Nearly a dozen new Bitcoin funds have already begun trading in U.S. markets. Discover the available Bitcoin ETFs, the cost of trading them, and how investing in Bitcoin ETFs differs from buying BTC directly.
The US Securities and Exchange Commission (SEC) has given the green light to 11 applications for Bitcoin exchange-traded funds (ETFs) from companies like BlackRock, Fidelity, Invesco, and VanEck. This approval is seen as a positive sign for Bitcoin trading, as ETFs are much better understood across the investment world than cryptocurrencies.
If you're only interested in becoming involved in digital currency investing, a Bitcoin ETF lets you focus on trading an asset you already understand rather than learning about blockchain, mining, decentralized exchanges, distributed ledgers, key storage, and cryptocurrency. You don’t have to rely on a vulnerable piece of hardware for storage or tackle the difference between “hot” and “cold” wallets.
How to Start Trading Bitcoin ETFs – Quick Guide
Here is the process to trade Bitcoin ETFs via brokerage services. With CAPEX.com you can trade all the 11 recently approved Bitcoin ETFs, as well as Bitcoin Futures ETFs.
Step 1: Open a trading account
Launch or download a brokerage services trading platform or app such as CAPEX.com, and complete the Know Your Customer checks and log in.
Step 2: Fund the account
Fund your brokerage account using a wire transfer, e-wallet solution, credit/debit card, or any other available payment method in your country.
Step 3: Conduct research
Be mindful of key aspects such as the issuer, liquidity and the fees associated with the ETF, selecting those that align with your investment preferences and goals.
Step 4: Place an order
Enter the selected Bitcoin ETF’s ticker symbol, specify the number of shares/contracts you wish to purchase, and depending on your trading strategy, place a market, limit or stop order.
Step 5: Monitor your investments
Regularly reviewing position(s) helps you respond to market changes and nudge your investments in the right direction.
Note that when you trade Bitcoin ETFs with derivatives, you can use leverage to get amplified exposure to the ETF of your choice. As a result, CFDs enable you to open a position for just a fraction of the cost of a Bitcoin, with margin requirements starting from just 20% with CAPEX.com. This provides benefits, as well as potential risks to trading. Make sure you understand the fundamentals of CFD trading and trading conditions before you begin.
What is an ETF?
An exchange-traded fund (ETF) is an investment instrument that tracks the performance of an existing market or group of markets. The fund will either physically buy the assets it is tracking or use more complicated investments to mimic the movement of the underlying market.
ETFs are bought and sold on a stock exchange – in much the same way as stocks. They perform a similar function to indices, investment trusts, and other exchange-traded products. You can buy an ETF to track a sector, an index, stocks from a specific country, a commodity, a currency, or fixed-income markets. Many ETFs are designed to track the underlying assets, but some funds hand-pick the assets they track. You can choose to trade ETFs via CFDs or invest via our share dealing platform.
Learn how to take a position on ETFs or start trading now.
What is a Bitcoin ETF?
A Bitcoin ETF, or Exchange Traded Fund for Bitcoin, allows investors to gain exposure to the price movements of Bitcoin without owning or managing Bitcoin directly. This kind of exposure is preferred by some investors with little experience trading cryptocurrency.
The Bitcoin ETF holds Bitcoin or contracts related to Bitcoin’s price, and it trades on traditional stock exchanges, much like shares of a company. As the cryptocurrency market matures, there's been a surge in interest, particularly towards two main types of Bitcoin ETFs: Spot Bitcoin ETFs and Derivatives-based Bitcoin ETFs.
Each caters to different investment strategies and risk appetites.
Spot Bitcoin ETF
A Bitcoin Spot ETF is a type of exchange-traded fund that directly holds Bitcoin as its underlying asset purchased through other holders or an authorized cryptocurrency exchange. This means that the performance of a Spot Bitcoin ETF is directly linked to the real-time value of the Bitcoins it holds. When investors buy shares of a Spot Bitcoin ETF, they are essentially buying a representation of actual Bitcoin, even though they do not hold the cryptocurrency personally. They hold shares of the fund.
