E-Trade is one of the most popular online stock trading platforms. However, the company, which was bought by Morgan Stanley in October 2020, has yet to offer a way for investors to directly buy Bitcoin and other digital assets.
If you want to purchase and self-custody Bitcoin or other popular coins, you will need to sign up with one of the many cryptocurrency exchanges, such as Coinbase and Kraken.
Nonetheless, there is a way for E-Trade customers and active traders to gain indirect exposure to Bitcoin and other virtual currencies inside your E-trade account.
In this article, we’ll look at your crypto trading options on E-Trade and other online brokerage platforms such as Interactive Brokers and Charles Schwab. We will also discuss why, for some people, it might make sense to use a traditional financial institution to gain exposure to decentralized financial assets.
Buying Digital Currency Exposure Inside E-Trade
Grayscale Bitcoin Trust
In late 2018 and early 2019, I knew I wanted to increase my exposure to Bitcoin in anticipation of the 2021 bull run. What’s more, I wanted to divest nearly 100% of my stocks (primarily allocated to FAANG) and pour everything into crypto. In short, I wanted to make an outsized bet that Bitcoin would offer me superior returns compared to other innovations as represented by high-tech stocks. I wanted high risk to achieve high gains.
Yet, there was one problem: I wasn’t willing to self-custody 100% of my net worth in digital currency. I had read stories about crypto traders who had lost some or all of their wealth due to hacking or carelessness. Bitcoin is a trustless asset—meaning it doesn’t rely on trusted intermediaries to function—but what good is that if you don’t trust yourself?
Then I discovered the Grayscale Bitcoin Trust, which trades over the counter under the symbol GBTC. The Grayscale Bitcoin Trust solved several problems for me. One, it gave me easy access to Bitcoin. Each unit of the trust represents 0.00089538 Bitcoin as of December 2023.1
Second, it allowed me to minimize taxes by holding GBTC inside my retirement accounts. If you are like me, you want to avoid paying capital gains taxes whenever possible. I do this primarily by holding assets inside an Individual Retirement Account (IRA). I have Roth IRAs and Traditional IRAs at E-Trade, both of which hold some amount of GBTC.
However, there are disadvantages to GBTC. The primary one is that Grayscale charges a 2% management fee, which eats into returns. While each unit of the trust currently holds the equivalent of 0.00089538 BTC, this figure grows ever smaller as Grayscale collects its fee.
The second disadvantage is that GBTC is quoted over the counter. E-Trade is known for its commission-free stock trading. However, this doesn’t apply to OTC stocks. When you buy or sell GBTC, you will pay a commission of $4.95~$6.95 per transaction.
A third disadvantage is that funds offered by Grayscale typically trade a huge premium or discount to the various underlying cryptocurrencies they represent. For example, the Grayscale Solana Trust (GSOL) trades at a massive 200% premium to the value of its underlying holdings. If you are attempting to gain exposure to Solana inside an E-Trade account, you will pay for the privilege to do so.
The flagship GBTC, meanwhile, trades at a discount to its holdings, which reflects the future erosion of the fund’s value due to the 2% management fee.
Bitcoin Miners and Crypto Exchanges
Another way to gain indirect exposure to Bitcoin is by buying shares of public companies that are correlated to the performance of digital currencies. I am talking about miners, such as Marathon Digital Holdings (MARA) and Riot Platforms (RIOT), or exchanges such as Coinbase (COIN).
Each of these companies is a viable option for playing the four-year Bitcoin cycle. With Bitcoin expected to surpass $100,000 in the 2025 bull run, the share prices of these companies should move in tandem.
If you crave a little more risk, you could consider options trades for MARA, RIOT, and COIN. One trader I follow says she earned more than $1 million from COIN calls in November-December 2023.
MicroStrategy: A Backdoor ETF
MicroStrategy, a business intelligence company, has become a notable player in the cryptocurrency space due to its substantial investment in Bitcoin. It functions as a “backdoor” Bitcoin Exchange-Traded Fund (ETF) for investors. This is because the company’s significant holdings in Bitcoin mean that its stock price is closely tied to the performance of Bitcoin.
