Global Poker never ceases to amaze us! This time they are welcoming autumn in no other better way than with their first-ever Fall Carnival event that will go on from September 26th to October 2nd! Bear with us with this short article where we will explain anything you need to know about this fun event!Read more
What Is Bitcoin ETF?
Many global investors are still not ready to enter the crypto market and invest in cryptocurrencies. On the other hand, they are very active in investing in traditional ETFs. Luckily, they now have an opportunity to invest in Bitcoin without actually buying BTC, and that's via a Bitcoin ETF.
This article will define what a Bitcoin ETF is and how one can invest in it. Moreover, we'll analyze these investment opportunities in detail and indicate what you need to pay attention to before investing in this type of ETF. Also, we'll mention some of the most popular BTC ETFs to help you decide the best one for you. Finally, we'll list the pros and cons of investing in Bitcoin ETFs and answer some of the most popular questions. Read on.
Bitcoin ETFs Definition
Bitcoin ETF stands for a Bitcoin Exchange-Traded Fund, a pool of Bitcoin and BTC-related assets traded on traditional rather than crypto exchanges. In other words, a Bitcoin ETF is not a cryptocurrency but rather a conventional trading instrument that individuals and companies can invest in. The main goal of Bitcoin ETF is to allow retail investors to invest in BTC without buying and owning bitcoins.
In theory, Bitcoin ETFs should be created when a company buys BTC, securitizes it, and sells or trades it on a retail exchange. The share prices for the exchange representing Bitcoin would fluctuate just like Bitcoin. If BTC increased in value, so would the shares, and the other way around. The only difference is that you'd trade shares of a Bitcoin ETF rather than Bitcoin itself.
There's one issue related to Bitcoin ETFs: they don't actually own bitcoins, mainly because the Securities and Exchange Commission is concerned with the overall legality of Bitcoin on crypto exchanges. In other words, the SEC is worried about bitcoins being traded on non-regulated exchanges and that they may sometimes be subject to illegal trading practices. Because of that, it's not exactly possible to follow the theoretical process of turning Bitcoin into a non-crypto asset.
Instead of owning bitcoins, Bitcoin ETFs own assets related to Bitcoin in any way. In most cases, these are Bitcoin futures contracts, but also various companies and other ETFs that are active in the crypto and blockchain space.
How to Use Bitcoin ETFs
Bitcoin ETFs aren't cryptocurrencies and cannot be traded on a cryptocurrency exchange. Instead, it allows investments via traditional exchanges and provides exposure to Bitcoin beyond the crypto sphere. For example, a non-crypto investor may buy shares of the ETF and hold them, only to sell them when their price increases. However, Bitcoin ETFs cannot be used for shopping as Bitcoin can. You can only trade it on a designated exchange.
What to Know About Bitcoin ETFs
Bitcoin ETFs are created to allow more people to invest in BTC. The good news is that they make the whole process easier, as there aren't any unnecessary expenses or additional hassles that a standard Bitcoin investor has to go through. Moreover, it provides a familiar investment environment for traditional investors who refuse to enter the crypto world.
As such, Bitcoin ETFs are a true unicorn in both crypto and traditional investing. Because of that, there are several things you need to consider before actually spending your funds on buying the shares. Let's take a look.
Technically speaking, Bitcoin ETFs are part of the traditional stock market. However, that doesn't mean you need to follow that market as a whole. Ideally, you should follow the stock prices of companies and ETFs related to cryptocurrencies and blockchain, as they can affect the price of your Bitcoin ETF. Ultimately, you need to actively follow the crypto market to start making money via BTC ETFs, as the price will mainly depend on the Bitcoin price. The performance of the most popular cryptocurrency in the world will improve or negatively affect the performance of all Bitcoin ETFs.
If you're a crypto trader without experience in buying stocks, make sure to learn more about this "traditional" type of trading on the stock market, as it follows different rules than crypto exchanges. Trading stocks is much older and much better established, but it also requires getting in touch with a broker to assist you with the purchasing process.
Buying and selling Bitcoin ETFs occurs in a regulated environment, as all BTC ETFs need to have a permit from the SEC. This is different from cryptocurrency exchanges, as most are still not fully regulated.
Owning shares from a Bitcoin ETF is actually more expensive in the long run. Namely, when you buy Bitcoin on a cryptocurrency exchange, you only need to pay a one-time transaction fee. Truth be told, these fees can be pretty high on some regulated and centralized exchanges. The good news is that you don't have any other fees to worry about. That's a bit different from Bitcoin ETFs as they are just like ordinary shares, meaning you'll have to pay your annual expense ratio fee.
Binance is one of the most affordable crypto exchanges, where you can buy BTC for as low as a 0.1% fee. However, if you purchase Bitcoin ETFs, you'll have to pay at least 0.50% annually.
