What Is a Bitcoin ETF?
A Bitcoin ETF, or exchange-traded fund, is a type of investment fund that tracks the price of Bitcoin and allows investors to buy and sell shares of the fund on an exchange. This enables investors to gain exposure to Bitcoin without actually owning the cryptocurrency themselves. The ETF holds Bitcoin as its underlying asset and issues shares that are traded on an exchange like stocks.
Is There a Bitcoin ETF?
As of February 2023, there are several Bitcoin futures ETFs:
ProShares Bitcoin Strategy ETF (BITO): $570M assets under management.
Valkyrie Bitcoin Strategy ETF (BTF): $19.8M assets under management.
VanEck Bitcoin Strategy ETF (XBTF): $21.4M assets under management.
AdvisorShares Managed Bitcoin Strategy ETF (CRYP): $235K assets under management.
Global X Blockchain & Bitcoin Strategy ETF (BITS): $7.3M assets under management.
ProShares Short Bitcoin ETF (BITI):$103.8M assets under management.
The Securities and Exchange Commission (SEC) does not allow Bitcoin ETFs to own Bitcoin due to concerns about BTC being traded on unregulated cryptocurrency exchanges. Instead, these funds hold Bitcoin futures contracts. These are agreements for the sale of a specific asset between two parties at a later time. With little initial investment, they enable traders to make predictions about how prices will change in the future.
Most Bitcoin ETFs use a similar strategy of buying and selling Bitcoin futures contracts. For example, the ProShares Bitcoin Strategy ETF buys positions in one-month CME Bitcoin futures contracts and gradually sells them as they near expiration. If the price of Bitcoin rises, the ETF will utilize the proceeds to add to a pool of funds held in cash and treasuries. If the price of Bitcoin declines, funds from the pool are used to cover losses on futures contracts. The ProShares Short Bitcoin ETF follows a slightly different strategy by attempting to earn money opposite to Bitcoin’s price moves. These procedures, however, are not flawless, and there are additional fees as the managers roll forward the futures contracts they are purchasing.
Bitcoin ETF Fees
A Bitcoin ETF may cost more than buying Bitcoin straight off a cryptocurrency exchange. To purchase and sell Bitcoin, cryptocurrency exchanges normally levy one-time fees, whereas owning a Bitcoin ETF entails an annual cost ratio fee.
Depending on the ETF, this fee can be at least 0.65% per year. Additionally, investors should consider transfer fees for moving their Bitcoin to a crypto wallet and seller fees when selling it.
Bitcoin ETFs vs Bitcoin
Investors may choose to buy a Bitcoin ETF instead of Bitcoin to gain exposure to the cryptocurrency without owning it directly. Some may feel safer investing in a professionally managed ETF than owning actual Bitcoin. Others may want the freedom to manage their funds themselves and invest in Bitcoin instead of Bitcoin ETF.
How To Buy Bitcoin ETFs?
An investor must first open a brokerage account to invest in a Bitcoin ETF. They can buy Bitcoin ETFs after opening an account in the same manner they can buy any other stock or ETF. Cryptocurrencies like Bitcoin are a very new and volatile asset class. A financial advisor should always be consulted before making any investing decisions.