By investing in MicroStrategy’s stock, investors indirectly gain exposure to Bitcoin’s price movements without directly investing in the cryptocurrency. This approach offers a unique avenue for investors who may be cautious about directly entering the volatile crypto market or who prefer to invest in a more traditional, stock market-listed entity.
Therefore, MicroStrategy serves as an alternative—albeit imperfect—investment vehicle for gaining exposure to Bitcoin’s performance.
Exchange-Traded Funds (ETFs)
The most-anticipated option to gain BTC exposure inside brokerage accounts is ETF trading. To date, the Securities and Exchange Commission (SEC) has rejected every application for a Bitcoin spot ETF, citing concerns about potential fraud and manipulation in Bitcoin markets. However, major financial institutions like BlackRock, Ark Invest, and Fidelity have filed new applications in 2023, sparking optimism that approval may finally happen.
Investing in a Bitcoin ETF offers several advantages, especially for those who are new or cautious about directly entering the cryptocurrency market. First, it provides easier access to Bitcoin markets, allowing investors to gain exposure to Bitcoin without the complexities and technicalities of buying and storing the cryptocurrency. (This was my primary concern in 2018 and 2019).
Another significant benefit is security. From a security standpoint, investing in a Bitcoin ETF reduces the risk of theft and loss, as it eliminates the need to hold Bitcoin directly, thus avoiding issues like hacking and loss of access keys that are common in cryptocurrency wallets. Furthermore, for those concerned with the complexities of taxes and accounting in cryptocurrency investments, a Bitcoin ETF simplifies these aspects, as it is treated like any other ETF for tax purposes.
Finally, Bitcoin ETFs are often managed by professional fund managers, which can be a relief for investors who do not wish to constantly monitor the volatile Bitcoin market.
As of December 2023, there are more than a dozen open applications for Bitcoin spot ETFs. Some of the key players hoping to launch include BlackRock, Ark Invest, VanEck, NYDIG, and Grayscale. The SEC has delayed decisions on many applications until January 2024. Analysts estimate a 90% chance of approval given previous bitcoin futures ETF approvals and mounting pressure on the SEC.2
Despite multiple rejections so far, crypto leaders remain hopeful a spot Bitcoin ETF will get a regulatory green light in 2024.
While E-Trade does not yet allow direct purchases of cryptocurrencies, investors do have several options for gaining exposure to Bitcoin and the broader digital asset market within their brokerage accounts. The Grayscale Bitcoin Trust (GBTC) offers simple access, but comes with high fees and tracking errors. Bitcoin mining stocks like Marathon Digital and Riot Platforms provide correlated exposure, but have risks as individual companies. MicroStrategy serves as a “backdoor Bitcoin ETF” given its large BTC holdings.
However, the most promising option on the horizon is a Bitcoin spot ETF. Despite multiple rejections from the SEC so far, crypto leaders remain hopeful that 2024 will finally be the year a Bitcoin ETF gets approved. A spot Bitcoin ETF would provide easy, secure access to Bitcoin returns without needing to directly hold the asset. It would simplify accounting and taxes compared to owning cryptocurrencies directly. And it would allow novice investors to gain exposure to this emerging asset class through traditional brokerage accounts, with the oversight of professional fund managers.
As investor demand for crypto assets continues growing rapidly, the SEC faces mounting pressure to approve a spot Bitcoin ETF. With crypto going mainstream, approval seems imminent. When that happens, investors will finally have access to Bitcoin in the same way they can currently trade gold and silver ETFs. This will unleash a flood of new capital entering the crypto space and could profoundly impact Bitcoin’s price and role in finance. Whether you are an aggressive crypto believer like myself or a cautious investor dipping your toes in, a Bitcoin ETF will likely change how investors allocate capital and evaluate risk in this digital age. The crypto revolution continues unfolding rapidly, and ETF approval could prove its next catalyst.
- Mark Fortune is a seasoned journalist and editor with more than two decades of experience. Specializing in technology, cryptocurrency, and stock investments, his incisive writing has made significant contributions to the business journalism field. Mark’s work is celebrated for its depth, clarity, and influence on a global readership.
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