A recent post by Mitesh Patel on X has ignited a discussion on the pros and cons of these two approaches, shedding light on the impact of fees on long-term returns.

Patel's analysis compared self-custody, a Bitcoin ETF with a 1% fee, and an Individual Financial Advisor (IFA)-managed account using a Bitcoin ETF with the same fee over 30 and 40 years.

This discussion has prompted us to explore an interesting alternative to traditional Bitcoin ETFs: MicroStrategy (MSTR).

Comparing Bitcoin Holding Methods

Patel's spreadsheet analysis revealed some key insights into how fees can impact long-term Bitcoin holdings:

  • Year 0: Starting with 1 Bitcoin (BTC) in all three situations.
  • Year 30: Self-custody keeps 100% of the original Bitcoin, the ETF holds onto 73.97%, and the IFA-managed account retains 54.55%.
  • Year 40: Self-custody still has 100% of the original Bitcoin, while the ETF holds onto 66.90%, and the IFA-managed account keeps 44.57%.

The data sparked discussions within the Bitcoin community, with most participants favoring self-custody for its potential for higher returns and reduced reliance on third parties. However, there are other factors to consider when evaluating your Bitcoin investment strategy.

MicroStrategy's Unique Approach

MicroStrategy's Bitcoin journey began in August 2020 and now holds over 158,400 Bitcoin as of November 2023. 

Unlike ETFs with expense ratios that eat into investors' returns (e.g., the Grayscale Bitcoin Trust with a 2% expense ratio), MicroStrategy shareholders have enjoyed the benefits of no fees on their Bitcoin holdings.

Results Speak Volumes

Over the past year, while the S&P 500 returned 14%, MicroStrategy's Bitcoin holdings delivered a return of 189%. 

MicroStrategy's CEO, Michael Saylor, stated that their approach is superior to that of ETFs, emphasizing the absence of fees on Bitcoin holdings, resulting in significantly higher returns for shareholders.

MicroStrategy's Future Prospects

MicroStrategy's unique approach allows it to potentially drive even more value for shareholders:

  1. Increased Demand for Bitcoin: When MicroStrategy issues stock or securities to buy more Bitcoin, it boosts demand for the asset, potentially driving up its price.
  2. Higher Bitcoin Holdings: By continually increasing its Bitcoin holdings, MicroStrategy can enhance its exposure to Bitcoin, benefiting from any price appreciation.
  3. Increased Awareness: MicroStrategy's Bitcoin investments have raised awareness of Bitcoin among investors, potentially attracting more buyers and further increasing its value.

Risks to Consider

However, there are risks associated with MicroStrategy's strategy:

  1. Dilution: Issuing stock or securities may dilute existing shareholders' ownership, reducing their percentage of ownership in the company.
  2. Increased Debt: Financing Bitcoin purchases with debt could raise the company's financial risk.
  3. Volatile Bitcoin Price: Currently, Bitcoin's price volatility may still be too high for many investors.

MicroStrategy's unique approach to Bitcoin, offering no fees on its Bitcoin holdings, presents an alternative to traditional Bitcoin ETFs. 

While self-custody remains a favored option for those seeking full control over their Bitcoin, MicroStrategy's strategy has demonstrated impressive returns and potential for further growth.

As the debate between holding Bitcoin directly and using ETFs rages on, MicroStrategy's success serves as a compelling example of a company bridging the traditional financial market with the world of Bitcoin. 

In the absence of a Bitcoin ETF, MSTR may indeed be the ETF that many investors have been seeking all along.

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