For instance, one of the most expected Bitcoin Spot ETFs, iShares Bitcoin Trust from BlackRock, holds 2,600 Bitcoins and has issued 400,000 shares, each share representing 0.0065 Bitcoin. This means that the performance of the Bitcoin ETF is directly linked to the real-time value of the Bitcoins it holds. To get exposure to 1 Bitcoin you need to purchase approximately 150 shares of funds.
After years of anticipation, the Securities and Exchange Commission finally opened the door to spot Bitcoin ETFs in 2024. Only 11 ETFs received that initial permission, all available for trading on the multi-awarded CAPEX.com platform and apps.
The 11 Bitcoin ETFs come from a range of familiar names in both the traditional finance industry and the crypto industry. The blend of asset managers makes for a very interesting group. The table below details the ETFs, their expense ratios, and their introductory fee waivers according to the Securities and Exchange Commission (SEC):
ETF Name Ticker Expense Ratio AUM
(Feb 2024)Bitcoin Custodian Exchange Bitwise Bitcoin ETF BITB 0,20% $818M Coinbase Custody Trust Company NYSE Arca Ark 21Shares Bitcoin ETF ARKB 0,21% $428M Coinbase Custody Trust Company Cboe BZX Fidelity Wise Origin Bitcoin Fund FBTC 0,25% $3.4B Fidelity Digital Asset Services Cboe BZX iShares Bitcoin Trust IBIT 0,25% $4B Coinbase Custody Trust Company Nasdaq VanEck Bitcoin Trust HODL 0,25% $98M Gemini Trust Company Cboe BZX Franklin Templeton Digital Holdings Trust EZBC 0,29% $70M Coinbase Custody Trust Company Cboe BZX WisdomTree Bitcoin Fund BTCW 0,30% $55M Coinbase Custody Trust Company Cboe BZX Invesco Galaxy Bitcoin ETF BTCO 0,39% $350M Coinbase Custody Trust Company Cboe BZX Valkyrie Bitcoin Fund BRRR 0,49% $113M Coinbase Custody Trust Company Nasdaq Hasdex Bitcoin Futures ETF DEFI 0,94% $61M BitGo Trust NYSE Arca Grayscale Bitcoin Trust GBTC 1,50% $23B Coinbase Custody Trust Company NYSE Arca
What is the best ETF for Bitcoin holdings?
When looking for the best Bitcoin ETF, crypto traders should track those funds that possess the best combination of low fees and strong liquidity.
Grayscale Bitcoin Trust (GBTC)
The other 10 Bitcoin ETFs are dwarfed by Grayscale Bitcoin Trust. That fund, GBTC, debuted in 2013 as a trust and is now an ETF. It remains well over 10 times bigger than the largest of the newcomer spot bitcoin ETFs.
GBTC built its infrastructure well in advance of the recent SEC ruling as it bet big in anticipation of getting over this final regulatory hurdle. Although large and liquid, however, the elevated fee structure for this bitcoin ETF at present may give some investors cause to shop around.
Still, as the largest fund that invests 100% of its assets directly in Bitcoin digital currency, it remains among the leading options for investors who don’t want to manage a wallet themselves. A wallet is a device you use to store your cryptocurrency keys and access your crypto coins.
iShares Bitcoin Trust ETF (IBIT)
The iShares Bitcoin Trust ETF is one of the emerging leaders after January’s regulatory moves, thanks to a surge of shareholder money inflow. That’s in part because sponsor BlackRock is waiving a portion of fees for the first 12 months to attract new investors.
The waiver cuts an already reasonable expense ratio of 0.25% to 0.12%—so long as the fund’s total assets stay under $5 billion. Although it’s growing fast, IBIT is still well under that mark right now.
