Welcome to our Friday mailbag edition!
Every week, we receive great questions from your fellow readers. And every Friday, I answer as many as I can.
Someone wrote that spot Bitcoin ETFs are mainly for the benefit of Wall Street ETF sponsors. He mentioned that ETF investors will not reap the rewards of “forking” and, of course, got into fees.
Can you elaborate on the downsides of spot Bitcoin ETFs other than volatility?
– Richard S.
Hey Richard, thanks for that question.
The short answer is yes. Investors in Bitcoin ETFs won’t necessarily get the direct benefit of forking.
It’s also true that Bitcoin ETFs have embedded fees that go to the main Wall Street managers of those ETFs. I’ll give you my assessment of which one is best.
But first, let me start by explaining to readers what “forking” means. When a fork occurs in cryptocurrencies like Bitcoin, it means that two separate versions of its blockchain get created. Each of them has its own rules and different values.
Historically, forks have led to price fluctuations and additional profit opportunities. A big fork occurred in 2017 when Bitcoin Cash was created as a variation of Bitcoin. Holders of Bitcoin at that moment could effectively trade in the Bitcoin Cash they received from the fork for more Bitcoin.
So, in a way, yeah, they might have gotten a better deal on that Bitcoin Cash than holders not involved in the fork. Think of Diet Coke vs. Coke Zero – yes, they are slightly different versions of Coke, but still Coke.
So, to me, the distinction doesn’t mean much in terms of an investor holding Bitcoin long-term. In other words, that fractional difference for a normal-size investor isn’t that great.
Now, with spot Bitcoin ETFs, investors can’t directly participate in these forks. That’s because they aren’t purchasing the underlying cryptocurrency. Instead, they are purchasing shares in an asset (the ETF, or fund) that contains that cryptocurrency. This means that investors miss out on the specific potential gains from forks.
So, yes, one of the drawbacks of spot Bitcoin ETFs is the limited potential for “forking” profits.
Another one is that spot Bitcoin ETFs have associated fees, like all ETFs. Traditional ETFs charge various management fees and operational costs. These can vary.
That’s why, in general, it’s best to go for the lowest-fee ETF in a particular asset class or sector. That way, you gain more of the upside and lose less money on the downside to fees.
Now, spot Bitcoin ETFs have additional costs for storage and insurance of underlying Bitcoin. These extra fees make it even more important to compare fees for various Bitcoin ETFs before you invest in them.
I wrote about my favorite low-fee Bitcoin ETF here.
You also mentioned volatility, or price swings. Volatility is intrinsic to all cryptocurrencies, including Bitcoin. The price of Bitcoin can undergo periods of major price swings, especially over short-term periods.
Spot Bitcoin ETFs will show similar price fluctuations. That’s because they’re directly tied to the price of underlying Bitcoin.
That’s why I believe that Bitcoin and Bitcoin ETFs should be considered long-term investments.
Also, for anyone looking to invest in Bitcoin or spot Bitcoin ETFs, please never invest more than you can afford to lose. And always consider dollar-cost averaging. That means dividing up your investment in any asset.
If you have $1,000 set aside to invest in Bitcoin, consider investing $250 over four periods (say once each quarter of the year).
That will spread your risk of hitting a particularly volatile period over time as you grow your investment in this asset class.
The main thing to take away is that I do recommend to all my readers that they own at least a little bit of Bitcoin as a speculative asset. Whether that’s buying it directly or through a spot ETF.
In fact, Bitcoin is up 60% since I recommended it to my Distortion Report readers last May.
And, as I’ve said before in these pages, I expect the demand for Bitcoin – and its price – to continue to rise as the Federal Reserve makes moves to roll out a dangerous change to our money. For a deep dive on that, watch this video report I released recently.
Dear Nomi, I’m 64 years old, and my knowledge of nuclear reactors is based on college work experience with Bechtel Corp in the early ’80s.
Three questions come to mind about the modern technology.
How is the current technology different than those of Three Mile Island, Chernobyl, and Fukushima? How is spent uranium disposed of, and does it qualify as a green standard? How is current technology not capable of becoming weapons-grade material?
– Bruce G.
Hi Bruce, I appreciate you writing in with this great question about nuclear technology and waste. I’m sure it’s on the minds of many readers who witnessed or read about those past disasters.
First of all, nuclear reactors have come a long way since the 1980s. The technology in today’s reactors is more advanced than that of the reactors that led to the Three Mile Island, Chernobyl, and Fukushima disasters.
The main difference between modern reactors and past ones is higher degrees of control and monitoring of heating and cooling states within the reactor.
Computer systems today are simply more capable of analyzing data quickly. They have sensors that monitor the reactor and its various components constantly.
That means any rising issues are immediately detected and repaired. That minimizes the risk of large-scale accidents or disasters.
Plus, modern reactors are designed to be much safer and more adaptable in emergencies.
That’s because they have several layers of containment and other safety features to block radioactive material. This mitigates the risk of widespread contamination or environmental damage.
Now, let me talk about spent uranium disposal.
The World Nuclear Association considers the greenest solution for nuclear waste to be storage for 50 years. That gives any radioactive elements time to decay. In practice, nuclear waste today is stored in deep water or tunneled canisters.
The U.S. and other countries are exploring deep geological disposal technology as the safest, greenest solution for the final disposal of nuclear waste. The field of nuclear waste processing is a growing one.
Modern reactors follow stricter guidelines to ensure the safety and protection of the environment than past ones.
For instance, spent uranium rods are packed in secure containers before they are transported to specialized storage facilities. These facilities ensure the long-term containment and isolation of that spent uranium. This prevents unnecessary exposure to the environment.
And finally, current technology is capable of creating weapons-grade enriched uranium. That’s one reason the Nuclear Fuel Security Act was fast-tracked through the National Defense Authorization Act of 2024, rather than being part of the Department of Energy budget.
It was a major legislative leapfrog. And, regardless of anyone’s personal stance on this, it shows how crucial nuclear power, technology, and fuel are to U.S. national security.
I’m actually putting the finishing touches on a new investigative report with more information on this. I’ll also give details on the companies best positioned to benefit as the focus on nuclear energy grows. So stay tuned for that in the next few weeks…
And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
In the meantime, happy investing… and have a fantastic weekend!
Editor, Inside Wall Street with Nomi Prins