- What is a Bitcoin ETF?
- Buying Bitcoin ETFs vs Buying Bitcoin
- The First US Bitcoin ETF
- Spot Bitcoin ETFs
- Bitcoin Futures ETFs
- Bitcoin Futures ETFs vs Bitcoin Spot ETFs
- Where to Buy Bitcoin Spot ETFs
- Investor Takeaway
On January 10, 2024, the US SEC approved bitcoin spot ETFs in a highly anticipated move that has energized the broader cryptocurrency market. Considered the “holy grail” for institutional acceptance, bitcoin spot ETFs were a long-awaited dream for crypto advocates.
The wheels for this revolutionary event were set in motion more than a decade ago when the Winklevoss brothers filed the first application for a spot bitcoin ETF in the SEC in 2013.
The authorities promptly rejected it.
The crypto community had to wait another eight years for an ETF based on bitcoin futures. And when it finally arrived in October 2021, they had not one, not two, but three different funds to cheer. History is repeating itself as the SEC approval paves the way for the launch of eleven (count them!) spot bitcoin ETFs.
Spot bitcoin ETFs are vital because they expose investors to bitcoin without directly owning any crypto. In contrast, bitcoin futures ETFs are more speculative and do not give you the chance to invest in the token based on its current market price.
In this blog post, we will look in-depth at bitcoin ETFs, with our top picks of the current providers.
Top Bitcoin ETFs
As of this writing, there are three bitcoin futures ETFs for investors and eleven newly launched spot bitcoin ETFs. The spot bitcoin ETFs are spread across three different exchanges.
Spot Bitcoin ETFs
Grayscale Bitcoin Trust (GBTC)
Launched in 2013, GBTC is one of the first securities to invest in BTC solely. It started as a private and open-ended trust for accredited investors before going public on over-the-counter markets in 2015. Since then, Grayscale has been lobbying hard for SEC approval to convert into a spot ETF.
GBTC is the world’s largest bitcoin spot ETF with a total AUM of $26.9 billion. The fund holds 617k bitcoin, nearly 3% of the total supply. Although GBTC has reduced its expense ratio from 2.00% to 1.50% after becoming a spot ETF, that price is still too high considering other options.
Exchange: NYSE Arca
Bitwise Bitcoin ETF (BITB)
BITB is on the opposite end of the spectrum compared to a fund like the GBTC. Bitwise launched this brand-new ETF on January 11, barely 24 hours after receiving the SEC approval. The bitcoin ETF is the latest addition to Bitwise’s extensive portfolio of 18 crypto investment products, including the world’s largest crypto index fund.
In terms of value for investors, BITB has some compelling features. As a newly launched ETF with an AUM of just $242.9 million, Bitwise is positioning BITB as a low-cost product with an expense ratio of just 0.20%. Further, the fund also offers a 100% fee waiver for the initial six-month period for the first $1 billion in assets.
Exchange: NYSE Arca
iShares Bitcoin Trust (IBIT)
iShares has been a market leader in the ETF space since its launch in 1996. The brand was acquired by BlackRock from Barclays in 2009. The IBIT is the company’s first crypto ETF, launched on January 5, 2024, a few weeks before the SEC approval.
The IBIT fund has BTC holdings with a market value of $497.9 million and is offering 4.6 million outstanding shares. The fund is also priced attractively, with a stated expense ratio of just 0.25%. BlackRock is offering a 50% fee waiver for the first 12 months for the first $5 billion assets to entice investors.
Exchange: Nasdaq
Valkyrie Bitcoin Fund (BRRR)
Initially owned by Tennessee-based Valkyrie Investments, the BRRR fund was acquired by CoinShares after the SEC approval on January 12, 2024. The move adds assets worth $112 million to the $4.5 billion already managed by the EU-based crypto asset manager. Along with BRRR, Coinshares also acquired Valkyrie’s other crypto ETFs.
Like most other Bitcoin ETFs in January 2024, BRRR offers steep fee discounts to attract buyers. The fund is promising a 3-month waiver in sponsor fees. After that, the fee will be 0.25%. Coinbase is the designated bitcoin custodian of BRRR.
