You may have heard the term ‘Bitcoin ETF’ floating around in recent financial news, especially with the growing popularity of Bitcoin and other cryptocurrencies. Crypto ETFs became an even bigger topic after the long-awaited approval of spot Bitcoin ETFs by the U.S. Securities and Exchange Commission, especially the ones from famous investment managers and companies like BlackRock or Fidelity.
As a crypto user myself, I find Bitcoin ETFs — as well as any cryptocurrency ETFs, really — incredibly exciting. I know that’s a weird word to use for what is essentially a financial tool, but ETFs may be the answer to making crypto more approachable to both regulators and investors. Let’s take a look at what they are, what they have the potential to do in the future, and some of the top Bitcoin ETFs in which you can invest in 2024.
What Is a Bitcoin ETF?
An exchange-traded fund, or ETF, is a type of investment fund and exchange-traded product that tracks the price of an underlying asset. A Bitcoin ETF, therefore, is a fund that tracks the price of Bitcoin. This allows investors to buy into the ETF without having to deal directly with Bitcoin itself.
There are different types of Bitcoin ETFs, such as Bitcoin futures ETFs, spot Bitcoin ETFs, and Bitcoin strategy ETFs. A spot Bitcoin ETF tracks the “spot” or current price of Bitcoin, while a Bitcoin futures ETF invests in Bitcoin futures contracts. A Bitcoin strategy ETF uses various investment strategies related to Bitcoin, including investing in companies with significant Bitcoin holdings or activities.
It’s important to note that crypto ETFs often invest in a range of underlying assets, like direct holdings of cryptocurrencies, CME Bitcoin futures contracts, and stocks of companies involved in blockchain technology. This diversification allows investors to mitigate some of the risks associated with the highly volatile nature of individual cryptocurrencies.
Here are a few terms you need to know before you start investing in ETFs. I mention some of them in this article.
- Expense Ratio. This is the cost of managing and operating the ETF, expressed as a percentage of the total assets. Lower expense ratios are generally better as they eat less into your returns.
- Assets Under Management (AUM). This is the total market value of the assets that an investment company or a financial institution manages on behalf of investors. A larger AUM can indicate the ETF has a larger market presence and potentially greater liquidity.
- Liquidity. This refers to how easy it is to buy or sell an ETF without impacting its price. As more frequently traded ETFs usually have better liquidity, they are easier to buy and sell.
- Trading Price vs. Net Asset Value (NAV). While stocks trade at market prices, an ETF’s NAV is the total asset value of the fund divided by the number of shares. Discrepancies can occur between the trading price and the NAV, which can mean buying an ETF at a premium or discount.
Top 5 Bitcoin ETFs to Invest in 2024
Here are the five most prominent Bitcoin ETFs you can get in 2024.
BlackRock Spot Bitcoin ETF – The iShares Bitcoin Trust (IBIT)
Launched by BlackRock on January 11, 2024, the iShares Bitcoin Trust (IBIT) is probably the most famous Bitcoin ETF — and, judging by its trading volume (at least at the time of writing), also the most popular. As a spot BTC exchange-traded fund, it can directly reflect the performance of the price of Bitcoin.
For the first 12 months from its launch, the ETF has a reduced sponsor’s fee of 0.12% for the first $5 billion in assets, after which the fee will be 0.25%. As of early February 2024, the fund’s assets under management (AUM) stood at approximately $2.2 billion, indicating strong investor interest. IBIT is known for its convenience, quality, and the ease it brings to investors wanting exposure to Bitcoin without the complexities of direct ownership.
Grayscale Bitcoin Trust ETF (GBTC)
Grayscale Bitcoin Trust (GBTC) is one of the oldest funds on this list, and has always been a popular way for investors to gain exposure to Bitcoin through a structure that mirrors an ETF, albeit it’s structured as a trust.
GBTC allows investors to invest in Bitcoin in a form that can be held in traditional investment accounts. Being one of the earliest investment vehicles for Bitcoin, GBTC has been closely watched by investors for its performance relative to Bitcoin’s price and its premium or discount to the underlying Bitcoin value it holds.
It’s important to note that GBTC operates differently from the newly approved spot Bitcoin ETFs, as it was not structured under the ETF umbrella initially but has sought conversion to an ETF structure to provide better liquidity and closer tracking to the net asset value. Due to this, as well as its higher fees (its management fee is 1.5%), this trust has seen quite a significant outflow of assets in early 2024.
Fidelity Wise Origin Bitcoin Fund (FBTC)
Fidelity’s Wise Origin Bitcoin Fund is designed to provide investors with direct exposure to BTC — the fund’s performance tracks the price of Bitcoin as measured by the performance of the Fidelity Bitcoin Index.
