You may have heard the term ‘Bitcoin ETF’ floating around in recent financial news, especially with the growing popularity of Bitcoin and other cryptocurrencies. Additionally, there has been news about the BlackRock Bitcoin ETF that has shaken up the crypto market.
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.
BlackRock Bitcoin ETF
BlackRock’s iShares unit recently filed paperwork with the U.S. Securities and Exchange Commission (SEC) to launch a Bitcoin (BTC) exchange-traded fund (ETF) named iShares Bitcoin Trust. The semantics around the Trust’s nature may confuse some, but essentially, if approved, it will operate much like an ETF, allowing for daily creations and redemptions.
The introduction of the iShares fund is significant due to Bitcoin’s recent liquidity problems, heightened by Binance ending its zero-fee trading program and the collapse of FTX. These events, coupled with a bear market, have resulted in volatile price swings in the cryptocurrency.
However, the approval of BlackRock’s iShares Bitcoin Trust could alleviate these liquidity issues. As the largest asset manager in the world, a BlackRock-sponsored Bitcoin ETF would draw significant attention and potentially attract considerable investment inflows, adding a degree of legitimacy to the market.
Despite the SEC’s history of rejecting all spot market Bitcoin ETF proposals due to concerns about potential market manipulation, BlackRock’s application has a unique advantage. It includes enhanced market surveillance features, leading some analysts to speculate that this might be the first spot Bitcoin ETF approved. Regardless of the impact on Bitcoin’s price, the approval of the iShares Bitcoin Trust would undoubtedly represent a milestone in the cryptocurrency market.
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.
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.
Valkyrie Bitcoin Strategy ETF (BTF)
This Bitcoin exchange-traded fund was one of the earliest ETFs available to the public. It is an actively managed fund with an expense ratio of 0.95%. BTF isn’t the biggest ETF out there — at the time of writing, it had around $30M worth of assets under its management.
The fund’s investing strategy relies on spending as much as it can on Bitcoin futures, with any additional assets being held in money market funds, corporate bonds, and U.S. government securities.
BTF is available through Nasdaq.
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 $1B 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.
ProShares Short Bitcoin ETF (BITI)
Unlike the ProShares Bitcoin Strategy ETF, this fund’s trading strategy relies on the inverse of Bitcoin’s daily performance.
With a total of over $130M worth of assets under management at the time of writing, it can be considered BITO’s little cousin both in terms of size and age: BITI was launched in 2022. The ProShares Short Bitcoin ETF has an expense ratio of 0.95%.
Simplify Bitcoin Strategy PLUS Inc ETF (MAXI)
The Simplify Bitcoin Strategy PLUS Income ETF (MAXI) aims to generate income from Bitcoin’s growth. Besides, it earns money from selling certain types of deals based on popular global stock indices. Like other funds, it uses Bitcoin futures instead of investing directly in BTC.
MAXI has an expense ratio of 0.97%. At the moment, the total amount of money in this fund is over $20 million.
VanEck Bitcoin Strategy ETF (XBTF)
This Bitcoin exchange-traded fund (ETF) was launched and approved just a month later than the ProShares Bitcoin Strategy ETF. Just like most other similar funds, it also focuses on Bitcoin futures. XBTF uses the tax-efficient c-corporation structure and has an expense ratio of 0.76%.
At the time of writing, this ETF had a total value of assets under management of slightly over $40M and YTD returns of 65.95%.
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.
Similarities
- 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.
Differences
- 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.
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 their inherent risks and considerations, including Bitcoin’s price volatility and the relatively nascent stage of the cryptocurrency market.
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.
Final Thoughts
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.
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.
