The world of exchange-traded funds (ETFs) has witnessed a significant entry with the inclusion of Bitcoin. Investors now have the opportunity to invest in this promising digital asset without the need to personally own or store it.

A Bitcoin ETF represents an exchange-traded fund that focuses on assets linked to Bitcoin, the pioneering cryptocurrency. By offering shares on the open market, this investment vehicle constructs a diversified portfolio based on market indexes, stock market sectors, and various asset classes, including cryptocurrencies.

While EndoTech utilizes artificial intelligence for trading between different digital currencies, many investors prefer ETFs as they provide a more familiar means to gain exposure to this asset class. Let’s delve deeper into these Bitcoin ETF options.

Currently, Bitcoin ETFs can solely hold Bitcoin futures contracts or shares of companies and other ETFs that possess exposure to cryptocurrencies. The SEC assesses and approves multiple spot crypto ETF applications through the Federal Register before granting its final approval.

In an attempt to comprehend the Bitcoin segment within the ETF market, Endotech has conducted a comprehensive evaluation of the currently available Bitcoin ETFs for trading in the United States.

ProShares Bitcoin Strategy ETF (BITO) – The ProShares Short Bitcoin ETF was introduced in June 2022 and stands as the sole SEC-approved ETF specifically designed to track the inverse performance of Bitcoin on a daily basis.

• AUM – $889 million
• Strategy – Bitcoin futures
• Expense Ratio – 0.95%

VanEck Bitcoin Strategy ETF (XBTF) – The VanEck Bitcoin Strategy ETF, launched in November 2021, is an actively managed fund. Its goal, denoted by the ticker symbol XBTF, is to achieve capital appreciation through investments in BTC futures, with the possibility of allocating some of its assets in Treasuries and cash.

• AUM – $39 million
• Strategy – Bitcoin futures
• Expense Ratio – 0.76%

Valkyrie Bitcoin Strategy ETF (BTF) – Introduced in October 2021, shortly after BITO, this ETF is an actively managed ETF. Its primary objective is to invest as close to 100% of its net assets in Bitcoin futures contracts. In cases where there are remaining assets, the fund will allocate them to U.S. government securities, money market funds, and corporate bonds.

• AUM – $27 million
• Strategy – Bitcoin futures
• Expense Ratio – 0.95%

Simplify Bitcoin Strategy PLUS Inc ETF (MAXI) – The Simplify Bitcoin Strategy PLUS Inc ETF, also known as MAXI, is an actively managed fund launched in September 2022. It is the most recently introduced fund among those listed.

• AUM – $21 million
• Strategy – Bitcoin futures
• Expense Ratio – 0.97%

Global X Blockchain & Bitcoin Strategy ETF (BITS) – The Global X ETF  is an actively managed fund introduced in November 2021. BITS divides its holdings between Bitcoin futures contracts and indirect investments in blockchain companies. “Indirect” here means that BITS holds shares in its sister ETF, the Global X Blockchain ETF (BKCH), which comprises various blockchain-related stocks, including those engaged in digital asset mining, cryptocurrency exchanges, and the development of innovative blockchain applications.

• AUM – $11 million
• Strategy – Bitcoin futures and blockchain stocks
• Expense Ratio – 0.65%

 

As of now, the Securities and Exchange Commission (SEC) has granted approval for seven Bitcoin ETFs to be traded in the United States. However, there are over 20 additional Bitcoin ETF applications currently awaiting approval from the SEC.

It’s essential to understand that existing Bitcoin ETFs don’t directly hold Bitcoin. Instead, they invest in Bitcoin futures contracts or shares of companies and ETFs with a presence in the cryptocurrency industry.

The SEC’s caution about directly owning Bitcoin stems from concerns over the lack of regulation in cryptocurrency exchanges. SEC Chair, Gary Gensler, advocates for a safer approach, relying on the well-established and highly regulated futures market for Bitcoin exchange-traded funds. Futures contracts allow traders to speculate on price movements with minimal upfront investment, using leverage or borrowed money.

For instance, the ProShares Bitcoin Strategy ETF (BITO) invests in one-month CME Bitcoin futures contracts, gradually replacing them with longer-dated contracts as they near expiration. Gains from price increases are used to build a pool of cash and Treasuries, while losses are covered using funds from the pool.

While most Bitcoin ETFs adopt similar strategies to profit from Bitcoin’s price movements, they may not perfectly replicate the underlying market’s performance, and there could be additional costs as managers roll forward the futures contracts.

Investing in a Bitcoin ETF may incur higher costs compared to buying Bitcoin directly from a crypto exchange, as Bitcoin ETFs typically have an annual expense ratio fee of at least 0.65%. Other fees, like withdrawal and trading fees, should also be considered.

Despite higher fees, some investors prefer Bitcoin ETFs for the convenience and perceived safety of professionally managed funds, especially if they are concerned about security risks associated with owning actual BTC or face restrictions using crypto exchanges.

To invest in Bitcoin ETFs, you’ll need to open a brokerage account and purchase shares like other stocks or ETFs. However, it’s crucial to recognize that cryptocurrencies, including Bitcoin, remain relatively new and highly volatile assets. Thus, sound financial planning and consulting with a financial advisor are vital precautions before making any investment decisions.

Given the extreme volatility of cryptocurrencies, including Bitcoin, the future of Bitcoin ETFs remains uncertain, with significant price fluctuations within short timeframes.

Whether cryptocurrencies, especially Bitcoin, are suitable for long-term investments is a personal decision that each investor must make. Seeking guidance from a financial advisor is always a prudent course of action.