Bitcoin IRA Comparison: Spot ETF vs. Keyless Control vs. Physical Bitcoin

If you understand why bitcoin is an asset that should be held long-term, you may also be wondering how to take advantage of retirement tax structures to minimize your tax expenses. There are many different ways to approach holding bitcoins in an IRA, and as with everything bitcoin-related, each has its pros and cons. Let's see how the different bitcoin IRA approaches compare.

Sovereignty and appreciation

Before we can cover these approaches to bitcoin retirement savings, you need to understand the two most important benefits you receive from holding bitcoins: financial sovereignty and purchasing power. That is, the freedom obtained by holding the private keys to a digital bearer asset that exists outside the traditional financial system, and the appreciation of that asset measured in fiduciary terms.

The four most common approaches to keeping your bitcoins in an IRA have different tradeoffs related to these two benefits:

Beyond these two factors, the other differences are a little more nuanced. Let's take a closer look.

Four ways to keep bitcoins in an IRA

bitcoin Futures ETF in a Brokerage IRA (BITO)

A previously popular way to get exposure to bitcoin with minimal effort was with a futures ETF like ProShares bitcoin Strategy ETF (BITO). This fund aims to offer investors managed exposure to bitcoin futures. Futures are financial contracts that require the parties involved to complete a transaction at a certain future date and price. You don't get key control: a futures ETF like BITO doesn't even contain physical bitcoins. BITO is still available, but its popularity has declined since the launch of bitcoin spot ETFs in 2024.

bitcoin Spot ETF in a Brokerage IRA (IBIT, FBTC, GBTC, etc.)

bitcoin spot ETFs launched in 2024, giving investors access to a bitcoin proxy financial product with much more direct exposure to the price of bitcoin than previous futures and fiat products. Like bitcoin trusts and futures ETFs, with these products you have no key control over any physical bitcoin. However, spot ETFs themselves hold physical bitcoins with custodians such as Coinbase, Fidelity, and Gemini. They closely follow the price of bitcoin because authorized participants have the right to create and redeem shares of the ETF, keeping the price in line with its net asset value.

bitcoin IRA without key control (iTrust Capital, BitcoinIRA)

Many bitcoin IRA products allow you to buy real bitcoins but do not offer any key control, such as iTrust Capital, BitcoinIRA, Swan bitcoin IRA, and others. Like bitcoin proxy products, these products do not provide control over your private keys. The biggest benefit is that you get direct exposure to the price of bitcoin because the physical bitcoin is held in your name. In these products, bitcoin is in your name, and in some cases it is possible to send it in kind if you change IRA providers. You may also have more flexibility with trading options compared to a spot ETF.

bitcoin IRA with Key Control (No Chain IRA, Choice)

Key control is important for several reasons, but it is all rooted in the principles of bitcoin more generally. bitcoin allows you, as an individual, to safeguard your wealth in a way that has never been possible before. If you don't own your keys, you will ultimately have a bitcoin IOU, and the key holder can make arbitrary decisions such as changing the associated fees, remortgaging, and more. Another component that is often ignored is that companies that own your keys can fail; You become an unsecured creditor if a company becomes insolvent.

There are bitcoin IRA products on the market that offer full control of your bitcoin private keys and direct exposure to the price movement of the underlying asset. With these products, you eliminate single points of failure by controlling the keys to your physical bitcoin held in a multi-signature wallet. One of these products is the triggered IRA.

bitcoin IRA Comparison: Spot ETF vs Non-Key IRA vs Key Control IRA

Convenience

Holding bitcoin proxies like the Spot ETF in your pre-existing IRA account will be the easiest way to get exposure to the price of bitcoin. It's as simple as typing in a ticker symbol and purchasing the product, as long as your brokerage offers it. If you're new to bitcoin and want to experiment with your portfolio exposure, spot ETFs also allow you to easily enter and exit your position at will, although in most cases only during market hours. No matter how many compensations these products have, they win this category.

No-key control bitcoin IRA products are a clear second in terms of convenience, as you do not need to consider key management practices while still gaining direct exposure to the price of bitcoin.

Price correlation

If you have a bitcoin proxy like a spot ETF in a brokerage account, you are not holding actual bitcoin, but you still have a well-designed financial tool that correlates well with the price of bitcoin with minimal slippage. Still, spot ETFs are not perfect: nothing will perform better than holding bitcoin when it comes to price correlation.

Whether you have the keys to your bitcoin or not, products that allow you to hold physical bitcoin will track the price of the underlying asset, which is preferable for most investors.

Counterparty risk

Products like spot and futures ETFs, as well as non-key control IRAs, do not offer you the benefit of key control, which means you are exposing your wealth to many levels of counterparty risk. For spot ETFs, for example, you trust the custodian (probably Coinbase, Fidelity, or Gemini), the ETF issuer itself, and the broker where you have a retirement account.

Another side effect of these proxy products and non-key control IRAs is that you will eventually have to sell and receive a distribution in US dollars. With key-track bitcoin IRAs, you can withdraw real bitcoin from your account without penalty when you reach retirement age. As the world shifts toward a bitcoin standard, you may not need or want to sell it back to fiat currency when the time comes.

The old saying still holds true: “not your keys, not your bitcoin.” The bitcoin protocol was created to give you the opportunity to take control of your wealth. Controlling your keys minimizes counterparty risk and eliminates single points of failure.

Cost

The spectrum of costs across all bitcoin IRA products is broad, as is the value you receive.

Spot ETF products are relatively affordable, charging as little as 0.2%, which is much better than the hefty 1-2% you'd pay for the convenience of GBTC or BITO before spot ETFs were available. Still, annual fees for spot ETFs can add up to tens of thousands of dollars, depending on your holdings and bitcoin appreciation.

Among bitcoin IRAs that do not offer key control, iTrust Capital is currently the most affordable method of holding bitcoin in an IRA. On the other hand, competitors like BitcoinIRA are a little more mysterious as to what their fees are, making it unclear how they compare on this front.

The Unchained IRA has a higher one-time setup fee, but lower annual fees and trading fees, leading to much lower fees over time.

Key takeaway

The only way to hold bitcoins in an IRA while still getting the two benefits it was created for, limited supply and key control, is to hold bitcoins in a key control bitcoin IRA.

While a key control IRA may require more on the part of the client to learn how to maintain bitcoin keys correctly, we believe it is time well spent to receive a basic bitcoin custody education. Multi-signature escrow, in particular, eliminates single points of failure and trusted third parties.

Spot ETFs held in a brokerage account can also be a decent option if you want immediate exposure to bitcoin as you learn more about the technology and the importance of key control. But know that they can be costly in the long run, especially if the price of bitcoin rises dramatically in the coming years, and expose you to multiple layers of counterparty risk.

Incorporation, bitcoin IRA and more

If you already own a bitcoin proxy product in an IRA at a traditional financial institution, we make it easy to transfer to physical bitcoin with key control through an Unchained IRA. And if you already have a physical bitcoin IRA, we can even accept in-kind transfers if your provider supports withdrawals.

We're also your partner for Concierge Onboarding and more, so you can get help from bitcoin experts on your self-custody journey, no matter where it takes you. Anyone can learn how to securely store their bitcoin keys with the help of our Concierge team. Book a free consultation for more details.

This article is provided for educational purposes only and cannot be considered tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and all such questions should be directed to a tax or financial advisor of your choice.

Originally published in Unchained.com.

Unchained Capital is the official US collaborative custody partner of bitcoin Magazine and an integral sponsor of related content published through bitcoin Magazine. To learn more about services offered, custody products, and the relationship between Unchained and bitcoin Magazine, visit our website.