With 100% of assets invested directly in Bitcoin and a big iShares brand behind it, IBIT is likely to survive any consolidation that strikes the crowded field of digital asset ETFs in the months and years ahead.
Invesco Galaxy Bitcoin ETF (BTCO)
Invesco Galaxy Bitcoin ETF is one of the best ETFs for Bitcoin because of its generous approach to winning new business. BTCO is waiving its official 0.25% fee to zero for the first six months on the first $5 billion in assets. After July 11, the waiver expires unless renewed.
The 0.25% fee will be a bit higher than some of its competitors, but the discount is hard to pass up for many short-term swing traders who don’t think about their Bitcoin positions in a long-term way.
With a few hundred million in assets, BTCO is gathering support that could cement it as one of the few 100% Bitcoin funds that might have staying power. That presumes that investors who recently piled in because of the fee waiver don’t bolt if the waiver expires this summer.
Bitwise Bitcoin ETF (BITB)
Bitwise is one of the lesser-known sponsors on this list, but its Bitwise Bitcoin ETF has some features that make it noteworthy among the newly listed Bitcoin ETFs.
For starters, it’s listed on the New York Stock Exchange’s NYSE Arca platform, which means it is trading on a premier platform for exchange-traded funds.
BITB also boasts a hefty level of assets under management thanks to a short-term fee waiver that makes it free to trade for the first six months or until the fund hits $1 billion in AUM. BITB is already more than halfway there, so the discount may not last long. But even the baseline, post-waiver fee of 0.20% is attractive, so many investors may leave cash in after BITB restores that official fee.
Advantages and Disadvantages of Spot Bitcoin ETFs
Investing in a Bitcoin Spot ETF offers several advantages. However, like any investment, there are potential risks.
Pros of Bitcoin ETFs
- A spot Bitcoin ETF provides exposure to BTC's price movements without the need to manage or store the crypto, eliminating concerns about security or digital wallets.
- As Bitcoin ETFs trade on conventional stock exchanges, they bring Bitcoin into a regulatory framework, potentially providing a layer of trust to a wider audience.
- Investing in a Bitcoin Spot ETF can be more straightforward for traditional investors, as it operates within the familiar structure of stock trading.
- Investors can keep their Bitcoin holdings in the same account as other holdings, such as stocks, bonds, and commodities.
Cons of Bitcoin ETFs
- A Bitcoin ETF may not always perfectly match Bitcoin's price performance due to fees or administrative issues.
- The value of a Bitcoin Spot ETF will fluctuate with the price fluctuations of Bitcoin.
- While ETFs bring BTC closer to traditional finance and regulatory oversight, the broader crypto market remains somehow unpredictable.
Derivatives-based Bitcoin ETF
A Bitcoin Futures ETF is a type of exchange-traded fund that doesn't hold Bitcoin directly. Instead, it invests in Bitcoin futures contracts traded on the Chicago Mercantile Exchange, which are agreements to buy or sell Bitcoin at a predetermined price on a set future date. This allows investors to speculate on the future price movements of Bitcoin without owning the cryptocurrency itself. Bitcoin Futures ETFs aim to produce returns that correspond to bitcoin.
For instance, ProShares Bitcoin Strategy ETF, the first and the world's largest U.S. bitcoin-linked ETF based on assets as of 9/30/23, will generally hold its bitcoin futures contracts during periods in which the value of BTC are flat or declining as well as during periods in which the value of BTC is rising. To maintain exposure to bitcoin futures contracts, it must sell them as they near expiration and replace them with new futures contracts with a later expiration date. It is non-diversified.
What are the best ETFs for Bitcoin futures contracts?
There are several Bitcoin futures ETFs that trade on exchanges such as the New York Stock Exchange ARCA and Nasdaq:
ProShares Bitcoin Strategy ETF (BITO)
First-movers are often more successful at attracting shareholders and their money in the long run. ProShares Bitcoin Strategy ETF launched in 2021 as the first bitcoin futures ETF, and it is still the leader in that category. It attracted around $1 billion in assets within a few days after its launch. Now it is close to $2 billion.
