We took a look at prominent Bitcoin ETFs. Our review included management fees, how each fund handles asset custody, liquidity, and regulatory scrutiny. We also examined how their structures can influence price swings compared to Bitcoin itself.

Our top picks (including BLOK, BITQ, and CRPT) offer ways to get exposure to blockchain and crypto markets without managing private keys. Some focus on established companies in the crypto space. Others cast a wider net across emerging tech.

What is a Bitcoin ETF

A Bitcoin ETF is a kind of investment fund that tracks the price of Bitcoin and allows investors to buy shares that represent ownership of the cryptocurrency without needing to acquire and store it themselves. 

Essentially, a Bitcoin ETF holds Bitcoin on behalf of investors, who can then trade shares of the ETF on traditional stock exchanges.

This structure provides investors a regulated and accessible way to invest in Bitcoin, eliminating the complexities and security concerns associated with owning and storing the cryptocurrency directly.

Additionally, Bitcoin ETFs often offer added liquidity and regulatory oversight, providing investors with a greater sense of security compared to investing directly in cryptocurrency exchanges.

Note that while Bitcoin ETFs may track the price of Bitcoin, they may not perfectly replicate its performance due to factors such as fees and tracking errors.

How do Bitcoin ETFs work?

Bitcoin ETFs operate by holding Bitcoin on behalf of investors and issuing shares that represent ownership of those assets. The fund managers of Bitcoin ETFs purchase and manage the underlying Bitcoin holdings, which are then divided into shares that are traded on traditional stock exchanges.

These shares allow investors to gain exposure to Bitcoin’s price movements without navigating the complexities of owning and storing the cryptocurrency themselves.

One of the key mechanisms that Bitcoin ETFs use to track the price of Bitcoin is using derivatives such as futures contracts.

These contracts allow the ETF to gain exposure to Bitcoin’s price movements without owning cryptocurrency directly.

By utilizing futures contracts, Bitcoin ETFs can offer investors a convenient and regulated way to invest in Bitcoin while providing added liquidity and security compared to direct crypto investment.

Learn more: What Is Bitcoin Backed By?

Key features of Bitcoin ETFs

Here are some of the key features of the new Bitcoin ETFs:

• Diverse investment strategies: Bitcoin ETFs now offer a variety of approaches, including tracking Bitcoin’s price through futures contracts or investing directly in the cryptocurrency itself.

• Enhanced convenience: Bitcoin ETFs offer a convenient means for retail and institutional investors to access Bitcoin without the need to manage cryptocurrency storage.

• Increased liquidity and oversight: Bitcoin ETFs provide added liquidity and regulatory oversight, appealing to investors looking to diversify portfolios with cryptocurrency assets.

Bitcoin ETFs reach a major milestone

As of December 4th, 2024, Bitcoin ETF holdings have surpassed one million Bitcoin. This milestone reflects growing confidence in crypto’s place within the broader financial world and an optimistic outlook for the future of Bitcoin.

Bitcoin ETFs have played a big part in driving the total crypto market past $3.5 trillion in 2024. The trend points to more mainstream acceptance of Bitcoin and suggests ETFs could continue to bridge digital assets and traditional finance.

Bitcoin reaches $100k milestone

In December 2024, the price of Bitcoin reached $100,000 for the first time. This signals growing institutional and retail interest in crypto and highlights Bitcoin’s role as a store of value amid growing integration into traditional financial markets. Combined with the growth of Bitcoin ETFs, this milestone solidifies Bitcoin’s position as a leading digital asset in the global economy.

The best Bitcoin ETFs

When selecting the right Bitcoin ETF for you, several factors must be considered. Cost and trading volume should be top of mind. Generally, ETFs with higher trading volumes are typically more cost-effective and easier to trade.

Opting for a Bitcoin ETF from an established and reputable brand (such as Fidelity) can mitigate some uncertainties associated with the crypto market.

Always do your own research before investing, know the risks, and only invest what you can afford to lose.

Let’s take a closer look at some of the available Bitcoin ETF options:

• Bitwise Bitcoin ETF (BITB): Bitwise, known for its expertise in crypto asset management, introduces BITB with a unique proposition. With a 0.2% annual fee, which is waived for the initial period or until a specific asset threshold is reached, BITB appeals to investors seeking a low-cost option with a philanthropic angle, as a portion of profits is allocated to Bitcoin open-source development.

• Fidelity Wise Origin Bitcoin Fund (FBTC): Backed by Fidelity Investments, a reputable name in the financial industry, FBTC offers investors the assurance of reliability. Despite sharing a similar fee structure to IBIT, Fidelity waives fees until a specified date, providing a temporary cost advantage for early investors.

• iShares Bitcoin Trust (IBIT): Managed by BlackRock, the world’s largest asset manager, IBIT boasts a solid reputation and extensive experience in managing ETFs. With an annual fee of 0.25%, which drops to 0.12% for the initial period or until a certain asset threshold is reached, IBIT offers a competitive choice for investors.

Other options include Ark 21Shares Bitcoin ETF (ARKB), Grayscale Bitcoin Trust (GBTC), and VanEck Bitcoin Trust (HODL) also deserve consideration.

Ultimately, choosing the right Bitcoin ETF requires careful evaluation of your investment goals, risk tolerance, and time horizon.

Conduct thorough research, consider the associated costs and trading dynamics, and opt for a reputable fund that aligns with your investment objectives.

