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As you’re looking for ways to invest in cryptocurrencies, you are likely to come across Bitcoin ETFs. But you should always have a complete understanding of any investment you make. The following guide will answer all of your questions about crypto ETFs.
What Is an ETF?
ETF stands for exchange-traded funds. ETFs are publicly traded and track the performance of an underlying index or asset. This contrasts with stocks, which track the performance of a company. ETFs are popular ways for investors to invest in an asset without actually owning it. ETFs of traditional investments have been around since 1993 and Bitcoin ETFs are much more recent. The value of the ETF will follow the value of the underlying asset.
How Does a Bitcoin ETF Work?
With a Bitcoin ETF, you buy shares of the ETF via a brokerage. The process is almost the same as buying stocks. Once you buy ETF shares, you can then trade them. When Bitcoin prices rise, so will ETF prices. The same is true if Bitcoin prices drop.
Behind the scenes, the firm that manages the ETF buys and holds Bitcoin. They then peg the price of the ETF to the price of their BTC holdings. The firm will list the crypto ETF on a stock exchange and you trade it like any other stock. This gives you, the investor, access to some previously unavailable crypto trading strategies, such as shorting. Keep in mind that investors will pay management and custody fees.
A Brief History of Bitcoin ETF Progress
The very first Bitcoin ETF was proposed in July 2013 by the Winklevoss Bitcoin Trust. By June 2018, the Winklevoss twins had already had two Bitcoin ETF proposals rejected by the SEC. The SEC then rejected the proposal from Bitwise in October 2019 and one from Wilshire Phoenix in February 2020.
The first Bitcoin ETF was officially listed on the Bermuda Stock Exchange in September 2020. The first Canadian Bitcoin ETF was launched in February 2021. This was the Purpose Bitcoin ETF (BTCC). Within the month, Evolve Bitcoin ETF (EBIT) and CI Galaxy Bitcoin ETF (BTCX) were also approved.
What Are Bitcoin Futures?
Bitcoin futures are another way of investing in BTC without owning it. This is a contract between two investors that is essentially a bet on the future price. Importantly, there are also Bitcoin future ETFs. These give you exposure to the price movements in Bitcoin future contracts.
Bitcoin ETFs List
If you are thinking of investing in a Bitcoin ETF, then you will want to learn more about some of the most popular ones. That way, you can make an educated investment decision.
ProShares Bitcoin Strategy ETF (BITO)
ProShares was the first U.S. ETF for Bitcoin futures. It has $1.3 billion assets under management and a 0.95% expense ratio. Importantly, this ETF invests in cash-settled, front-month futures contracts, meaning the futures contracts that have the shortest maturity time. Every invested future contract is regulated by the CFTC.
Valkyrie Bitcoin Strategy ETF (BTF)
BTF has $47.9 million assets under management and a 0.95% expense ratio. It launched just three days after the ProShares ETF. It also uses short-maturity futures. Before adding this ETF, Valkyrie already offered trust for multiple cryptocurrencies, including Bitcoin.
Learn more: Crypto Dividends
Invesco Bitcoin Strategy ETF
As of late 2021, Invesco dropped its filing for the Bitcoin Strategy ETF. At the time, the team said it was because they could not offer exposure to a combination of spot Bitcoin and futures swaps.
Fidelity Bitcoin ETF (FBTC)
The Fidelity Bitcoin ETF describes itself as a mutual fund variation of an ETF fund. It invests all of the assets it owns in the ETF.
Grayscale Bitcoin Trust (GBTC)
Grayscale Bitcoin Trust has $25.6 billion under management and a 2.0% expense ratio. It is similar to an ETF but not actually one. Technically, this is a closed-end grantor trust. So, the trust has a fixed number of shares available when it eventually goes public. After that, investors trade the shares over the counter. The trust intends to follow BTC price movements based on data from CoinDesk.
Bitwise 10 Crypto Index Fund (BITW)
BITW has $810 million under management and a 2.50% expense ratio. It launched in 2017 and tracks the performance of the top ten cryptos that can be invested in. Those top ten cryptos account for about 70% of the total cryptocurrency market. BITW uses market capitalization to weight it, so Bitcoin makes up most of the portfolio.
Amplify Transformational Data Sharing ETF (BLOCK)
BLOK has $1.1 billion assets under management and a 0.71% expense ratio. It mostly invests in equity. But it invests 80% or more of its assets in businesses developing or using blockchain technologies. There are a total of 47 holdings, including the Purpose Bitcoin ETF.
Bitwise Crypto Industry Innovators ETF (BITQ)
This ETF has an expense ratio of 0.85% and $122.9 million under management. It tracks how the Bitwise Crypto Innovators 30 Index performs. Companies in the index have either 75% of their revenue from crypto ecosystems or at least 75% of net holdings in a liquid crypto asset.
Why Don’t Bitcoin ETFs Own Bitcoin?
There are plenty of reasons why people who trade Bitcoin ETFs choose to invest in an ETF instead of Bitcoin. Some people are concerned about Bitcoin’s volatility. Others are concerned about the lack of regulation or have security concerns. Maybe they are worried they’ll lose their private keys. It is also much easier to report Bitcoin ETFs on taxes than Bitcoin itself.
Is a Bitcoin ETF Better Than Owning Bitcoin?
There are pros and cons to owning a Bitcoin ETF and owning Bitcoin. Neither is better than the other; it depends on what you want. With a Bitcoin ETF, you don’t have to worry about the security of your crypto, such as remembering your private key. You also don’t have to get a crypto wallet. But you don’t own the underlying asset, so you can’t use Bitcoin for purchases or trade it. You will also have to pay fees to the ETF manager for management and custodianship.
Bitcoin also offers 24/7 trading, while Bitcoin ETFs don’t. ETFs also typically have some price delays.
Bitcoin ETFs track the price of Bitcoin and let you invest in it without having to own it. Think of them as a Bitcoin investment fund and an alternative to directly owning crypto.
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