Keep in mind, however, that BITO is an actively managed fund linked to bitcoin futures contracts. Those financial products derive their value from the potential future prices of an asset—not the current or “spot” price.
Volatility Shares 2x Bitcoin ETF (BITX)
The possibility of "leverage," or the capacity to trade using borrowed funds to amplify your bets, is one aspect that draws some investors to the futures markets. Of course, there are greater risks involved, but there may also be big profits. In contrast to the S&P 500 Index, which represents the overall stock market and has seen a return of roughly 6% over the last six months, the Volatility Shares 2x Bitcoin ETF (BITX), which aims to use futures to give two times the daily price movement of bitcoin, has had a total return of roughly 66%.
This sophisticated Bitcoin ETF has a somewhat high expense ratio. You are unlikely to ever obtain a performance that is precisely double the performance of Bitcoin due to the friction of levered funds, which is the total direct and indirect costs of trading them. However, it's difficult to argue that this somewhat aggressive bitcoin ETF isn't useful given its almost 40% rise since its June 2023 launch.
ProShares Short Bitcoin ETF (BITI)
A “short” ETF is a risky long-term bet amid inflationary pressures that raise many assets’ prices. In the case of an asset like bitcoin, which has been on a tear, ETFs that are set up to profit from the digital currency’s decline have been painfully punished. BITI aims to return the inverse of the S&P CME Bitcoin Futures Index for a single day at a time. When bitcoin stumbles, this unique ETF may be of interest to investors for hedging purposes and speculation as an alternative to the popular CFD trading.
That explains why the total net assets are tiny for ProShares Short Bitcoin ETF and why its performance has been abysmal. However, BITI has been around since June 2022. It may persist despite recent troubles since ProShares regularly supports hypertechnical funds like this that are completely ignored when they’re not working but have the potential to attract immediate interest when market conditions change.
Other top Bitcoin ETFs to consider are Valkyrie Bitcoin Strategy ETF (BTF), VanEck Bitcoin Strategy ETF (XBTF), and Global X Blockchain & Bitcoin Strategy ETF (BITS).
Advantages and Disadvantages of Derivatives-based Bitcoin ETFs
Investing in a Bitcoin Futures ETF offers several advantages. However, like any investment, there are potential risks.
Pros of Bitcoin Futures ETFs
- Bitcoin ETFs investing in futures contracts offer a way for investors to gain exposure to Bitcoin's price movements without having to buy or manage the actual crypto.
- They operate within a regulated environment, meaning they adhere to the standards set by financial regulatory bodies.
- They provide more liquidity than other investment vehicles, allowing investors to buy or sell shares of the ETF on traditional stock exchanges easily.
- There are Bitcoin futures ETFs that let investors short the cryptocurrency (inverse ETFs).
Cons of Bitcoin Futures ETFs
- No direct Bitcoin exposure, as investors in a Bitcoin Futures ETF do not own Bitcoin itself but instead own shares in a fund that invests in futures contracts.
- Aside from additional management fees that could reduce returns, the value of Bitcoin Futures ETFs may not always move in tandem with the price of Bitcoin.
- Such Bitcoin ETFs face counterparty risks as the counterparty in the futures contract may fail to uphold their end of the deal.
Spot Bitcoin ETFs vs. Derivatives-based Bitcoin ETFs
Spot bitcoin ETFs and derivatives-based bitcoin ETFs differ in how they are structured and how much exposure they offer to bitcoin’s price changes. Spot bitcoin ETFs directly hold bitcoins, but derivatives-based bitcoin ETFs use financial instruments like futures contracts to replicate bitcoin’s prices.