Exchange: Nasdaq
ARK 21Shares Bitcoin ETF (ARKB)
In 2015, Cathie Wood’s ARK Invest was the first retail fund manager to invest in bitcoin. In partnership with Switzerland-based 21Shares, ARK unsuccessfully applied for a spot bitcoin ETF in 2021. The second application, filed in April 2023, was successful, and ARKB was one of the first spot funds to get SEC approval.
Launched on January 10, 2024, ARKB is available on the Cboe BZX exchange and holds bitcoin worth $75 million. The fund has set its management fees low at 0.21%, with an additional 100% waiver for the first six months (or until the assets reach $1 billion, whichever comes first).
Exchange: Cboe BZX
Invesco Galaxy Bitcoin ETF (BTCO)
BTCO is the result of a partnership between Invesco, a leader in traditional ETFs, and Galaxy Asset Management, a significant investment manager of digital assets. Invesco is a trusted name in ETFs, with over $1,49 trillion in assets managed on behalf of clients as of 2023.
The management fees are competitively priced at 0.39%, although cheaper options are available. The fund also offers a 6-month 100% fee waiver for the first $5 billion of assets.
Exchange: Cboe BZX
VanEck Bitcoin Trust (HODL)
Founded in 1955, VanEck is a privately owned fund manager with extensive experience in emerging sectors, including cryptocurrencies. They first ventured into crypto in 2017 and started offering futures-based funds for both bitcoin and Ethereum in 2021.
With the HODL ticker, the VanEck spot bitcoin fund held 1867 BTC worth $79 million at the time of writing. The fund is aggressively priced with an expense ratio of 0.25%. However, no waivers have been disclosed so far.
Exchange: Cboe BZX
WisdomTree Bitcoin Fund (BTCW)
In 2019, the New York-based WisdomTree became one of the first mainstream fund managers to offer an exchange product that tracked bitcoin. In 2021, WisdomTree was among the entities that unsuccessfully applied for an SEC license to run a spot bitcoin ETF.
The BTCW is WisdomTree’s first crypto ETF, which was launched on January 11, 2024. Although it offers a low expense ratio of 0.30% and a six-month waiver, the fund has failed to gain much traction in its initial week compared to other spot ETFs.
Exchange: Cboe BZX
Fidelity Wise Origin Bitcoin Fund (FBTC)
Established in 1946, Boston-based Fidelity Investments is one of the largest asset managers in the world, with $4.3 trillion in AUM. The company started offering bitcoin as an investment option in 2022 as part of its 401(k) products.
The FBTC fund results from an application filed to the SEC for a spot bitcoin fund in June 2023. The fund has 500,000 shares and is priced competitively at a 0.25% gross expense ratio. There is also a 3-month waiver on fees. Apart from the bitcoin spot ETF, Fidelity also plans to launch another spot ETF for Ethereum.
Exchange: Cboe BZX
Franklin Bitcoin ETF (EZBC)
Franklin Templeton is a globally renowned asset management firm based in New York City, operating since 1947. In 2021, the firm had an AUM of $1.53 trillion. Although Franklin has been active in the ETF markets since 2013, with over 55 ETFs collectively valued at $9.7 billion in 2021, EZBC is its first foray into the bitcoin space.
As of writing, the fund held 1,131 BTC with a market value of around $52 million. EZBC has been aggressively priced with a gross sponsor fee of 0.19%. There is also an initial fee waiver for the first three months after launch.
Exchange: Cboe BZX
Hashdex Bitcoin ETF (DEFI)
Hashdex was launched in 2018, focusing on improving access to crypto investment products. The asset manager had over $600 million in AUM, with a dominant position in Brazil and other Latin American markets. In 2022, Hashdex launched its first bitcoin futures ETF.
In January 2024, Hashdex received SEC approval to convert the futures ETF to a spot bitcoin ETF. Tidal Investments will administer the converted ETF. However, the ETF has yet to be launched as Hashdex is planning a change in name and investment strategy.
Exchange: Cboe BZX
Bitcoin Futures ETFs
Proshares Bitcoin ETF (BITO)
Nowhere is the adage “the early bird gets the worm” as fitting as in the case of Proshares. The BITO currently holds the record of the fastest ETF to reach an AUM of $1 billion. Since its debut on the NYSE in October, the Proshares Bitcoin ETF has attracted stupendous investor interest.
