Bitcoin ETFs: Definition, Pros and Cons

Even HODLers who plan to stick with the cryptocurrency long term will need to sell portions of their holdings. If the price of BTC is rising, BITO uses its gains to add to a pool of funding held in cash and Treasuries. If the price of BTC falls, it takes funds from the pool to pay for the losses on futures contracts.

• The ETF’s top 10 holdings, which include Coinbase Global, payments processor PayPal Holdings (PYPL) and bitcoin mining stock CleanSpark (CLSK), account for roughly 60% of STCE.
• So far, it has underperformed Bitcoin due to monthly rollover of the futures contracts (when a contract getting ready to expire is moved to another, longer-dated one) and an annualized fee of 0.95%.
• Technically, the new filing was submitted to the SEC by the CBOE-BZX Exchange filed for a proposed new listing rule for Fidelity’s bitcoin ETF.

There are numerous Bitcoin ETFs and Ethereum ETFs available in the market to invest and you can easily find a list of these funds on trustworthy sources. If you are interested in investing in these ETFs, make sure to read the fund details carefully to understand its fee structure, the tickmill review fund manager, and liquidity. As we navigate this uncertain terrain, one thing is clear – the decisions made today will shape the landscape of the digital assets market for years to come. ETFs provide a familiar investment structure regulated and traded on established exchanges.

Schoenfeld also noted that the SEC would likely approve multiple filings simultaneously to prevent any single applicant from gaining a first-mover advantage. In August, the DC Circuit Court of Appealsoverturned the SEC’s rejection of Grayscale’s bid to convert its trust into alpari review an exchange-traded fund. The ruling was made by just three of the judges on the court and the regulator could have sought a review by a full slate of judges. That same week, the second bitcoin futures ETF – the Valkyrie Bitcoin Strategy Fund (BTF) – had a low-key launch.

Finally, ETFs are more costly to trade than spot crypto because of additional fees charged by the ETF. Fees of ETFs could go as high as 2.5%, compared to crypto spot trading fees that are usually much lower. A spot bitcoin ETF would give investors exposure to the world’s largest cryptocurrency by market capitalization without having to own it. The SEC has denied all spot bitcoin ETF applications, including Grayscale’s, on the grounds applicants have not shown they can protect investors from market manipulation. Spot Bitcoin ETFs will directly hold Bitcoins and, as long-term investments, are projected to outperform their futures-based equivalents. The spot Bitcoin ETFs are expected to more efficiently reflect the real-time supply-demand and price discovery mechanisms of the market.

Most recent Bitcoin ETF filings

An unidentified SEC representative reportedly said the proposal lacks specifics. While the waiting continues, the recent positive indicators suggest that the approval of bitcoin spot ETFs is not a matter of ‘if,’ but ‘when,’ with a highly optimistic outlook for the first quarter vantagefx forex broker review of 2024. He began his financial writing career in 2005 as a marketing copywriter, which is how he refined his investing knowledge and skills. Over the years, he’s written editorial and marketing pieces for many of the world’s leading financial newsletters and publications.

This is less than you would pay over the course of a year when you invest in a Bitcoin ETF, which all charge at least 0.65% per year. It is currently the only ETF approved by the SEC with the goal of trading the inverse of Bitcoin’s daily performance. The first official Bitcoin-linked ETF was the Proshares Bitcoin Strategy ETF (BITO), approved by the SEC in October 2021 and listed on the New York Stock Exchange. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

The first US Bitcoin ETF containing futures was approved in 2021, and now there are more than a dozen widely available. Some funds hold stocks of public companies that hold Bitcoin directly. The Amplify Transformational Data Sharing ETF (BLOK) targets companies like MicroStrategy, which owns billions of dollars worth of Bitcoin, in addition to companies that develop crypto-related technologies. NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only.

NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance.

This streamlined access can appeal to those seeking exposure to Bitcoin’s price movements without learning the intricacies of cryptocurrency transactions. BTC ETFs, or Bitcoin exchange-traded funds, are investment vehicles that allow investors to gain exposure to Bitcoin without directly owning the cryptocurrency. These funds are designed to track the price of Bitcoin or the performance of Bitcoin-related assets. Andrey Stoychev, project manager for Nexo, a capital markets firm trading in digital assets in France, said if the U.S. follows Europe, it is another “positive signal” for bitcoin as an investment vehicle.

How Does the Premium or Discount to NAV Affect GBTC’s Appeal to Investors?

His main investing interests are technology, blockchain and cryptocurrency. Get Forbes Advisor’s expert insights on investing in a variety of financial instruments, from stocks and bonds to cryptocurrencies and more. Investors should also keep in mind that cryptocurrencies such as Bitcoin are a relatively new and volatile asset class. Nobody should invest more than they can afford to lose, and it’s always a good idea to consult a financial advisor prior to any investment decision. However, unlike with traditional stocks, ETFs charge an annual expense ratio, which will be deducted from the investor’s account. Here’s how it works in the case of the ProShares Bitcoin Strategy ETF (BITO).

ETF Holdings

The regulatory maze surrounding GBTC’s ETF conversion reflects broader concerns by regulators regarding investor protection, market manipulation, and the stability and maturity of the cryptocurrency market. As GBTC navigates this complex landscape, the outcome of its ETF application will set a significant precedent for how other cryptocurrency investments are treated. On Jan. 21, 2020, GBTC became a Securities and Exchange Commission (SEC) reporting company, registering its shares and making the trust the first digital currency investment vehicle to have this status.

Institutional adoption

Direxion, a renowned ETF issuer, has approached the US SEC with filings for Bitcoin and Ether futures products. Direxion joins the league of eminent entities, like BlackRock and Valkyrie, eyeing the futures ETF market. Their ambition, as outlined in their application, centers on capital growth through crypto futures contracts on the Chicago Mercantile Exchange (CME). While several Bitcoin futures ETFs have seen the light, Ethereum-tracking ETFs remain unapproved by the SEC. Unlike a Bitcoin ETF, GBTC operates more like a closed-end fund, lacking the ability to create or redeem shares based on market demand.

A bitcoin ETF, such as the one proposed by the Winklevoss twins way back 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, as opposed to buying and holding the digital currency itself. Tracking the price of Bitcoin doesn’t always replicate the performance of the underlying market, and there are extra costs as the managers roll forward the futures contracts they’re buying. However, unlike mutual funds, ETFs are traded directly on a stock exchange just like any other shares. VanEck Bitcoin Strategy ETF is an actively managed fund that launched in November 2021.

What Makes GBTC Different from Directly Owning Bitcoin?

At the same time, GBTC charges shareholders a 2% fee or expense ratio. Instead of directly buying bitcoin, a futures ETF buys bitcoin futures contracts. A Bitcoin Futures ETF is a type of Exchange Traded Fund that doesn’t hold Bitcoin directly. Instead, it invests in Bitcoin futures contracts, which are agreements to buy or sell Bitcoin at a predetermined price on a set future date. This allows investors to speculate on the future price movements of Bitcoin without owning the cryptocurrency itself. GBTC provides a convenient way for investors to access Bitcoin without direct ownership.

A bitcoin exchange-traded fund (ETF) lets traders gain exposure to BTC via traditional stock markets, without needing to directly buy or sell the digital asset on a cryptocurrency exchange. GBTC offers a way to invest indirectly in Bitcoin through an OTC trust vehicle that tracks the price of Bitcoin. Owning Bitcoin directly means you actually own the individual tokens. You can use bitcoins for transactions or hold onto them as an investment, storing them in your digital wallet.