Attribute
Spot Bitcoin ETFs
Derivatives-Based Bitcoin ETFs
Underlying Asset Bitcoin Bitcoin futures contracts Price Tracking Direct Indirect Asset Custody Secure custody of bitcoins No direct custody of bitcoins Investor Simplicity Higher: direct exposure Lower: indirect exposure Transparency Higher: actual bitcoins held Lower: dependent on derivatives Regulatory Framework Evolving Established
Bitcoin ETFs vs Holding Actual Bitcoin: What are the differences?
The new bitcoin ETF will perform like the SPDR Gold Shares ETF (GLD), which allows anyone to invest in gold without having to find someplace to store a bar or protect it. As a result, the main differences are cost and convenience:
Small investors on many trading platforms buying Bitcoin sometimes must pay fees and spreads that exceed 1% of their purchase. Since many stock apps including CAPEX.com have low commission trades, buying or trading a Bitcoin ETF can be cheaper.
In addition, using an ETF might be more convenient for many investors. Rather than open a separate account on crypto exchanges to specifically buy Bitcoin, investors can keep their Bitcoin holdings in the same account as other holdings (stocks, bonds, commodities, currencies).
Investors don’t have to worry about losing passwords or fraud in the crypto world has often resulted in the permanent loss of investments. The issues with holding Bitcoin in separate accounts have been serious enough to scare away many institutional investors and financial advisors. Now the fund companies are betting that the creation of Bitcoin ETFs will bring in billions of dollars in new capital.
Why all the excitement over a Bitcoin ETF?
About a dozen investment companies, including the giant investment managers Blackrock and Fidelity, have been waiting for months for the US Securities and Exchange Commission (SEC) to give them the green light to start buying Bitcoin for their ETFs. After months of wrangling over wording, the first have now been given the nod, on January 10, 2024.
This ETF has two main impacts: increased distribution in the US and increased credibility of crypto as an ‘asset class’. With the newly approved ETFs, bitcoin is no longer considered shady or infamous. This significantly changes the perception of the mainstream public. It also means that bitcoin could start appearing in mainstream portfolios, where many more retail investors can gain exposure.
Big institutional fund managers can add it to their investment funds. Additionally, a new group of investors can now enter the speculative world of Bitcoin, without having to worry about getting digital wallets or navigating crypto exchanges. US bitcoin ETFs saw $4.6 billion in volume on the first day of trading, according to LSEG data. Furthermore, $50 to $100 billion are expected to pour into the Bitcoin market in 2024 according to analysts at Standard Chartered, as these issuers start buying the digital coin.
A minority of analysts say the cryptocurrency's price will be little affected, as spot Bitcoin ETFs are already established in other countries. In 2023, it rose steadily, partly due to the hype around the Bitcoin ETF approval. However, with the US giants entering the market, investors and analysts are forecasting bitcoin's value to rise with demand.
What concerns should investors have?
The biggest concern for an investor in one of these ETFs is the notorious fluctuations in the price of bitcoin. Despite failing to catch on as a replacement for fiat, or paper, currencies, bitcoin soared to nearly $68,000 in November of 2021. A year later it fell below $20,000 as investors in general shunned riskier assets and a series of company blowups and scandals shook faith in the crypto industry.
Even as regulators and law enforcement crackdown on some of crypto bad actors, like Sam Bankman-Fried of FTX, the industry still has a modern “Wild West” feel to it. The hack of the SEC’s X account raises questions about both the ability of scammers to manipulate the price of Bitcoin and the SEC’s own ability to stop them.
Furthermore, longtime crypto fans might object. Cryptocurrencies like Bitcoin were created in part due to mistrust of the traditional financial system. Wall Street would become an intermediary between investors and cryptocurrency in the case of ETFs. So, ETF would not provide investors with the same anonymity that crypto does, one of the big draws for many crypto investors.
What's next for Bitcoin?
