Traders looking for an easy way to invest in Bitcoin got their wish when the Securities and Exchange Commission approved several exchange-traded funds that invest directly in the cryptocurrency in January 2024.
The decision to approve the funds was largely expected after an earlier court ruling questioned why the SEC treated Bitcoin ETFs differently than similar products.
Approved funds include funds from well-known issuers including Blackrock, Fidelity and Invesco.
SEC Chairman Gary Gensler made it clear in a statement that the agency’s approval of the Bitcoin funds was not an endorsement of Bitcoin itself.
“Investors should remain cautious about the numerous risks associated with bitcoin and products whose value is tied to crypto,” Gensler said.
Here’s what you need to know about Bitcoin ETFs.
What is a Bitcoin ETF?
A spot Bitcoin ETF collects money from investors to buy Bitcoin directly. A Bitcoin ETF is managed by an investment firm and listed on a traditional stock exchange.
Although the price is down from its all-time high in November 2023, Bitcoin has risen significantly ahead of ETF approvals. Naturally, the price increase has both individual and institutional investors wondering how they can participate.
Trading directly through a crypto exchange can be complicated for some investors. But with the introduction of ETFs linked to Bitcoin, the investment process could become much easier.
“Investors will now be able to benefit from the added protection of the ETF structure and gain Bitcoin exposure as part of a diversified portfolio with less volatility,” said Alex Michalka, vice president of investment research at Wealthfront.
The SEC approved applications from 11 asset managers to list spot Bitcoin ETFs. Many of the funds cut their fees in the run-up to the approvals in an effort to win over early investors.
Who Should Invest in Bitcoin ETFs?
Investing in a Bitcoin ETF can be a good option for those looking for a more traditional way of investing in the digital currency. Investing directly in Bitcoin can be complicated and involves questions about how the asset will be stored and which exchange it should be purchased on. ETFs remove some of that complexity by packaging Bitcoin in ETF form.
The ETF structure could also make it easier for some institutional investors to enter the crypto market, which could help keep demand for Bitcoin high.
Yet Bitcoin is a high-risk investment, with a very short trading history and no underlying cash flows to support its value.
“Bitcoin is primarily a speculative, volatile asset that is also used for illicit activities, including ransomware, money laundering, sanctions evasion and terrorist financing,” Gensler said.
Where do you buy Bitcoin ETFs?
Bitcoin ETFs are available through most online brokers that offer traditional securities such as stocks and bonds. Some of these brokers may also offer the option to invest directly in Bitcoin, while others may only allow you to trade Bitcoin futures.
ETFs trade on traditional exchanges such as the New York Stock Exchange or the Nasdaq. If you’re interested in the widest range of cryptocurrencies and want to invest directly in digital coins, you’ll need an account with a crypto exchange, like Binance or Kraken, but these exchanges are in the SEC’s regulatory crosshairs. .
Bitcoin ETFs
| ETF | Ticker | Cost ratio |
|---|---|---|
| Bitwise Bitcoin ETF | BITB | 0.0 percent (0.20 percent)* |
| ARK 21Shares Bitcoin ETF | ARKB | 0.0 percent (0.21 percent)* |
| Fidelity Wise Origin Bitcoin Trust | FBTC | 0.0 percent (0.25 percent)* |
| Wisdom Tree Bitcoin Fund | BTCW | 0.0 percent (0.30 percent)* |
| Invesco Galaxy Bitcoin ETF | BTCO | 0.0 percent (0.39 percent)* |
| Valkyrie Bitcoin Fund | BRRR | 0.0 percent (0.49 percent)* |
| iShares Bitcoin Trust | I BIT | 0.12 percent (0.25 percent)* |
| VanEck Bitcoin Trust | HODL | 0.25 percent |
| Franklin Bitcoin ETF | EZBC | 0.29 percent |
| Grayscale Bitcoin Trust | GBTC | 1.50 percent |
Source: Bloomberg
*Note: Bitwise, ARK, and WisdomTree waive fees for the first six months and/or $1 billion in assets. Invesco will waive the fee for the first six months and/or $5 billion in assets. IShares will reduce costs for the first twelve months and/or $5 billion in assets. Valkyrie waives reimbursement for the first three months. Fidelity to waive the fee until July 31, 2024.
Are Bitcoin ETFs regulated?
All ETFs traded on U.S. exchanges are regulated by the Securities and Exchange Commission.
In August 2023, an appeals court ruled against the SEC for denying an application by cryptocurrency asset manager Grayscale Investments to list its spot Bitcoin ETF on the New York Stock Exchange.
The court ruled that the SEC was “arbitrary and capricious” in denying Grayscale’s application because the proposed Bitcoin ETF is “materially similar” to already approved Bitcoin futures ETFs.
In October, the SEC decided not to appeal the decision.
Other types of crypto-related investments
If you’re not satisfied with the offerings of crypto-related ETFs, you have some other options for investing in the digital currency world.
Invest directly in crypto
You can always choose to invest directly in cryptocurrencies through a broker or crypto exchange. Some brokers offer a limited number of options for investing in crypto, typically only offering the major coins. If you are looking for a wide range, you should go through a crypto exchange, but be aware of the expensive fees associated with buying and selling.
Blockchain ETFs
Another way to make crypto-adjacent investments is to invest in ETFs that focus on blockchain, the technology behind cryptocurrencies like Bitcoin and Ethereum. Blockchain ETFs hold shares of companies that use blockchain technology as part of their current and future business plans. Holdings often include a combination of crypto companies, technology giants and financial institutions.
Shares in crypto companies
It is also possible to invest in shares of companies that are directly involved in cryptocurrency. Coinbase, a major crypto exchange, went public in 2023 and other companies such as PayPal and Robinhood have also entered the cryptocurrency space. Make sure you thoroughly research each company and understand how much of their business is tied to crypto before investing.
In short
Traders who were eagerly awaiting a Bitcoin ETF got their wish in 2024 after the SEC approved applications for several funds that invest directly in Bitcoin. There are also other ways to get in on the crypto action through stocks and ETFs that are indirectly tied to crypto or blockchain technology. You can also invest directly through a crypto exchange.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