At the time of writing, it was one of the most popular spot Bitcoin ETFs, with its total assets around $1.3B. This isn’t all that surprising, considering Fidelity is one of the world’s largest investment managers and thus has an established reputation.
ARK 21Shares Bitcoin ETF (ARKB)
Just like the other spot Bitcoin ETFs on this list, the ARK 21Shares Bitcoin ETF (a collaboration between ARK Invest and 21Shares) aims to provide investors with direct exposure to Bitcoin and its price movements.
ARK Invest is known for its focus on disruptive innovation and has been a vocal proponent of the potential of cryptocurrencies. The partnership with 21Shares, a leader in providing cryptocurrency ETPs (exchange-traded products), brings together expertise in innovation-focused investing and digital asset management. At the time of writing, its AUM was around $600M.
ProShares Bitcoin Strategy ETF (BITO)
This was the first Bitcoin ETF to get approved for trade in the U.S. markets — it entered the market in October 2021. At the time of writing, it had almost $1.8B worth of assets under management and an expense ratio of 0.95%.
The ProShares Bitcoin Strategy ETF is an actively managed fund. In addition to Bitcoin futures contracts, it may also hold cash and Treasury securities. It can be sold and bought through a brokerage account.
How Do Bitcoin ETFs Work?
Bitcoin ETFs work much like any other ETFs. They are listed on traditional exchanges, which makes them widely accessible. Investors can buy and sell shares of a Bitcoin ETF just like they would with a regular stock or ETF.
What makes Bitcoin ETFs unique is that they aim to track the price of Bitcoin. The ETF attempts to replicate the performance of Bitcoin by either holding Bitcoin directly (in the case of a spot Bitcoin ETF) or by investing in Bitcoin futures contracts (in the case of Bitcoin futures ETFs). The goal of a Bitcoin ETF is to provide investors with exposure to Bitcoin’s price movements without the complexities of buying, storing, and safekeeping Bitcoin themselves.
Bitcoin ETF Fees
Like all ETFs, Bitcoin ETFs charge fees to cover their operating expenses. These fees, known as expense ratios, are a percentage of an investor’s assets in the fund. The expense ratio covers the cost of managing the ETF, including administrative expenses, compliance costs, and the fee paid to the fund’s manager.
It’s important to note that expense ratios for Bitcoin ETFs can vary. Typically, they may be higher than traditional ETFs due to the more complex nature of Bitcoin as an underlying asset. That’s why investors must understand and compare the fees of different Bitcoin ETFs before committing any money.
Bitcoin ETF vs. Bitcoin
Now, the big question is: Why would you want to invest in a Bitcoin ETF instead of good ol’ BTC itself? Well, let’s explore some of the differences (and similarities) between the two.
Bitcoin ETFs and Bitcoin share a fundamental relationship: they are both tied to the price of Bitcoin, a leading digital asset in the cryptocurrency industry. Here, we will highlight their similarities and differences and discuss why an investor might lean towards one over the other.
- Bitcoin Prices. Both Bitcoin and Bitcoin ETFs are influenced by Bitcoin’s price. The value of a Bitcoin ETF is derived from the price of Bitcoin itself because it holds Bitcoin or Bitcoin futures contracts as its underlying asset.
- Investment Objective. Both Bitcoin and Bitcoin ETFs share the same investment objective: to gain exposure to the price movements of Bitcoin. An investor in either is essentially making a bet on the future price of Bitcoin.
- Securities Laws & Financial Instruments. Bitcoin is a digital asset, whereas a Bitcoin ETF is a financial instrument regulated by securities laws. An ETF is similar to mutual funds; it’s traded on a stock exchange and designed to track the value (net asset value) of an underlying asset — in this case, Bitcoin.
- Management Fees. Bitcoin ETFs, like all ETFs, involve management fees, which can erode the returns on your investment over time. When buying Bitcoin directly, there are transaction fees but no ongoing management fees.
- Access & Custody. Buying Bitcoin directly requires a digital wallet and a certain degree of technical knowledge. On the other hand, buying a Bitcoin ETF is as straightforward as buying any other stock on the exchange, making it more accessible to a wider audience.
- Safety & Regulation. Bitcoin ETFs are regulated financial products and must comply with stringent securities laws, offering investors more protection. Conversely, while the digital assets industry has made strides in security, holding actual Bitcoin can carry risks like hacking or loss of private keys.
Why Choose One Over the Other?
Choosing between investing in Bitcoin or a Bitcoin ETF can largely depend on individual preferences and circumstances, like risk tolerance or expected investment return.