Limitations of Bitcoin Futures ETFs

Tracking Errors

Bitcoin futures ETFs don’t always match bitcoin’s actual price. Costs like management fees and the way futures work can cause the ETF’s performance to differ from bitcoin itself.

Regulatory Uncertainty

Crypto regulations are still evolving. New laws or rules could affect how bitcoin ETFs operate, potentially impacting your investment.

Liquidity Issues

Bitcoin ETFs and the futures they track can have lower liquidity than traditional ETFs. That can lead to higher costs when buying or selling shares.

Rolling Over Futures

Since bitcoin futures expire, ETFs must keep rolling contracts, which can add costs. In certain market conditions, this can hurt returns over time.

Security Risks

Even without holding actual bitcoin, there are security risks. Hacks and fraud in the crypto space can still affect the value of Bitcoin futures, and by extension, the ETF.

Is it better to own Bitcoin or ETFs?

One of the key differences between Bitcoin ETFs and owning Bitcoin directly is the manner in which investors gain exposure to the cryptocurrency.

When investors buy shares of a Bitcoin ETF, they are purchasing ownership in a fund that holds Bitcoin on their behalf. This eliminates the need for investors to manage the complexities of owning and securing Bitcoin themselves, such as setting up wallets and managing security measures.

On the other hand, owning Bitcoin directly involves acquiring and storing the cryptocurrency in a digital wallet. While owning Bitcoin directly provides investors full control over their assets, it also requires them to navigate the technical aspects of owning and securing the cryptocurrency.

Additionally, investing directly in Bitcoin may expose investors to greater security risks, such as hacking and theft.

What determines the Bitcoin ETF price?

The price of a Bitcoin ETF is determined by various factors, including the price of Bitcoin itself, the fund’s expense ratio, and market demand for the ETF shares. Typically, Bitcoin ETFs aim to track the price of Bitcoin as closely as possible, but they may not perfectly replicate its performance due to factors such as fees and tracking errors.

Investors can buy and sell shares of a Bitcoin ETF on traditional stock exchanges, where supply and demand determine the ETF’s price.

Additionally, the price of a Bitcoin ETF may fluctuate depending on factors such as market sentiment, regulatory developments, and macroeconomic trends. As with any investment, it’s essential to conduct research and consider their investment objectives before buying Bitcoin ETFs.

What Are Spot Bitcoin ETFs?

A spot Bitcoin ETF is considered a significant development in the cryptocurrency market because it provides investors a regulated and familiar way to invest directly in Bitcoin.

Unlike futures-based Bitcoin ETFs, which track the price of Bitcoin through futures contracts, spot Bitcoin ETFs hold Bitcoin directly. This means that investors in spot Bitcoin ETFs own a proportionate share of the underlying Bitcoin holdings, providing them with direct exposure to the cryptocurrency’s price movements.

Spot Bitcoin ETFs offer several advantages for investors compared to futures-based ETFs. Firstly, they eliminate the complexities and risks of investing in futures contracts, such as tracking errors and margin requirements.

Further, spot Bitcoin ETFs provide added liquidity and transparency, as investors can directly verify the fund’s holdings on the blockchain.

Alternative Bitcoin ETFs

Spot Bitcoin ETFs have been gaining attention recently, but ETFs that invest indirectly in Bitcoin—like those holding Bitcoin futures—shouldn’t be dismissed. They represent different strategies for gaining exposure to Bitcoin.

One trend to monitor is that the introduction of new spot ETFs has led many investors to transfer assets from older funds to these newer options. Funds that cannot sustain a healthy level of assets under management may struggle to remain viable.

Who should invest in Bitcoin ETFs?

Investing in Bitcoin ETFs can be a suitable option for investors seeking exposure to Bitcoin’s potential upside without directly owning the cryptocurrency. Bitcoin ETFs offer several advantages, including convenience, liquidity, and regulatory oversight, making them an attractive option for retail and institutional investors.

Individuals interested in investing in Bitcoin but are hesitant to navigate the complexities of owning and securing the cryptocurrency themselves may find Bitcoin ETFs to be an appealing alternative.

Additionally, those who want to diversify their portfolios with crypto assets may want to consider allocating some of their investment capital to Bitcoin ETFs.

However, it’s essential for investors to conduct thorough research and consider their investment objectives, risk tolerance, and time horizon before investing in Bitcoin ETFs. Like any investment, Bitcoin ETFs carry risks, including price volatility and regulatory uncertainty, which investors should carefully evaluate before making investment decisions.

How to Select Bitcoin ETFs

When choosing a Bitcoin ETF, investors should consider their individual financial goals, investment timeline, and risk tolerance.

Additionally, keep the following factors in mind when assessing any Bitcoin ETF:

• Assets under management

• Expense ratio

• Trading volume

• Fund investment strategy

Bitcoin ETF Fees

Holding a Bitcoin ETF can sometimes be more costly than directly purchasing Bitcoin on a crypto exchange. This is because cryptocurrency exchanges generally charge one-time fees for buying and selling, while Bitcoin ETFs have an annual expense ratio fee. However, some ETFs have temporarily waived these fees.

If you plan to transfer Bitcoin from your exchange to a hot or cold wallet, be aware that you may incur small withdrawal fees.

Also consider your exit strategy, as selling your ETF will also involve trading fees.