Its primary strategy involves investing in cash-settled bitcoin futures contracts on the Chicago Mercantile Exchange (CME). Investors get buy-in in return for a 0.95% fee. In the grand scheme, that is not too insufficient – funds with an expense ratio above 1.5% are the ones to avoid among ETFs.
Exchange: NYSE Arca
Valkyrie Bitcoin Strategy Fund (BTF)
The second Bitcoin ETF to launch with tacit SEC approval differs slightly from Proshares. Instead of focusing solely on bitcoin futures contracts, Valkyrie combines them with other instruments like treasury bills, bonds, corporate debt securities, and cash.
Though it collected $5 million in investments within a day after launch, Valkyrie has yet to evolve into a runaway success like the Proshares BTO. However, given the sustained investor interest in bitcoin, the smaller upstart may still have some legs. The Valkyrie expense ratio is at the 0.95% market, just like Proshares.
Exchange: Nasdaq
VanEck Bitcoin Strategy Fund (XBTF)
The New York-based VanEck investment fund has floated several bitcoin ETFs, mainly on European exchanges. Its XBTF fund is the third of its kind launched after October 2019. While most of those funds charge between 1% and 1.5% fees, VanEck has opted to undercut its competition in the US bitcoin futures arena.
The XBTF is available at an expense ratio of 0.65%, making it one of the least expensive crypto futures ETFs anywhere in the world. Buying bitcoin futures from the Chicago Board Options Exchange (CBOE), this VanEck EFT has another trick up its sleeve: it is a C-Corporation, which may bring future tax advantages to investors.
Exchange: Cboe BZX
What Is a Bitcoin ETF?
An exchange-traded fund, commonly known as an ETF, is an investment fund that tracks the price of an underlying asset, such as gold, oil, an index, or a basket of stocks. A bitcoin ETF is an investment fund that tracks the price of bitcoin.
ETFs trade on exchanges in the same way as stocks. That means that any investors – retail or institutional – can buy and sell holdings in an ETF to other market participants over the stock exchange.
ETFs are usually cheaper than mutual funds since they are passive index-tracking funds. As a result, they allow investors – even private investors – to access asset classes and niche markets where it would otherwise be difficult to invest.
Buying Bitcoin ETFs vs. Buying Bitcoin
A bitcoin ETF, such as the one proposed by the Winklevoss twins in 2013, would have the digital currency bitcoin as an underlying asset. That means that by purchasing a bitcoin ETF, an investor would be indirectly purchasing bitcoin, as they would be holding the bitcoin ETF in a portfolio instead of buying and holding the digital currency itself.
However, as the ETF would closely track the price of bitcoin, for the investor, it should make little difference whether they are holding a bitcoin ETF or the actual digital currency. The main difference between buying a bitcoin ETF and bitcoin is that investors purchase a regulated investment vehicle instead of buying and owning a crypto asset.
Thus, a bitcoin ETF has several benefits for investors:
- It’s more convenient: For starters, you don’t have to worry about the security concerns of properly storing bitcoin. There’s no need to learn the intricacies of using a wallet or dealing with a crypto exchange. Buying an ETF simplifies the whole process of investing in cryptocurrencies.
- It’s regulated: As a decentralized and often unregulated asset class, access to bitcoin is fraught with regulatory complications in many jurisdictions. ETFs trade under strict institutional oversight in mainstream market exchanges. This is useful from a legal as well as tax efficiency perspective.
- It can diversify risk: there is no denying the high volatility and risk exposure that investing in bitcoin brings to a portfolio. This is where an ETF model can make a huge difference – you may be able to find funds that mix bitcoin with other popular altcoins, traditional commodities, AAA stocks, and more for additional diversification. It gives you more options for risk management while still getting a look into the dynamic crypto markets.
The First US Bitcoin ETF
Since 2013, the standard SEC playbook on bitcoin ETF applications was to reject them outright. The reasons cited have remained consistent over the years – concerns about manipulation risk in bitcoin markets and the lack of adequate measures to protect investors.
At least ten bitcoin ETF applications have been rejected since 2017. Things then took a dramatic turn in August 2021, when the current SEC Chairman Gary Gensler voiced his approval for ETFs that looked at bitcoin futures instead of holding the actual crypto itself.
