Understanding Bitcoin ETFs: A New Horizon in Investment

Bitcoin, a recent entrant in the world of exchange-traded funds (ETFs), has swiftly evolved. While Bitcoin ETFs linked to futures emerged in 2021, it wasn’t until January 2024 that U.S. regulators permitted ETFs directly tied to the day-to-day movements of bitcoin prices, commonly referred to as spot prices.

To shed light on this burgeoning corner of the ETF universe, Forbes Advisor has meticulously reviewed the leading pure-play bitcoin ETFs currently available for trading in the United States. Some are directly tied to the spot bitcoin market, while others provide indirect exposure through bitcoin futures.

Forbes’ Top Picks for February 2024

Here’s a concise breakdown of the top Bitcoin ETFs based on assets under management (AUM) and strategic investment approaches:

1. Grayscale Bitcoin Trust (GBTC)
   • AUM: $28.6 billion
   • Expense Ratio: 1.50%
   • Investing Strategy: Spot bitcoin
   • Why We Picked It: Established and robust, GBTC has been a key player since 2013, offering direct exposure to spot bitcoin.
2. iShares Bitcoin Trust ETF (IBIT)
   • AUM: $2.7 billion
   • Expense Ratio: 0.12%
   • Investing Strategy: Spot bitcoin
   • Why We Picked It: With a low expense ratio, IBIT stands out for providing investors direct exposure to the day-to-day movements of bitcoin prices.
3. Invesco Galaxy Bitcoin ETF (BTCO)
   • AUM: $300 million
   • Expense Ratio: 0.00%
   • Investing Strategy: Spot bitcoin
   • Why We Picked It: BTCO, with no expense ratio, is an attractive choice for investors seeking direct exposure to spot bitcoin without additional costs.
4. Bitwise Bitcoin ETF (BITB)
   • AUM: $623.1 million
   • Expense Ratio: 0.00%
   • Investing Strategy: Spot bitcoin
   • Why We Picked It: BITB offers a fee-free approach to spot bitcoin investment, appealing to cost-conscious investors.
5. ProShares Bitcoin Strategy ETF (BITO)
   • AUM: $1.8 billion
   • Expense Ratio: 0.95%
   • Investing Strategy: Bitcoin futures
   • Why We Picked It: BITO provides exposure to bitcoin through futures, offering a different strategy for investors diversifying their portfolio.
6. Volatility Shares 2x Bitcoin ETF (BITX)
   • AUM: $222.3 million
   • Expense Ratio: 1.85%
   • Investing Strategy: Leveraged bitcoin futures
   • Why We Picked It: BITX appeals to risk-tolerant investors, leveraging bitcoin futures for potential higher returns.
7. ProShares Short Bitcoin ETF (BITI)
   • AUM: $76.6 million
   • Expense Ratio: 0.95%
   • Investing Strategy: Decline in bitcoin futures
   • Why We Picked It: BITI offers a unique approach, designed to perform well in a bear market scenario, providing investors with a hedge against potential downturns.

Methodology: A Closer Look at Selection Criteria

With the recent SEC approval of 11 spot bitcoin ETFs, the market has become more crowded. Forbes Advisor employed a stringent methodology for selection:

• Pure-Play Bitcoin Portfolios: All funds in the list offer direct exposure to bitcoin, either through spot prices or bitcoin futures.
• Asset and Trading Criteria: Minimum $200 million in AUM for spot bitcoin funds and $100 million for alternative bitcoin funds. Daily trading of at least $300,000 in shares.
• Exception for “Short” Bitcoin Fund: While struggling in the current bull market, BITI holds potential in a bear market scenario.

Choosing the Right Bitcoin ETF for You

Grayscale Bitcoin Trust (GBTC)

With an impressive $28.6 billion in assets under management (AUM), GBTC stands as a stalwart in the cryptocurrency investment realm. Its 1.50% expense ratio is justified by its long-standing presence since 2013. Investors seeking a reliable option for direct exposure to spot bitcoin should consider GBTC, especially given its proven track record.

iShares Bitcoin Trust ETF (IBIT)

For investors mindful of expenses, IBIT shines with a mere 0.12% expense ratio and $2.7 billion AUM. The focus on spot bitcoin ensures that investors experience the day-to-day movements of bitcoin prices without incurring substantial costs. IBIT is a cost-efficient choice without compromising on exposure.

Invesco Galaxy Bitcoin ETF (BTCO)

BTCO introduces a unique proposition with a $300 million AUM and a zero expense ratio. This makes it an appealing option for investors looking to capitalize on spot bitcoin without additional costs eating into potential returns. BTCO’s no-expense structure sets it apart in the market, providing a straightforward approach to Bitcoin investments.

