Bitcoin IRAs compared: GBTC vs. ETF vs. physical bitcoin

If you understand why bitcoin is an asset to hold for the long term, you may also wonder how to take advantage of retirement tax structures to minimize your tax expenditures. There are many different ways to approach holding bitcoin in an IRA, and as with everything in bitcoin, each has its trade-offs. Let’s look at how the many different bitcoin IRA approaches compare.

Sovereignty and appreciation

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

The four most common approaches to holding your bitcoin in an IRA have different trade-offs related to these two benefits:

• Bitcoin trust held in a brokerage IRA (GBTC): no control of keys, and indirect exposure to price action
• Bitcoin futures ETF held in a brokerage IRA (BITO): no control of keys, and indirect exposure to price action
• Bitcoin IRAs without key control (iTrust Capital, BitcoinIRA): no control of keys, but direct exposure to price action
• Bitcoin IRAs with key control (Choice with Casa, Unchained IRA): key control and direct exposure to price action

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

Four ways to hold bitcoin in an IRA

Bitcoin trust in a brokerage IRA (GBTC)

One of the most popular ways to get exposure to bitcoin price action is with bitcoin-proxy financial products like Grayscale Bitcoin Trust (GBTC). With GBTC, you own shares in a synthetic financial product built to track the value of the trust’s assets. While it is engineered to track price, it can’t do so exactly and is susceptible to premiums or discounts against the value of the underlying assets. GBTC has multiple layers of counterparty risk, as described below.

Bitcoin futures ETF in a brokerage IRA (BITO)

Another way you can get exposure to bitcoin with minimal effort is with a futures ETF like ProShares Bitcoin Strategy ETF (BITO). This fund intends to offer investors managed exposure to bitcoin futures. Futures are financial contracts that require involved parties to perform a transaction at a given future date and price.

BITO is easy to purchase and trade in your existing brokerage retirement account, but you’re also still locked in the old financial system (you’ll have to deal with ACH, settlement periods, long hold times, etc.). You get no key control—a futures ETF like BITO doesn’t even hold physical bitcoin itself. As with GBTC, you can expect futures ETFs to deviate from the price of physical bitcoin.

Bitcoin IRAs without key control (iTrust Capital, BitcoinIRA)

Many bitcoin IRA products allow you to buy real bitcoin but don’t offer any key control, like iTrust Capital, BitcoinIRA, and others. Like the bitcoin proxies, these products provide no control over your private keys. The difference is that you get direct exposure to the price of physical bitcoin because physical bitcoin is held on your behalf.

Bitcoin IRAs with key control (Choice, Unchained IRA)

Key control is important for various reasons, but it’s all rooted in bitcoin principles more broadly. Bitcoin allows you as an individual to custody your wealth in a way that was never possible before. If you don’t hold your keys, you ultimately hold a bitcoin IOU, and the key holder can make arbitrary decisions like change associated fees, rehypothecate, and more. Another oft-ignored component is that companies holding your keys can fail; you become an unsecured creditor if a company becomes insolvent.

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

Bitcoin IRA comparison: GBTC vs. futures ETF vs. no-key-control IRAs vs. key-control IRAs

Convenience

Holding bitcoin proxies in your preexisting IRA account will be the easiest way to get exposure to the bitcoin price. It’s as simple as typing in a ticker symbol and buying the product. If you’re new to bitcoin and want to experiment with exposing your portfolio, trusts like GBTC and futures ETFs also let you easily trade in and out of your position at will. As many trade-offs as these products have, they win this category.

No-key-control bitcoin IRA products are the clear runner-up for convenience since you don’t have to consider key management practices while still getting direct exposure to the bitcoin price.

Winner: GBTC/futures ETF

Price correlation

If you’re holding a bitcoin proxy like Grayscale Bitcoin Trust (GBTC) in a brokerage account, you aren’t holding real bitcoin, and you’re going to be exposed to fluctuating premiums and discounts of these shares relative to their underlying assets. GBTC, for example, has seen its discount to net asset value drop as low as 29.87% in the past.

Whether you hold 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.

Winners: No-key-control & Key control

Counterparty risk

Products like GBTC, ProShares, and no-key-control IRAs don’t offer you the benefit of key control, which means you’re exposing your wealth to many layers of counterparty risk. For GBTC, for example, you’re trusting Coinbase, GBTC and Grayscale, and you’re holding the GBTC in your brokerage account.

Bitcoin IRAs without key control often use custodians like Coinbase, Gemini, or BitGo to hold keys. While they do often carry some form of custody insurance (in which case you would be covered up to some dollar amount under the specific limited terms of those policies), this arrangement still falls significantly short of holding your own keys. The risks associated with this approach are substantial, as has been clearly demonstrated recently.

Another side effect of these proxy products and no-key-control IRAs is that you will eventually have to sell and take a distribution in U.S. dollars. With bitcoin IRAs with key control, you can withdraw real bitcoin from your account without penalty at retirement age. As the world shifts to a bitcoin standard, you may not need or want to sell it back to fiat when the time comes.

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

Winner: Key control

Cost

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

The bitcoin trust (GBTC) and futures ETF (BITO) products are expensive; you’re paying for convenience here. They all carry an annual expense ratio between 1-2%, which can add up to tens of thousands of dollars, as shown in the examples above. The fees are also hidden, built into the net asset value (NAV), which means you’re basically being charged in bitcoin.

Among the bitcoin IRAs that don’t offer key control, iTrust Capital is currently the most affordable approach to holding bitcoin in an IRA. iTrust Capital offers no setup fee or annual fees, only charging a 1% trading fee. On the other hand, competitors like BitcoinIRA are a bit more mysterious as to what their fees are—making it unclear how they compare on this front.

There are two main options among the bitcoin IRA products that allow you to control the keys to the bearer asset directly: Choice IRA with Casa and the Unchained IRA. The Unchained IRA has a higher one-time setup fee, but lower annual fees and trading fees, leading to much lower fees over time.

In summary, we have two winners here: No-key-control offering iTrust Capital for being the lowest price overall, and Key control for the Unchained IRA being the best value overall. For an estimated total cost over ten years for a static IRA value of $100,000, Unchained IRA costs $3,995. It has an ideal balance between lower cost and full key control.

Winners: No-key-control & Key control

Final results

	Convenience	Price correlation	Counterparty risk	Cost
Winner(s)	GBTC/futures ETF	No-key-control & Key control	Key control	No-key-control & Key control

The only way you can hold bitcoin in an IRA while gaining the two benefits it was built for, limited supply and key control, is to hold in a key-control bitcoin IRA, such as the Unchained IRA.

While a key control IRA may require more from the client to learn to hold bitcoin keys correctly, we believe it’s time well spent to receive a basic bitcoin custody education. Multisig custody, in particular, eliminates single points of failure and trusted third parties.

GBTC and the BITO ETF can also be decent options if you want to immediately get exposure to bitcoin as you learn more about the technology and the importance of key control. But know that they are relatively expensive in the long term, especially if the price of bitcoin rises dramatically over the coming years, and expose you to multiple layers of counterparty risk.

Onboarding, bitcoin IRAs, and beyond

If you already hold a bitcoin proxy product in an IRA at a traditional financial institution, we make it easy to roll over into physical bitcoin with key control through an Unchained IRA. And if you already have a physical bitcoin IRA, we can even take rollovers in-kind if your provider supports withdrawals.

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

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This article is provided for educational purposes only, and cannot be relied upon as 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.