Bitcoin has transformed the financial landscape by providing a decentralised digital currency that functions without a central authority. However, direct investment in Bitcoin comes with significant responsibilities, such as having technical understanding of blockchain, security issues and regulatory difficulties. To solve these difficulties, Bitcoin exchange-traded funds (ETFs) were introduced, offering investors a regulated way to invest in the crypto world.
In this article, we will understand Bitcoin ETFs, their history and will also identify top ETF providers. We will also learn how to buy and invest in ETFs and take necessary precautions to be taken by investors before buying.
What is Bitcoin ETF?
A Bitcoin ETF is an investment fund that tracks Bitcoin’s price and trades on traditional stock exchanges. By purchasing shares of a Bitcoin ETF, investors can obtain exposure to Bitcoin price movements without dealing with the complexity of purchasing, storing, and safeguarding the cryptocurrency directly. This structure provides a simple and easy way to invest in a regulated environment, making it more accessible to a wider range of investors.
Also Read: What is Bitcoin? Creation and Working
History of Bitcoin ETFs
There have been various attempts and regulatory hurdles on the path of Bitcoin ETFs approvals.
The famous Winklevoss twins applied with the U.S. Securities and Exchange Commission (SEC) in 2013, introducing the first proposal for a Bitcoin ETF. However, concerns about market manipulations and a lack of regulations resulted in multiple rejections.
In October 2021, the SEC approved the first Bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO), which invests in Bitcoin futures contracts rather than directly holding the cryptocurrency. This decision was an important milestone for further developments.
The biggest development took place on January 10, 2024, when the SEC approved 11 spot Bitcoin ETFs, allowing holders to hold actual Bitcoin. This judgment represented a significant shift in regulatory stance, offering new opportunities for investors to interact with Bitcoin in a more regulated and potentially safer environment.
The Securities and Futures Commission of Hong Kong approved the region’s first spot Bitcoin ETF in April 2024. For example, the ChinaAMC Bitcoin ETF allows investors to track Bitcoin’s performance using a regulated financial product. This development establishes Hong Kong as a major player in the cryptocurrency sector, providing a safe and regulated environment for Bitcoin investments.
Top Bitcoin ETF Providers
Following the approval from the SEC, several financial giants have launched their spot Bitcoin ETFs in the U.S. Below are the most popular ETFs:
iShares Bitcoin Trust (IBTC)
iShares Bitcoin Trust is managed by BlackRock. It has quickly gained attention. With the milestone of surpassing a total of 500,000 BTC in assets, BlackRock’s Bitcoin ETF has become one of the most popular ones.
Fidelity Wise Origin Bitcoin Fund (FBTC)
Fidelity’s Wise Origin Bitcoin Fund provides an effective solution for investors to monitor Bitcoin’s price performance. This ETF, known for its transparency and strong reputation, received major investments, highlighting its popularity among institutional and retail investors.
Grayscale Bitcoin Trust ETF (GBTC)
Grayscale’s Bitcoin Trust is one of the leading ETF in the cryptocurrency investment sector. Despite its higher expense ratio when compared to newer ETFs, it is still a standard choice. It is recognised by its long track record and key role in popularising Bitcoin-based investment instruments.
ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF was the first Bitcoin futures ETF which was licensed in the United States, marking a significant milestone in crypto investments. By tracking Bitcoin futures contracts, BITO provides investors with a regulated means to participate in Bitcoin market trends.
VanEck Bitcoin Strategy ETF (XBTF)
VanEck’s Bitcoin Strategy ETF emphasises on Bitcoin futures rather than direct Bitcoin holdings. XBTF, known for its low expense ratio, offers a cost-effective and regulated solution for investors seeking to have exposure to Bitcoin price movements without the challenges of direct ownership.
