A Guide to Bitcoin ETFs: Everything You Need to Know

A Guide to Bitcoin ETFs: Everything You Need to Know

Learn how bitcoin works and how to invest in the most popular cryptocurrency with ETFs.

ETF
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Reviewed by: etf.com Staff
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Edited by: Kent Thune

Bitcoin ETFs are taking off. Since their debut on Jan. 11, 2024, billions of dollars have poured into these cryptocurrency exchange-traded funds.  

For people still on the outside looking in, the frenzy over bitcoin ETFs might be causing serious FOMO. 

But before you dive headfirst into bitcoin ETFs, it’s important to understand some key points. In this guide, we’ll discuss everything you need to know, including what bitcoin ETFs are, if they’re right for you and how to buy them. 

What Is Bitcoin?

In the words of its pseudonymous creator Satoshi Nakamoto, bitcoin is “peer-to-peer electronic cash.” Created in 2008, bitcoin is the first decentralized cryptocurrency and the first major application of blockchain technology—the distributed ledger that underpins the Bitcoin system, also invented by Nakamoto. 

Using a combination of cryptography, game theory and peer-to-peer networks, the Bitcoin system enables the transfer of value over the internet without an intermediary—a revolutionary innovation. Bitcoin, the system made up of users and transaction verifiers, allows anyone with an internet connection to transfer a form of digital cash (also called bitcoin) to others. 

The transactions are broadcast over the Bitcoin network and verified by anyone who wants to participate in the process. Miners, a special type of network participant, also verify transactions and group them into blocks, which are cryptographically linked to previous blocks of transactions (hence, the “blockchain”). 

Bitcoin Miners

Bitcoin miners compete to solve mathematical puzzles, an energy and computer-intensive process, with the winner getting the privilege of including their block into the blockchain and earning freshly minted bitcoin and transaction fees for their efforts. The arduous process of mining helps to secure the Bitcoin network and is the way network participants come to a consensus about which transactions are valid in the absence of a central authority.  

The supply of bitcoin is expected to grow at an ever-decreasing rate until the year 2140, when it will reach a hard cap of 21 million bitcoins. Because of the cap on supply, many investors view bitcoin as a store of value, like gold.  

What Are Bitcoin ETFs? Futures and Spot Funds

Bitcoin ETFs are investment vehicles that hold bitcoin on behalf of investors. They can be purchased through a broker in the same way that you buy stocks or other ETFs.  

For a long time, bitcoin ETFs weren’t available in the U.S. due to reluctance by the Securities and Exchange Commission (SEC) to approve them for trading. 

That changed in 2021, with the launch of the first bitcoin futures ETFs. These funds don’t own bitcoin itself; they purchase bitcoin futures contracts traded on the CME. 

Bitcoin futures closely track the price of bitcoin itself (sometimes called spot bitcoin), but a strategy of continuously holding bitcoin futures can result in performance that deviates from a strategy of holding spot bitcoin.  

That’s why, even after the approval of bitcoin futures ETFs in 2021, investors continued to pine for spot bitcoin ETFs.  

They finally got their wish in Jan. 2024, when spot bitcoin ETFs launched in the U.S. after the SEC came out on the losing side of a court battle with a firm called Grayscale.  

Unlike bitcoin futures ETFs, spot bitcoin ETFs own bitcoin directly, which means that their performance is nearly identical to that of bitcoin itself.  

Should You Buy Bitcoin ETFs?

The ease with which spot bitcoin ETFs can be purchased has prompted many investors to pile into them. In just a few short months on the market, these ETFs have accumulated tens of billions of dollars in investor assets. 

Should you jump on the bandwagon? 

That depends. Bitcoin is a volatile asset that can generate huge returns as well as huge losses. While the price of the most popular cryptocurrency has risen significantly over its 15-year history, there is no guarantee that it will continue to rise in the future. 

Therefore, bitcoin, and by extension, bitcoin ETFs, are only appropriate for investors with a high tolerance for risk. 

Choosing and Buying Spot Bitcoin ETFs

Bitcoin ETFs are easy to buy. Most major brokerage platforms offer them for trading, including Fidelity, Schwab and Robinhood (Vanguard is an exception). There are currently 11 spot bitcoin ETFs listed in the United States, with total assets under management of over $50 billion. So, before buying a spot bitcoin ETF, how do you choose which is right for you? 

As of this writing, the three largest spot bitcoin ETFs are the Grayscale Bitcoin Trust (GBTC), the iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC).  

Most spot bitcoin ETFs offer nearly identical exposure. The ETFs use a custodian to hold private keys associated with bitcoin on behalf of investors. 

Spot Bitcoin ETF Custodians

One difference between spot bitcoin ETFs is that they might use different custodians. For example, GBTC and IBIT use Coinbase Custody Trust Company to custody their bitcoin, while FBTC uses Fidelity Digital Asset Services to custody its bitcoin. 

While custody is a behind-the-scenes function that investors in ETFs don’t typically think about much, in the case of ETFs that hold bitcoin, the custodian matters a great deal. 

Because bitcoin is a bearer asset, if it gets lost or stolen, it can lead to permanent losses for investors.  

Spot Bitcoin ETF Fees

A more visible difference between the various spot bitcoin ETFs is the fees that they charge. GBTC is currently the most expensive of the funds by far, with a 1.5% expense ratio. 

IBIT and FBTC both charge 0.25%, while the Franklin Bitcoin ETF (EZBC) is the cheapest fund in the space, with a 0.19% expense ratio.  

There can be non-investment-related differences between bitcoin funds, too. BITB donates 10% of its profits to “three non-profit organizations that fund Bitcoin open-source development,” while the Vaneck Bitcoin Trust ETF (HODL) donates 5% of its profits to Brink, “a grassroots funding mechanism for developers critical to maintaining bitcoin’s core protocol.” 

See also: How to Choose the Best Spot Bitcoin ETF

Other Bitcoin ETFs

Though spot bitcoin ETFs are the most popular bitcoin ETFs by far, there are other types of bitcoin ETFs investors can purchase as well. 

The bitcoin futures ETFs, like the ProShares Bitcoin Strategy ETF (BITO) offer similar returns compared to spot bitcoin ETFs over the short-term, though their performance can deviate over longer periods of time. 

Leveraged bitcoin ETFs, like the Volatility Shares 2x Bitcoin Strategy ETF (BITX), and bitcoin covered calls ETFs, like the Roundhill Bitcoin Covered Call Strategy ETF (YBTC) are available as well.  

Check out etf.com’s Bitcoin ETF Topics page for a full list of bitcoin ETFs and click through to individual fund pages to learn about specific ETFs.

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