Bitwise Bitcoin ETF (BITB)

With a reasonable $623.1 million AUM and a zero expense ratio, BITB offers a fee-free avenue for spot bitcoin investment. Investors looking for a cost-effective yet robust option should consider BITB. Its commitment to a spot bitcoin strategy aligns with the growing demand for direct exposure to the cryptocurrency’s market movements.

ProShares Bitcoin Strategy ETF (BITO)

For those exploring alternative strategies, BITO, with $1.8 billion AUM, provides exposure to bitcoin through futures. The 0.95% expense ratio reflects the added complexities of managing a portfolio based on bitcoin futures. Investors diversifying their approach to bitcoin should weigh the potential benefits of BITO’s futures strategy.

Volatility Shares 2x Bitcoin ETF (BITX)

With $222.3 million AUM, BITX caters to risk-tolerant investors seeking leveraged exposure to bitcoin futures. The 1.85% expense ratio reflects the amplified risk and potential returns associated with leveraged investments. It’s a strategic choice for those anticipating higher volatility in the bitcoin market.

ProShares Short Bitcoin ETF (BITI)

BITI, managing $76.6 million AUM, adopts a unique stance, designed to perform well in a bear market scenario. The 0.95% expense ratio is a reasonable cost for investors seeking a hedge against potential downturns. As Bitcoin markets evolve, BITI provides a distinctive strategy for risk mitigation.

Frequently Asked Questions (FAQ) about Bitcoin ETFs

1. What is a Bitcoin ETF?

A Bitcoin ETF, or exchange-traded fund, is a financial product that tracks the performance of Bitcoin, the original cryptocurrency. Unlike traditional investments in Bitcoin, ETFs allow investors to gain exposure to the cryptocurrency without directly owning it. ETFs are traded on stock exchanges similar to stocks.

2. When did Bitcoin ETFs become available?

Bitcoin ETFs tied to futures on the cryptocurrency were introduced in 2021. However, it wasn’t until January 2024 that U.S. regulators permitted ETFs directly tied to the day-to-day movement of bitcoin prices, known as spot prices.

3. What is the difference between spot bitcoin and bitcoin futures?

Spot bitcoin refers to the current market price of bitcoin, reflecting its real-time value. Bitcoin futures, on the other hand, are financial contracts that allow investors to speculate on the future price of bitcoin. ETFs can be linked to either spot bitcoin or bitcoin futures, each offering different investment strategies.

4. Why should I consider investing in a Bitcoin ETF?

Investing in a Bitcoin ETF provides a convenient and regulated way to gain exposure to the cryptocurrency market. It allows investors to participate in potential price movements of bitcoin without dealing with the complexities of directly owning and managing the cryptocurrency. Additionally, ETFs are traded on traditional stock exchanges, making them accessible to a broader range of investors.

5. How do I choose the right Bitcoin ETF?

Choosing the right Bitcoin ETF depends on your investment goals, risk tolerance, and preferences. Consider factors such as assets under management (AUM), expense ratios, and the investing strategy (spot bitcoin or bitcoin futures). Well-established ETFs like Grayscale Bitcoin Trust (GBTC) or newer alternatives like Invesco Galaxy Bitcoin ETF (BTCO) offer different features catering to various investor needs.

6. What are the risks associated with investing in Bitcoin ETFs?

Like any investment, Bitcoin ETFs come with risks. Cryptocurrency markets can be highly volatile, leading to potential rapid price fluctuations. Additionally, regulatory changes and market sentiment can impact the performance of Bitcoin ETFs. It’s crucial to conduct thorough research, understand the risks involved, and only invest what you can afford to lose.

7. How can I invest in a Bitcoin ETF?

To invest in a Bitcoin ETF, you need to open a brokerage account with a reputable online broker. Once your account is set up, search for the specific Bitcoin ETF ticker symbol within the broker’s interface, enter the desired investment amount, and execute the purchase. ETFs are traded similarly to stocks on the exchange.

8. Can I transfer Bitcoin ETF holdings to a crypto wallet?

No, Bitcoin ETF holdings cannot be transferred to a crypto wallet. ETFs are financial products traded on traditional stock exchanges, and investors do not hold the actual cryptocurrency. If you want to hold physical bitcoins and transfer them to a wallet, you would need to purchase and manage the cryptocurrency directly through a cryptocurrency exchange.

Always consult with financial advisors and conduct thorough research before making investment decisions. Cryptocurrency markets can be dynamic, and staying informed is key to successful investing.