Bitcoin ETFs: What are they and how to invest in them?
Traders looking for a simple way to invest in Bitcoin got their wish when the Securities and Exchange Commission approved several exchange-traded funds that invest directly in the cryptocurrency in January 2024.
The decision to approve the funds was largely expected after an earlier court ruling questioned why the SEC was treating Bitcoin ETFs differently from similar products.
The funds approved include those from well-known issuers including Blackrock, Fidelity and Invesco.
SEC Chair Gary Gensler made clear in a statement that the agency’s approval of the Bitcoin funds was not an endorsement of Bitcoin itself.
“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” Gensler said.
Here’s what you should know about Bitcoin ETFs.
What is a Bitcoin ETF?
A spot Bitcoin ETF pools investor money to purchase Bitcoin directly. A Bitcoin ETF is managed by an investment firm and listed on a traditional stock exchange.
While it’s down from its November 2021 all-time high, Bitcoin has increased substantially in anticipation of the ETF approvals. Naturally, the increase in price has both individual and institutional investors wondering how they can get in on the action.
Trading directly through a crypto exchange can be complicated for some investors. But with the introduction of ETFs tied to Bitcoin, the process of investing could become much simpler.
“Investors will now be able to benefit from the added protections of the ETF structure and get Bitcoin exposure as part of a diversified portfolio with less volatility,” said Alex Michalka, vice president of investment research at Wealthfront.
The SEC approved applications from 11 asset managers to list spot Bitcoin ETFs. Many of the funds cut their fees leading up to the approvals in an effort to win early investors.
Who should invest in Bitcoin ETFs?
Investing in a Bitcoin ETF could be a good option for people who are looking for a more traditional way of investing in the digital currency. Investing directly in Bitcoin can be complicated and involves questions of how the asset will be stored and which exchange to purchase on. ETFs remove some of that complexity by packaging Bitcoin into ETF form.
The ETF structure could also make it easier for some institutional investors to enter the crypto market, which could help keep demand for Bitcoin high.
Still, Bitcoin is a high-risk investment with a very short trading history and no underlying cash flows to support its value.
“Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing,” Gensler said.
Where do you purchase Bitcoin ETFs?
Bitcoin ETFs are available through most online brokers who offer traditional securities like stocks and bonds. Some of these brokers may also offer the opportunity to invest in Bitcoin directly, while others only allow you to trade Bitcoin futures.
ETFs trade on traditional exchanges such as the New York Stock Exchange or the Nasdaq. If you’re interested in the widest offering of cryptocurrencies and are looking to directly invest in digital coins, you’ll need an account with a crypto exchange, such as Binance or Kraken, but these exchanges find themselves in the regulatory crosshairs of the SEC.
Bitcoin ETFs
| ETF | Ticker | Expense ratio |
|---|---|---|
| Bitwise Bitcoin ETF | BITB | 0.0 percent (0.20 percent)* |
| ARK 21Shares Bitcoin ETF | ARKB | 0.0 percent (0.21 percent)* |
| Fidelity Wise Origin Bitcoin Trust | FBTC | 0.0 percent (0.25 percent)* |
| Wisdom Tree Bitcoin Fund | BTCW | 0.0 percent (0.30 percent)* |
| Invesco Galaxy Bitcoin ETF | BTCO | 0.0 percent (0.39 percent)* |
| Valkyrie Bitcoin Fund | BRRR | 0.0 percent (0.49 percent)* |
| iShares Bitcoin Trust | IBIT | 0.12 percent (0.25 percent)* |
| VanEck Bitcoin Trust | HODL | 0.25 percent |
| Franklin Bitcoin ETF | EZBC | 0.29 percent |
| Grayscale Bitcoin Trust | GBTC | 1.50 percent |
Source: Bloomberg
*Note: Bitwise, ARK, WisdomTree to waive fee for first six months and/or $1 billion in assets. Invesco to waive fee for first six months and/or $5 billion in assets. IShares to lower fee for first 12 months and/or $5 billion in assets. Valkyrie to waive fee for first three months. Fidelity to waive fee until July 31, 2024.
Are Bitcoin ETFs regulated?
All ETFs that trade on U.S. exchanges are regulated by the Securities and Exchange Commission.
In August 2023, an appeals court ruled against the SEC for rejecting an application from cryptocurrency asset manager Grayscale Investments to list its spot Bitcoin ETF on the New York Stock Exchange.
The court ruled that the SEC was “arbitrary and capricious” to reject Grayscale’s application, since its proposed Bitcoin ETF is “materially similar” to already-approved Bitcoin futures ETFs.
In October, the SEC chose not to appeal the decision.
Other types of crypto-related investments
If you’re not satisfied with the offering of crypto-related ETFs, you have some other options for investing in the digital currency world.
Invest in crypto directly
You can always choose to invest directly in cryptocurrencies through a broker or crypto exchange. Some brokers offer a limited number of options for investing in crypto, typically offering only the major coins. If you’re looking for a broad offering, you’ll need to go through a crypto exchange, but be careful to watch out for costly fees associated with buying and selling.
Blockchain ETFs
Another way to make crypto-adjacent investments is to invest in ETFs focused on blockchain, which is the technology behind cryptocurrencies like Bitcoin and Ethereum. Blockchain ETFs hold stocks of companies that are using blockchain technology as part of their current and future business plans. Holdings often include a combination of crypto companies, tech giants and financial institutions.
Stock in crypto companies
There is also the option of investing in stocks of companies that are directly involved in cryptocurrency. Coinbase, a large crypto exchange, went public in 2021 and other companies such as PayPal and Robinhood have also made a push into cryptocurrencies. Be sure to thoroughly research each company and understand how much of their business is tied to crypto before investing.
Bottom line
Traders eagerly awaiting a Bitcoin ETF got their wish in 2024 after the SEC approved the applications for several funds that invest directly in Bitcoin. There are also other ways to get in on the crypto action through stocks and ETFs that are indirectly tied to crypto or blockchain technology. You can also invest directly through a crypto exchange.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