Crypto advocates were quick to latch onto the opportunity. Using the tacit approval of the SEC for a bitcoin futures ETF under the rules of the 1940 Investment Company Act, funds filed multiple applications. The first to reach the market was the Proshares Bitcoin Strategy ETF (BITO) on October 19.
The fund AUM ballooned to $1 billion within two days. The second bitcoin futures ETF – the Valkyrie Bitcoin Strategy Fund (BTF) – had a low-key launch that week. Finally, the VanEck Bitcoin Strategy Fund (XBTF) joined the party mid-November.
Bitcoin Futures ETFs vs. Bitcoin Spot ETFs
A bitcoin spot ETF directly tracks the value of bitcoin. It allows buyers to invest in the crypto without actually holding any tokens. You don’t have to bother signing up at crypto exchanges or learning to use bitcoin wallets.
While bitcoin futures ETFs also track the price of bitcoin, they don’t do it perfectly. Instead of directly buying bitcoin, a futures ETF buys bitcoin futures contracts.
These contracts work similarly to other traditional commodity futures contracts – you promise to buy/sell the commodity at a fixed price at a future date, hedging a bet on the futures price being to your advantage at the date of the sale.
While spot ETFs mirror the changes in BTC market prices more accurately, futures ETFs can often perform differently. They also expire after a set date, forcing users to spend more money to sell the expiring contract and buy a new one (rollover).
SEC’s Stance on Bitcoin Spot Vs. Bitcoin Futures
Historically, the SEC’s opposition to spot ETFs was based on concerns regarding regulatory oversight. Bitcoin trades on cryptocurrency exchanges across the globe that are not under any significant regulatory oversight.
Therefore, the argument was that any ETF based directly on holding bitcoin – a spot ETF – cannot realistically guarantee the level of investor protection demanded by the SEC.
In contrast, bitcoin futures are bitcoin derivatives that trade on established exchanges like the Chicago Mercantile Exchange (CME). The CME is regulated by the Commodity Futures Trading Commission (CFTC), which makes futures more palatable for the SEC in a Bitcoin-based ETF.
Based on this logic, the SEC approved bitcoin futures ETFs in 2021. However, Grayscale challenged this in court, which called the SEC’s decision to block spot bitcoin ETFs arbitrary and capricious.
Grayscale lawyers successfully argued that the protection measures installed in futures ETFs could also be implemented in spot ETFs. Further, since both rely on bitcoin prices, there were no material differences between the two types of ETFs.
In October 2023, the court ruled in favor of Grayscale and declared that the SEC was wrong to reject its application for a spot bitcoin ETF. The SEC opted not to contest the decision, paving the way for the approval of spot ETFs in January 2024.
Where to Buy Bitcoin Spot ETFs
As of January 2024, bitcoin spot ETFs are listed on three major traditional exchanges – the NYSE Arca, Nasdaq, and the Cboe BZX. On January 10, the SEC approved 11 spot bitcoin ETFs, including funds managed by Grayscale, BlackRock, ARK, VanEck, and Fidelity Investments.
You can buy these bitcoin spot ETFs through most established online brokers who deal in stocks and bonds. All these ETFs are fully regulated by the SEC.
Investors can also look outside the US at bitcoin spot ETFs in highly regulated markets like Canada and the European Union.
Investor Takeaway
The scope of cryptocurrencies expands with each passing year. The arrival of bitcoin spot ETFs in the US market presents a watershed moment with massive implications for the mainstream acceptance of cryptocurrencies.
This step is in the right direction, providing investors access to innovative, high-yield options to balance their portfolios. Although bitcoin spot ETFs are already in the EU and Canada, their arrival in the US could open the floodgates, pouring billions of dollars worth of institutional funds into crypto.
With the SEC decision in 2024, the ultimate dream of a spot bitcoin ETF has finally been realized. We could soon see the rise of other crypto spot ETFs, with Ethereum being a likely candidate. This is a major step on the long road towards legitimization of cryptocurrencies.
Related Articles:
- Best Blockchain ETFs
- Best Crypto ETFs
- Best ETFs/ETNs/ETPs
If you want to stay informed about future bitcoin ETFs, subscribe to the Bitcoin Market Journal newsletter today.