If we look at the Bitcoin chart, we can see that it has been bouncing back since hitting a low point in November 2022, with a massive increase of +200%. However, things have been a bit quiet recently, so people are wondering what's next for Bitcoin. Some experts in regulations think that by approving these Bitcoin ETFs, the SEC will find it harder to say no to other new cryptocurrency products in the future. The price of Ethereum and other cryptos has also risen on speculation that fund managers will create ETFs around them.
We don't have any immediate signs that Bitcoin's price will go up even more, but it's interesting to see how things will unfold and how much people will be interested in these newly approved Bitcoin ETFs. The approval by the SEC allows more mainstream adoption of Bitcoin, which could mean that its value goes even higher in the future. So, this is a big step forward for Bitcoin investors.
Overall, it seems like a positive development for BTC with the recent Bitcoin ETF approval. It offers a new way for people to invest in Bitcoin without having to buy and hold the cryptocurrency themselves. This could potentially attract more investors and push Bitcoin's value even higher. It will be interesting to see how things progress from here and how successful these Bitcoin ETFs will be in bringing in billions of dollars.
Who Should Consider Investing in Bitcoin ETFs?
It's essential to distinguish between Bitcoin Spot ETFs and Bitcoin Futures ETFs and their respective ideal investors.
The ideal investor for Bitcoin Spot ETFs is someone seeking direct exposure to the real-time price movements of Bitcoin without the need to manage or secure the digital asset. This individual might be someone who believes in the long-term value proposition of Bitcoin and wants an investment that closely tracks its market price. They might also be attracted to the simplicity of Spot ETFs over the complexities of futures trading.
On the other hand, the Bitcoin Futures ETFs cater to more experienced investors not just interested in Bitcoin's price but also comfortable navigating the nuances of the futures market. They might be looking to hedge other investments or seek opportunities in short-term price fluctuations, leveraging the futures market dynamics. Additionally, this investor might be willing to accept the potential risks and rewards associated with futures trading, including the intricacies of contract rollovers.
Final thoughts about Bitcoin ETFs
Bitcoin ETFs have emerged as a bridge, allowing traditional investors a taste of the cryptocurrency world. Bitcoin Spot ETFs give direct exposure to the actual Bitcoin price movements by holding the cryptocurrency, while Bitcoin Futures ETFs provide exposure through futures contracts predicting Bitcoin's future price.
However, as with all investments, it's imperative to exercise caution. The world of Bitcoin and its associated investment vehicles is filled with potential pitfalls. Before deciding, aspiring investors should immerse themselves in thorough research. Perhaps most importantly, consulting with a trusted financial advisor who can provide insights tailored to individual financial goals and risk tolerance.
Trading Bitcoin ETFs with CAPEX.com
You can take a position on Spot and Derivatives-based Bitcoin ETFs prices via CFDs. You’ll speculate on assets instead of owning them and get full market exposure from just a small initial deposit - plus you won’t need to worry about private keys, storage, or security.
Free Resources
Before you start investing in the new Bitcoin ETFs you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of trading and investing courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.
Sources:
- https://www.sec.gov/news/statement/gensler-statement-spot-bitcoin-011023
- https://valkyrie-funds.com/
- https://hashdex-etfs.com/defi
- https://www.invesco.com/us/financial-products/etfs/product-detail
- https://www.wisdomtree.eu/fr-lu/products/ucits-etfs-unleveraged
- https:/cryptocurrency/wisdomtree-physical-bitcoin
- https://www.franklintempleton.com/investments/options/exchange-traded
- funds/products/39639/SINGLCLASS/franklin-bitcoin-etf/EZBC
- https://bitwiseinvestments.com/crypto-funds/bitcoin
- https://21shares.com/en-US/product/ARKB
- https://www.fidelity.com/etfs/fbtc
- https://www.ishares.com/us/products/333011/ishares-bitcoin-trust
- https://www.vaneck.com/us/en/investments/bitcoin-trust-hodl/
- https://etfs.grayscale.com/gbtc