Someone might prefer a Bitcoin ETF if they want exposure to Bitcoin’s price movements but prefer the familiarity and regulation of traditional financial instruments or if they don’t want to handle the custody of actual Bitcoin.
On the other hand, one might prefer buying Bitcoin directly if they are comfortable navigating the digital assets industry or if they want to avoid management fees. Using Bitcoin for its intended purpose as a currency could also be a reason for BTC purchases.
In both cases, potential investors should do thorough research and consider market data, potential risks, and their personal investment goals before making a decision.
How To Invest In Crypto ETFs
Investing in crypto ETFs offers a bridge for individuals and institutional investors to gain exposure to cryptocurrencies and blockchain technology through regulated financial instruments. Crypto ETFs, such as those tracking Bitcoin, are appealing to those who prefer the structure and regulatory environment of traditional investment vehicles.
These funds are available on major stock exchanges and can be purchased through brokerage accounts, which simplifies access to the volatile crypto markets without the need for a dedicated crypto exchange account. An ETF ticker symbol represents each crypto ETF, allowing investors to easily trade them just like any other stock or traditional ETF. This is particularly advantageous for retail investors new to crypto assets because it provides a familiar entry point into the burgeoning sector of digital currencies.
The Future of Bitcoin ETFs – Are They Worth Investing in?
As we look to the future, Bitcoin ETFs, or Bitcoin exchange-traded funds, are poised to gain even more attention as an emerging asset class. They represent a significant step in the maturation of Bitcoin as a legitimate financial instrument, offering a more accessible and regulated way for traditional investors to tap into the potential capital appreciation of Bitcoin.
Investing in a Bitcoin ETF may align with the investment objectives of those who believe in the long-term value proposition of Bitcoin but prefer the convenience and familiarity of the traditional ETF structure. It’s important to remember, though, that as with all investments, Bitcoin and cryptocurrency ETFs have inherent risks and considerations, including Bitcoin’s price volatility and the relatively nascent stage of the cryptocurrency market.
Crypto ETFs offer a compelling alternative to those who are wary of the technical challenges and security concerns of directly managing crypto assets, like having to secure a digital wallet or manage private keys. They entrust the custody of the underlying digital assets to the investment firm managing the ETF, leveraging their expertise and infrastructure to safeguard these assets.
Overall, whether a Bitcoin ETF is a worthwhile investment will largely depend on individual investment goals, risk tolerance, and broader belief in the future of Bitcoin and cryptocurrencies. As always, prospective investors should exercise due diligence or consult a financial advisor before making investment decisions.
Bitcoin ETFs offer a unique way for investors to gain exposure to Bitcoin without owning the cryptocurrency outright. However, like any investment, they come with their own set of risks. Always remember that the value of a Bitcoin ETF is derived from Bitcoin’s price, which can be highly volatile. Always consult with a financial advisor or do your own research before investing in a Bitcoin ETF.
As the cryptocurrency market continues to evolve, it will be fascinating to watch how Bitcoin ETFs and their regulatory landscape, shaped by bodies like the exchange commission, develop. Whether it’s a Bitcoin futures ETF, spot Bitcoin ETF, or Bitcoin strategy ETF, one thing’s certain: Bitcoin ETFs are playing a significant role in bridging the gap between traditional finance and the exciting world of cryptocurrency.
Are there any ETF for cryptocurrency?
Yes, there are cryptocurrency ETFs. They offer a way for investors to gain exposure to digital assets without directly owning them by tracking the performance of cryptocurrencies like Bitcoin or investing in companies involved in the cryptocurrency industry. Some examples include BlackRock’s iShares Bitcoin Trust and the ARK 21Shares Bitcoin ETF.
Are there any non-Bitcoin crypto ETFs?
There are also non-Bitcoin crypto ETFs that offer exposure to a range of cryptocurrencies and blockchain technology, not just Bitcoin. These ETFs may invest in companies that conduct business operations in the crypto space, such as crypto mining or blockchain technology services. Here are some examples: the Amplify Transformational Data Sharing ETF (BLOK) and the Siren NASDAQ Economy ETF (BLCN).
How to invest in cryptocurrency?
These days, there are many different ways to invest in crypto. The typical buy-and-sell option, HODLing a diversified crypto portfolio, mining, staking, and more. One of the more “traditional” ways to engage in cryptocurrency investing is through ETFs.
To invest in a cryptocurrency ETF, you will need to get a traditional brokerage account, just like for any other exchange-traded fund. However, you should remember that although this method provides a simpler and potentially less risky way to invest in the crypto market, cryptocurrency is still a volatile asset class, and you should be wary of the possible risks.
Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
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