I am buying BITO instead of Bitcoin – in certain scenarios! I have about $2,000 in a Roth IRA that is unallocated. These funds are located in an account at Interactive Brokers (IB). Though IB does allow for cryptocurrency trading it doesn’t allow for it inside a Roth IRA. I obviously don’t want to withdraw the funds from my IRA to then buy Bitcoin because of the tax consequences. Of course, if I was preparing to evade a tyrannical government or something real Bitcoin may be beneficial to buy by withdrawing the funds early.
So far BITO a fund that uses Bitcoin futures to track the Bitcoin prices has performed very well. Sure it is down drastically since it started, but it is matching the price of Bitcoin very well as you can see in the image below or so it seems.
Bitcoin Scenario
Let’s just imagine that Bitcoin does crazy good and it does achieve a market cap equal to gold’s current (not future) market cap. That would equate to a Bitcoin price of about $300,000. If that were to happen then a $2,000 investment in Bitcoin now would grow to about $27,878. If I held that in true bitcoin with no annual fee etc. I would likely have to pay capital gains tax on a roughly $25,878 gain if I ever want to spend it. That could easily lead to a tax bill of about $5,175. So my $2,000 would grow into only about $22,700 in spendable money.
Fake Bitcoin Scenario
So far BITO has been in existence since October, 19th, 2021 and has a return of -67.70% compared to Bitcoins -66.46%. If you do the match this actual equates to about a 2.81% annualized drag on BITO that doesn’t exist if you hold actual BTC. Let’s take the case of the BITO investment in a Roth IRA and assume it takes about 20 years for Bitcoin to grow to a price of $300,000.
If Bitcoin goes to $300,000 over the next 20 years that is an annualized growth rate of 14.07%. However, if you hold something like BITO that means you also have an approximately 2.81% annual drag resulting in only about 11.3% growth per year. So a $2,000 investment would only grow to about $16,899 in a Roth IRA even with zero tax. That is much lower than the investment in actual Bitcoin held outside of an IRA. Also, if Bitcoin fails there is no chance in the Roth IRA to write off the loses. Taxes matter, but so do fund fees and expenses!
When does the Roth Win?
The Roth might win if an investor is utilizing an active strategy such as buying during uptrends and selling during downtrends. In those methods the investor would have to pay considerable taxes assuming there were gains outside an IRA. This is why I do intend to buy BITO within the Roth. Of course, if IB makes actual Bitcoin available inside the Roth I will likely switch to it or an ETF with less drag. I plan to use this investment as an active allocation and focus my buy and hold efforts outside of a Roth IRA.
Whatever investments you do, you must consider the taxes, expense ratios, and investment duration when considering what is actually the best option. If you want to see how I manage my own Roth IRA please view the information below. Until next time!
See my Brokerage Accounts
In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!
Retirement Account #1:Patience is a Virtue
Retirement Account #2: My Roth IRA
Paper Trading Account #3: Leverage and Patience
Disclaimer
This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.
The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.
Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.
Patience to Invest 