All in all, fees aren't the best thing for Bitcoin ETFs, as you would have to count on BTC's price to increase a lot in the future. That would mean the fees you would have to pay won't affect you much.
By buying Bitcoin ETF shares, you won't technically own any crypto wallets or have to take care of private keys. You won't have to worry about whether your keys are safely stored because nobody has access to them. Even if you choose to keep your crypto on an exchange, for this reason, people can still hack the exchanges, meaning someone could steal your funds. Therefore, no crypto method guarantees 100% security for your BTC.
When buying Bitcoin ETF shares, you become their owner, and you don't have to deal with anything crypto-related. Most importantly, you'll own shares in a highly regulated market, meaning the law protects your ownership.
Investing in Bitcoin ETFs
Investing in Bitcoin ETFs is no different than investing in any other stock. Therefore, if you have experience with traditional investing, you need to have an official broker or advisor and get in touch with them to help you obtain the shares of the desired Bitcoin ETF. Some of the most popular BTC ETFs are traded on exchanges such as NASDAQ and the New York Stock Exchange ARCA.
Please, be aware that every kind of investment brings a particular risk. Even though the stock market is considered less risky than cryptocurrencies, you'll still invest in shares closely related to Bitcoin in terms of price, meaning they will have much higher volatility than other traditional investment options. In that case, you need to be extra careful and understand that there's a much higher risk.
Best Bitcoin and Crypto ETFs in October 2022
Several Bitcoin ETFs exist, some worth more than others. Therefore, we collected and analyzed all the necessary information and compared various ETFs to determine the best ones. It all comes down to the following four BTC ETFs, so let's take a closer look at them.
1. ProShares Bitcoin Strategy ETF (BITO)
The ProShares Bitcoin Strategy ETF uses the ticker name BITO, and it's the first official BTC ETF approved by the SEC for the US market in October 2021. Since then, BITO has been the most popular and most traded ETF in market history. In just a few days after penetrating the market, it attracted around $1 billion in investments.
BITO is an actively managed fund, meaning they have fund managers who are actively picking stocks and making trades to generate returns. The main goal of BITO is to track the price of Bitcoin as close as possible. One of the methods to do that is by investing in BTC futures contracts. On top of that, BITO has some cash as well as Treasury securities.
Like any other ETF, BITO comes with some fees for providing you with access to its shares. The fees are 0.95% or $95 for every $10,000 you invest. Not great, not terrible.
BITO has a pretty clear and straightforward strategy, and it's as transparent as it gets.
2. Global X Blockchain & Bitcoin Strategy ETF (BITS)
Launched in November 2021, Global X Blockchain & Bitcoin Strategy ETF is an actively managed fund with a slightly different approach than BITO. BITS, the fund's ticker symbol, splits its holdings between blockchain companies and Bitcoin futures contracts.
It's important to mention that BITS also owns shares of its sister exchange-traded fund called Global X Blockchain ETF (BKCH), which mainly focuses on investing in various blockchain companies and their stocks. Many of these companies are related to mining digital assets, crypto exchanges, and the development of new ways to use blockchain technology.
The ETF tries to keep its investments 50-50. The last time we checked, around 51% of BITS assets were invested in futures contracts for Bitcoin, whereas 49% was in BKCH.
BITS has around $9.51 million in net assets at the moment, and the expense ratio is 0.65%, which is much more affordable compared to BITO. On the other hand, BITS is a lot less popular Bitcoin ETF than the current leader.
3. Valkyrie Bitcoin Strategy ETH (BTF)
Valkyrie Bitcoin Strategy ETH uses BTF as a ticker symbol and is another popular exchange-traded fund following Bitcoin's price. BTF was launched in October 2021, right after BITO, and is considered its main competitor.
The popular ETF aims to spend almost all its net assets on Bitcoin futures contracts. Of course, there's a minimal percentage of money market funds, corporate bonds, and US government securities held by BTF. This ETF is one of the three funds that aim to get as close as possible to 100% in BTC futures, next to BITO and XBTF.
The last time we checked, BTF had approximately $36 assets under management, and the expense ratio is 0.95%, just like BITO's.
4. VanEck Bitcoin Strategy ETF (XBTF)
VanEck Bitcoin Strategy ETF is one of the three funds that focus on Bitcoin futures. It uses XBTF as a ticker symbol, and almost all its investments are in BTC futures contracts. The fund was launched a month after BTF or BITO, and it currently has $18 million in assets under management.
The only difference from other BTC ETFs is that it follows the C-corp structure, while most other ETFs are investment corporations. C-corps aren't obliged to distribute capital gains as dividends to investors, allowing VanEck Bitcoin Strategy ETF to focus more money on investments.
