, optional)

Key control is important for a number of reasons, but they are all rooted more broadly in Bitcoin principles. Bitcoin allows you as an individual to manage your wealth in ways never before possible. If you don’t have the keys, you ultimately hold the Bitcoin IOU, and the key holder can make arbitrary decisions such as changing the associated fees, re-collateralizing, etc. Another often ignored component is that the company holding your keys may fail. If a company goes bankrupt, you become an unsecured creditor.

There are Bitcoin IRA products on the market that give you complete control over your Bitcoin private keys and direct exposure to price movements of the underlying asset. These products allow you to control the keys to the actual Bitcoin held in your multisig wallet, eliminating any single point of failure. One of these products is Unchained IRA.

Bitcoin IRA Comparison: Spot ETF, Non-Key Controlled IRA, Key Controlled IRA

Convenience

Holding a Bitcoin proxy, such as a spot ETF, in an existing IRA account would be the easiest way to gain exposure to the Bitcoin price. It’s as simple as entering one ticker symbol provided by your brokerage and purchasing that product. If you are new to Bitcoin and want to experiment with your portfolio exposure, spot ETFs allow you to easily deposit and withdraw positions at will, although in most cases this is only possible during market hours. These products win this category because they have many pros and cons.

Bitcoin IRA products without key control are a clear runner-up in terms of convenience, as they provide direct exposure to the Bitcoin price while eliminating the need to consider key management practices.

price correlation

If you hold a Bitcoin proxy, such as a spot ETF, in your brokerage account, you are not holding actual Bitcoin, but you are still holding a well-designed financial tool that correlates well with the Bitcoin price while minimizing slippage. Nonetheless, spot ETFs are not perfect. When it comes to price correlation, there is nothing better than holding Bitcoin itself.

Products that allow you to hold physical bitcoins, regardless of whether you hold the keys to them or not, are preferred by most investors as they track the price of the underlying asset.

counterparty risk

Products such as spot and futures ETFs, as well as non-key control IRAs, do not offer the benefit of key control. This means your assets are exposed to multiple layers of counterparty risk. For example, with a cash ETF, you trust the custodian (such as Coinbase, Fidelity, or Gemini), the ETF issuer itself, and the broker where your retirement account is located.

Another side effect of these proxy products and an IRA without key control is that you may end up having to sell and take distributions in U.S. dollars. A Bitcoin IRA with key controls allows you to withdraw real Bitcoin from your account without penalty at retirement age. As the world transitions to the Bitcoin standard, you may not need or want to sell it back for fiat when the time comes.

The old adage “Not the key, not the Bitcoin” still holds true. The Bitcoin protocol was created to give you the opportunity to take control of your wealth. Controlling the keys minimizes counterparty risk and eliminates single points of failure.

expense

The cost spectrum of all Bitcoin IRA products is broad, as is the value you receive.

Spot ETF products are relatively cheap. With a fee of just 0.2%, it’s much better than the hefty 1-2% you’d pay for the convenience of GBTC or BITO before spot ETFs were launched. Nonetheless, annual fees for spot ETFs can add up to tens of thousands of dollars, depending on your holdings and Bitcoin valuation.

Among Bitcoin IRAs that don’t offer primary control, iTrust Capital is currently the cheapest approach to holding Bitcoin in an IRA. Competitors like BitcoinIRA, on the other hand, are a bit more mysterious about what their fees are, so it’s unclear how they compare in this regard.

Unchained IRAs have a high one-time setup fee, but lower annual fees and transaction fees, resulting in much lower fees over time.

main points

The only way to hold Bitcoin in an IRA and still get the two benefits of Bitcoin – limited supply and key control – is to hold Bitcoin in a key-controlled Bitcoin IRA.

Key Management IRAs may require more from their clients to learn how to properly store their Bitcoin keys, but we believe they have invested sufficient time in obtaining basic Bitcoin storage training. In particular, multisig management eliminates single points of failure and trusted third parties.

If you want immediate exposure to Bitcoin while learning more about the technology and the importance of key controls, a spot ETF held in a brokerage account could also be a good option. However, this could be costly in the long run, especially if the price of Bitcoin rises rapidly in the next few years and exposes you to multiple levels of counterparty risk.

Onboarding, Bitcoin IRA and more

If you already hold Bitcoin proxy products in an IRA at a traditional financial institution, Unchained IRA allows you to easily roll them over to actual Bitcoin with key control. If you already have a physical Bitcoin IRA, you can also do a physical rollover if your provider supports withdrawals.

We’re also your partner for Concierge Onboarding and more, so you can get help from a Bitcoin expert on your self-care journey, no matter where you go. Anyone can learn how to keep their Bitcoin keys safe with the help of our concierge team. Schedule a free consultation to learn more.

This article is provided for educational purposes only and should not be relied upon as tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and any such questions should be referred to a tax or financial advisor of your choice.

Original published date unchained.com.

Unchained Capital is Bitcoin Magazine’s Official US Co-Managing Partner and an essential sponsor of related content published through Bitcoin Magazine. For more information about the services offered, storage products, and the relationship between Unchained and Bitcoin Magazine, please visit: our website.