Find all the options for investing in bitcoin as a resident of Switzerland in this comprehensive guide.
Many people want to invest in bitcoin but are not sure how to go about it. Here, moneyland.ch explains the most practical options for investing in bitcoin, along with the pros and cons of each.
1. Buy actual bitcoin
There are now many ways to buy bitcoin in Switzerland, and many investors consider this to be the best way to invest. While buying actual bitcoin previously required substantial tech and trading know-how, many service providers now make the process fairly simple.
When you buy bitcoin as an investment, you should aim to pay the lowest fees and get the best possible price. You can compare the fees charged by Swiss service providers in the guide to buying bitcoin in Switzerland.
The main advantage of owning real bitcoin is that there are no ongoing costs, which makes it the ideal option for buy-and-hold investing. Counterparty risk is also low because you own the asset rather than just a derivative. If you hold bitcoin yourself in wallets, there is no counterparty risk at all (although there is a risk of wallets being lost or damaged).
But there are disadvantages as well. You are limited to going long, as short-selling using real bitcoin is difficult or impossible. Unless you make use of bitcoin savings accounts or other forms of bitcoin lending which yield interest, your returns are limited to capital gains when you sell your bitcoin. Leveraging real bitcoin positions is expensive and not many platforms offer this service.
2. Invest in bitcoin ETFs
There are a number of exchange-traded funds (ETFs) which invest in bitcoin and bitcoin service providers. You can easily buy shares in ETFs using Swiss online stock brokers.
The main advantage of bitcoin ETFs is that unlike bitcoins, their shares are legal title deeds and are traded on regulated stock exchanges. A possible advantage is that ETFs may pay out dividends, which is useful if you are looking for fixed income streams instead of one-time capital gains.
The primary disadvantage is the cost: Unlike real bitcoin, which can generally be held at no cost, ETFs charge ongoing fees in the form of the total expense ratio (TER). Counterparty risk is also a consideration: You are investing in a fund and not in actual bitcoin, so if the fund fails, your investment could become worthless. Many funds invest in bitcoin futures or other derivatives and not in actual bitcoin. It is also important to understand that depending on an ETF’s asset allocation, the price of its shares may not always precisely follow the price of bitcoin.
3. Use bitcoin derivatives
Bitcoin derivatives are also available. For example, Vontobel offers certificates which track bitcoin’s price performance. Bitcoin contracts for difference (CFDs) are offered by some Swiss CFD brokers. Bitcoin futures are offered by the Chicago Mercantile Exchange. Derivatives are only recommended for experienced investors as they carry a high risk of loss.
The main advantage of using derivatives is that you can profit off losses in the value of bitcoin using short positions. That is useful if you expect the price of bitcoin to go down or if you want to hedge investments in actual bitcoin during times of high volatility. Derivatives also let you use leverage much more cheaply and easily than you could by borrowing actual bitcoin.
The biggest disadvantage of using bitcoin derivatives is the cost. Vontobel’s bitcoin tracker certificate, for example, has a 3.75% annual fee. The high overnight fees charged for CFDs makes them unsuitable for long-term investing.
4. Buy shares of bitcoin service providers
An indirect way to invest in bitcoin is to buy shares in the stocks of companies which offer goods and services related to bitcoin. You can easily buy shares in exchange-listed bitcoin service providers using cheap online stock brokers. Examples of bitcoin service providers which are listed on stock exchanges include Coinbase and Swissquote. There are also companies which are not directly linked to bitcoin but profit from bitcoin demand. For example, AMD and Nvidia manufacture hardware used in bitcoin mining, so their stocks could benefit from increased demand for bitcoin.
The main advantage of investing in bitcoin-related stocks is that you can potentially earn ongoing dividends. Companies have the ability to offer added value and to adapt to changes and different use cases, so a bitcoin service provider’s stock could potentially gain in value even when bitcoin’s price falls. A company may also be able to survive possible market shifts from bitcoin to other cryptocurrencies. Stocks listed on stock exchanges are subject to due diligence and legal regulations, and shares are legally binding contracts, so their price is often less volatile than bitcoin’s.
The disadvantage is that while the value of these stocks has a correlation to bitcoin demand, the potential returns are generally much more modest than those of direct bitcoin investments. Management and many other factors also play a role, so a bitcoin-related company’s value may decline even when bitcoin gains value (and vice versa). Depending on which stock broker you use, holding stocks can generate custody fees. You can find general tips in the guide to investing in stocks.
5. Mine bitcoin yourself
If you are a tech-savvy person and have access to cheap electricity, bitcoin mining may be an option for you. The only practical way to mine bitcoin is to make your computing power available to a bitcoin mining pool. The computing power you provide to the pool is measured as a hashrate. Shareholder models vary, but the general rule is: The higher your computer’s hashrate, the bigger your share of the newly-mined bitcoin will be. Reasonable hashrates can be achieved using the powerful graphics cards popular among gamers, or specialized application-specific integrated circuits (ASICs) designed for mining.
Joining a mining pool is not difficult. The process differs somewhat between service providers, but typically just involves downloading software which links your computing power to the pool. It is important to choose the pool you join carefully. You should look for pools which have high success rates, meaning they have mined a large number of bitcoins. You should also look at the date on which the pool last mined a bitcoin. It is also important to look at and compare the fees charged by the pool. The model used for calculating your share of profits is also important. Websites like miningpoolstats.stream clearly list the performance and fees of large bitcoin mining pools.
The disadvantage of mining bitcoin is the investment required. Unless you already buy cutting-edge graphics cards for gaming or other applications, you will need to invest money to buy these. Tracking your power consumption is important, as you will only make a profit if the value of the bitcoin you mine is greater than the cost of the electricity used. There is no sure way of knowing in advance whether you will mine enough bitcoin to cover the hardware investment and cover your power costs.
More on this topic:
Buying and spending bitcoin in Switzerland
Bitcoin savings accounts explained