Bitcoin Spot and Futures ETF
Spot Bitcoin ETF is a financial instrument that tracks Bitcoin’s price by holding the actual cryptocurrency. Bitcoin Futures ETF is an exchange-traded fund that invests in Bitcoin futures contracts, allowing investors to gain exposure to Bitcoin’s price movements without actually holding the crypto.
| USA | |
| Spot ETFs | Futures ETFs |
| ARK 21 Shares Bitcoin ETF (ARKB) Bitwise Bitcoin ETF (BITB) BlackRock’s iShares Bitcoin Trust (IBIT) Franklin Bitcoin ETF (EZBC) Fidelity Wise Origin Bitcoin Trust (FBTC) Grayscale Bitcoin Trust (GBTC) Hashdex Bitcoin ETF (DEFI) Invesco Galaxy Bitcoin ETF (BTCO) VanEck Bitcoin Trust (HODL) WisdomTree Bitcoin Fund (BTCW) Valkyrie Bitcoin Fund (BRRR) |
ProShares Bitcoin Strategy ETF (BITO) Valkyrie Bitcoin Strategy ETF (BTF) VanEck Bitcoin Strategy ETF (XBTF) Global X Blockchain & Bitcoin Strategy ETF (BITS) ProShares Short Bitcoin Strategy ETF (BITI) ProShares Ultra Bitcoin Strategy ETF (BITU) Valkyrie Bitcoin and Ether Strategy ETF (BTFX) |
| Canada | |
| Spot ETFs | Futures ETFs |
|
Purpose Bitcoin ETF (TSX: BTCC) |
BetaPro Inverse Bitcoin ETF (BITI) BetaPro Bitcoin ETF (HBIT) |
| Hong Kong | |
| Spot ETFs | Futures ETFs |
| ChinaAMC Bitcoin ETF Harvest Bitcoin Spot ETF Bosera HashKey Bitcoin ETF |
CSOP Bitcoin Futures ETF Samsung Bitcoin Futures Active ETF |
Investing in a Bitcoin Futures ETF, such as BITO, allows users to invest in Bitcoin’s potential gains or losses using standard broking accounts, removing the need for digital wallets or cryptocurrency trading. However, it is crucial to remember that these ETFs track futures prices, which may not always be completely aligned with Bitcoin’s spot price, thus resulting in tracking errors.
How to Buy Bitcoin ETF?
In order to buy a Bitcoin ETF, one must need to have a brokerage account in the respective country where these ETFs are available for trading. Following is a simple process for buying Bitcoin ETF:
Step 1. Open Brokerage Account
Select an established broking firm that provides access to the stock market, where your desired Bitcoin ETF is traded. Popular broking firms include Interactive Brokers and Fidelity and many more.
Step 2. Fund Your Account
Deposit funds into your broking account using ACH transfers, wire transfers, or cheques.
Step 3. Research ETFs
Evaluate various Bitcoin ETFs based on expenses, liquidity, and the fund manager’s reputation.
Step 4. Place Your Order
Use your broking platform to place a buy order for the desired ETF and fill the details regarding number of shares and order type.
Step 5. Monitor Your Investment
Review the performance of your ETF on a regular basis and stay informed on market trends influencing the price of Bitcoin.
Precautionary Measures
While Bitcoin ETFs offer a convenient way to gain exposure to Bitcoin, investors should consider the following precautions:
- Understand Underlying Asset: Bitcoin is known for its volatility, which can cause big price movements in the ETF.
- Expense Ratios: Be aware of the expenses connected with the ETF, as larger expense ratios might reduce returns over time.
- Regulatory Environment: Stay updated about regulatory developments that may affect the cryptocurrency market and, as a result, the ETF’s performance.
- Tax Implications: Consult a tax advisor to understand the tax implications of investing in Bitcoin ETFs, which may differ from typical investments.
- Market Liquidity: Ensure that the ETF has enough trading volume to allow for easy purchasing and selling without substantial price impact.
Conclusion
Bitcoin ETFs have made cryptocurrency investing more accessible, providing a regulated and familiar approach to capitalise on Bitcoin’s development. They are good alternatives for those who want to gain access to digital assets without actually owning cryptocurrency.
However, investing in Bitcoin ETFs requires a careful assessment of potential risks. Staying informed about market trends, completing comprehensive research, and receiving advice from experts in finance may assist investors make better decisions that coincide with their financial goals.
