Bitcoin ETFs: What Are They?
In August 2023, a federal appeals court ruled that the SEC was wrong to reject Grayscale’s application and had not sufficiently explained its reasoning. Until then, regulators were reluctant to approve any spot Bitcoin ETF applications, citing concerns over market manipulation, fraud, custody, and investor protection. While several countries have embraced both types of ETFs, U.S. regulators were initially hesitant due to issues of market manipulation and custodial risk. The U.S. Securities and Exchange Commission approved the first 11 Bitcoin spot ETFs in the United States on Jan. 10, 2024. Considering the hoops you have to jump through to own bitcoin—exchange accounts, digital wallets, private keys, network transfers, etc.—a spot bitcoin ETF is one of the easiest ways to add bitcoin exposure to your portfolio.
Holdings
Holdings often include a combination of crypto companies, tech giants and financial institutions. While there isn’t a spot bitcoin ETF in the U.S. yet, there are bitcoin futures ETFs and ways to invest in ETFs that focus on bitcoin-invested or adjacent companies. These ETFs may hold companies that invest in bitcoin such as Tesla (TSLA) or support mining infrastructure or other technology. Currently, the United States has yet to approve a spot bitcoin ETF, though investors can invest in bitcoin futures ETFs. The difference between the two is a spot bitcoin ETF is backed with actual bitcoin cryptocurrency brokers (BTC), while bitcoin futures ETFs are backed by bitcoin derivatives. Exchange-traded funds are not a new invention and are common in the financial sector.
- This includes cold or offline storage, which reduces risks like hacking.
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- Below are the advantages that investors are thought to have from spot Bitcoin ETFs.
- One factor that makes futures markets popular with some investors is the potential for “leverage”—in other words, the ability to trade with borrowed cash to supercharge your bets.
- That progress has rekindled hope in the minds of some cryptocurrency investors, but as of writing, the prospects of approval for a spot bitcoin ETF still seem low.
ETFs can be found to gain price exposure to different assets and industries, including commodities and currencies, or can be set up to focus on companies that are environmentally friendly or focus on diversity. A Bitcoin ETF in the U.S. is expected to bring a new level of mainstream trustworthiness and acceptance to Bitcoin investing. With a Bitcoin ETF, investors need not worry about private keys, storage, or security. They own shares in the ETF just like their shares of stock, and can gain exposure to the cryptocurrency market without having to go through the hoops of purchasing and holding crypto.
So, instead of trading Bitcoin on a cryptocurrency exchange, investors can trade these shares on a traditional exchange and gain exposure. Until January 11, due to SEC regulations, bitcoin ETFs could not trade bitcoin at its current, or spot price. Rather, fund managers had to own companies and other ETFs that were related to bitcoin or cryptocurrency in general or they owned bitcoin futures contracts. Futures are complex derivatives instruments that should only be traded by experienced investors. Bitcoin futures ETFs are funds that bundle Bitcoin futures contracts.
Shares track the price of Bitcoin as closely as possible and the ETF occasionally rebalances its holdings by buying or selling tokens. Spot bitcoin ETFs make it easier for retail investors and traders to buy and sell an asset tied to the current value of bitcoin without needing to hold bitcoin itself. They also allow investors seeking exposure to bitcoin in retirement accounts to have a much simpler option than opening a self-directed IRA that could hold bitcoin directly. 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. There is also the option of investing in stocks of companies that are directly involved in cryptocurrency.
Alternative Bitcoin ETFs
IShares funds are available through online brokerage firms.All iShares ETFs trade commission free online through Fidelity.By clicking on the button below, you will leave iShares.com. BlackRock is the world’s largest asset manager by AUM, managing $10.5T as of March 31, 2024. Coinbase Prime is a full-service prime broker of Coinbase, Inc. which is an affiliate of the iShares Bitcoin Trust ETF custodian with $171B in institutional assets under custody as of March 31, 2024. If you’re not satisfied with the offering of crypto-related ETFs, you have some other options for investing in the digital currency world. Any estimates based on past performance do not a guarantee 15+ top bitcoin wallets compared future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. Andrey Sergeenkov is a freelance writer whose work has appeared in many cryptocurrency publications, including CoinDesk, Coinmarketcap, Cointelegraph and Hackermoon.
Understanding Bitcoin Futures ETFs
“Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and bitcoin and cryptocurrencies 2021 terrorist financing,” Gensler said. 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. First, some ETFs, like those that track the S&P 500, represent equity shares, so you get a cut of the dividends that any company in the ETF pay to their shareholders.
IShares funds are powered by the expert portfolio and risk management of BlackRock. 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.