On top of that, XBTF's expense ratio is currently 0.65%, which is less than BTF or BITO (0.95%). But, then again, it's the least popular of the three.
5. Grayscale Bitcoin Trust (GBTC)
GBTC is slightly different from other products mentioned in this guide, as it's not technically an ETF but a trust. It's a crypto investment product that investors can buy or sell via their brokerage accounts. It became a reporting company at SEC on January 21, 2020.
GBTC was initially called The Bitcoin Investment Trust and was established in 2013 in the form of a private placement for accredited individuals. After receiving approval from FINRA, it allowed public access and eventually became one of the most popular options for BTC investors who didn't want to buy the cryptocurrency.
Even though it's not an ETF, it works in a very similar way. However, it requires a minimal investment of $50,000 and comes with 2% annual fees, making it an option for more experienced and wealthier investors.
Bitcoin ETFs Pros and Cons
- Management fees
- Not accurate
- Untradeable for other cryptocurrencies
- Against Bitcoin's philosophy
- Convenient — If the world of cryptocurrencies seems scary and you're used to investing in traditional assets, Bitcoin ETFs are probably your gateway to crypto. You won't have to learn how everything works, obtain wallets, or join crypto exchanges. You can get BTC ETF shares just like you'd get anything else.
- Diverse — A Bitcoin ETF doesn't have to hold just Bitcoin futures. Instead, it can also hold various stocks from famous companies and mitigate potential risks caused by BTC's volatility. You'll diversify your portfolio even more by buying BTC ETF shares than by buying just BTC.
- Tax-efficient — Bitcoin is decentralized and unregulated in most parts of the world, creating confusion regarding taxation. On the other hand, a Bitcoin ETF is traded on traditional exchanges and is part of a well-established system with great tax efficiency.
- Management fees — ETFs are regularly managed by people who need to take their cut to help you and let you be part of the ETF. The more shares you have, the higher management fees might become.
- Not accurate — Even though the main goal of Bitcoin ETFs is to track the price of Bitcoin, that may sometimes vary as ETFs also have different assets, including standard shares. For example, if Bitcoin's price changes 50% in a short period, the ETF might not follow that change immediately.
- Untradeable for other cryptocurrencies — If you don't think BTC is worth it anymore, you can quickly exchange it for other popular digital currencies, including Ethereum, Litecoin, Bitcoin Cash, and many others. However, that's not possible with BTC ETFs, as they mainly depend on Bitcoin.
- Against Bitcoin's philosophy — Bitcoin is all about decentralization and avoiding the standard centralized systems, including stock exchanges. Many BTC advocates don't like the idea of Bitcoin ETFs.
Should You Buy Bitcoin or Bitcoin ETFs
There's no right answer to whether to buy BTC or its ETF, as it all depends on what type of investor you are. If you're a crypto fan and know how digital currencies and decentralized ledgers work, you should definitely first focus on Bitcoin. On the other hand, if you're a crypto skeptic or don't feel like learning anything about the crypto sphere, check out some of the Bitcoin ETFs mentioned in this article.
What's the best Bitcoin ETF?
We cannot tell which ETF is the best, as they are all different in their own way. For example, some focus on Bitcoin futures as the main assets, while others tend to diversify more, and it's up to you to decide which strategy you like more. Moreover, it would be best to consider the overall popularity, price, assets under management, and more. Therefore, we narrowed down the broad selection to: ProShares Bitcoin Strategy ETF (BITO), Global X Blockchain & Bitcoin Strategy ETF (BITS), Valkyrie Bitcoin Strategy ETH (BTF), VanEck Bitcoin Strategy ETF (XBTF), Grayscale Bitcoin Trust (GBTC).
Is it better for a beginner to invest in ETFs or cryptos?
Both ETFs and cryptos require some knowledge before you can invest in them. It's difficult to say which one is easier to master, but it's safe to say that cryptos are currently a safer option when compared to Bitcoin ETFs. However, ETFs in general (non-crypto ones) are considered the safest investment option out there, as they pose the least risk.
Are Bitcoin ETFs safe?
Yes, they are. Most are regulated and available on legitimate stock exchanges.
Is there a Bitcoin ETF?
Yes, there are quite a few Bitcoin ETFs out there, and we listed the most popular ones in this guide. So make sure to scroll up and check them out.
What's the price of Bitcoin ETFs?
The price usually follows Bitcoin's price, although individual shares are much more affordable. Still, some ETFs have a minimum investment limit and feature management fees. We suggest exploring the listed BTC ETFs to learn more about their current prices.
How are ETFs related to Bitcoin?
Bitcoin ETFs mostly invest in Bitcoin futures contracts. There's no way for them to invest directly in Bitcoin, as it's not allowed by the SEC. In addition to BTC futures, BTC ETFs also invest in many other things, including standard stocks and more.
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