Bitcoin passive income streams are gaining traction as more investors seek alternatives to traditional investments. If you’re like many of these investors, you may find yourself looking for ways to get started with minimal risk and effort. One of the best places to begin could be with Bitcoin exchange-traded funds or ETFs. These products allow investors to gain exposure to Bitcoin's price action, influenced by Bitcoin supply and demand, without the headaches of directly securing, storing, and transacting with the volatile BTC. This article addresses a pressing question for prospective Bitcoin ETF investors: what is the best Bitcoin ETF to buy now?
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What are Bitcoin ETFs?
Exchange-traded funds (ETFs) let investors buy a collection of securities that track an underlying asset or index. A bitcoin ETF is an exchange-traded fund that invests primarily in assets related to the OG, bitcoin. ETFs sell shares to investors on the open market and use the proceeds to build a portfolio of investments.
ETFs are similar to mutual funds. However, unlike mutual funds, ETFs are traded directly on a stock exchange, like stock in a publicly traded company.
Bitcoin ETFs are a welcome entrant into the ETF market for several reasons:
- Accessibility: They make investing in Bitcoin possible through conventional brokerage accounts, eliminating the need for digital wallets and their associated security concerns.
- Regulatory Oversight: Being regulated products, they offer a layer of security and legitimacy that direct BTC investments do not, potentially attracting more conservative investors.
- Market Stability: By providing a more straightforward way to invest in Bitcoin, ETFs can help stabilize the market by reducing the volatility of sudden individual investments and withdrawals.
- Mainstream Adoption: ETFs help bring Bitcoin into the mainstream investment world, similar to traditional assets like gold or stocks.
Spot Bitcoin ETFs is a Game-Changer for Investing
A landmark development occurred in January 2024 when the U.S. Securities and Exchange Commission (SEC) approved the first-ever batch of spot Bitcoin ETFs. This approval allows ETFs to hold actual Bitcoin rather than derivatives like futures, marking a significant step forward in the financial product's evolution. This move by the SEC is expected to enhance the liquidity and credibility of Bitcoin as an asset class, making it more attractive to a broader range of investors.
These newly approved spot Bitcoin ETFs are designed to directly reflect the current price of Bitcoin, offering investors a more accurate and immediate linkage to the actual performance of Bitcoin in the market. This direct exposure can potentially increase returns for investors compared to futures-based Bitcoin ETFs, which may suffer from tracking errors and other issues related to futures.
The Landscape of Bitcoin ETFs Before 2024
Before the approval of spot Bitcoin ETFs in 2024, the market for Bitcoin investment vehicles was quite different, primarily characterized by indirect exposure options and regulatory hesitations. Following are some examples of early Bitcoin investment vehicles:
Bitcoin Trusts
Before the advent of Bitcoin ETFs, trusts like the Grayscale Bitcoin Trust (GBTC) were among the primary methods for investors to gain exposure to Bitcoin through traditional investment channels.
These trusts allowed investors to buy shares representing a portion of the Bitcoin held by the trust. However, these did not offer the same liquidity or price tracking accuracy as ETFs because they could trade at significant premiums or discounts to the actual price of Bitcoin.
Bitcoin Futures ETFs
The U.S. Securities and Exchange Commission (SEC) first approved Bitcoin futures ETFs in 2021, starting with the ProShares Bitcoin Strategy ETF. These ETFs did not invest directly in Bitcoin but in futures contracts on Bitcoin. This was seen as a step towards more regulated Bitcoin-related investment products, although it did not provide direct exposure to BTC.
Private Funds and Limited Partnerships
High-net-worth individuals and institutional investors could invest in Bitcoin through private funds and limited partnerships that dealt directly with Bitcoin. These were less accessible to the general public and involved higher fees and minimum investment thresholds.
SEC's Path to Bitcoin ETF Approval and Legal Turning Point
The SEC was initially reluctant to approve Bitcoin ETFs due to concerns about market manipulation, Bitcoin's volatility, and the security of asset custody. Over the years, many Bitcoin ETF applications were rejected due to fears of the market's ability to prevent fraud and manipulation, protect investors, and the adequacy of market surveillance.
The SEC finally decided to approve Bitcoin ETFs following a federal court ruling that found the SEC had not adequately explained its reasons for previously denying Grayscale's application for a Bitcoin ETF.
Types of Bitcoin ETFs
There are two main types of Bitcoin ETFs: Spot Bitcoin ETFs and Bitcoin Strategy ETFs. Following is a short explanation of the two types of Bitcoin ETFs:
Spot Bitcoin ETFs
These ETFs provide direct exposure to Bitcoin by holding the actual asset. They aim to track the real-time market price of Bitcoin as closely as possible. Spot Bitcoin ETFs are designed for investors looking for direct exposure to Bitcoin's price movements without the need to own Bitcoins themselves. This type of ETF involves physically holding Bitcoin and is managed by trusted custodians to reflect the current value of Bitcoin in the market.
Bitcoin Strategy ETFs
These ETFs do not hold Bitcoin directly. Instead, they may invest in Bitcoin futures contracts, mining stocks, or other financial instruments related to Bitcoin. Bitcoin Strategy ETFs aim to track Bitcoin's price indirectly and can include investments in assets expected to move in correlation with Bitcoin's price.
This category can also encompass ETFs that use various strategies, such as leveraging or employing sophisticated trading techniques, to capitalize on Bitcoin's price movements. These ETFs are typically more suitable for sophisticated investors who understand the complexities of futures contracts and the indirect nature of the investment.
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15 Best Bitcoin ETF to Buy Now
1. Grayscale Bitcoin Trust ETF (GBTC)
Net Assets: $14 billion
Expense Ratio: 1.5%
Structured initially as a close-ended trust, the Grayscale Bitcoin Trust ETF was converted to an open-ended ETF. Its price trades closer to its net asset value, ensuring you aren’t overpaying or underpaying. Despite outflows since its conversion, GBTC is among the largest, most liquid spot bitcoin ETFs. Investors who held it before July 30, 2024, received shares of the newer, lower-cost Grayscale Bitcoin Mini Trust (BTC) on a 1-for-1 basis.
Pros
A track record dating to 2013. Managed by a firm with expertise and reputation in digital assets space. Well capitalized and very liquid.
Cons
A high expense ratio. Has seen outflows since conversion as investors fled to cheaper competitors. Highly volatile and doesn’t trade 24/7 like bitcoin.
2. iShares Bitcoin Trust (IBIT)
Net Assets: $23.2 billion
Expense Ratio: 0.25% (after the waiver period is over)
The iShares Bitcoin Trust was a clear winner in the spot bitcoin ETF race. Backed by the BlackRock iShares brand, it swelled in AUM. It’s among the most liquid options. You can trade it with a low bid-ask spread and excellent volume. IBIT trades on the Nasdaq exchange. It tracks the CME CF Bitcoin Reference Rate – New York Variant index as its benchmark.
Pros
Very well capitalized. Excellent daily volume and liquidity. A reasonable expense ratio with a limited-time waiver.
Cons
The fee waiver applies to the first $5 billion AUM and expires in January 2025. Bitcoin is highly volatile and doesn’t trade 24/7 like Bitcoin.
3. Fidelity Wise Origin Bitcoin Fund (FBTC)
Net Assets: $11.4 billion
Expense Ratio: 0.25%
Do you own a Fidelity mutual fund or use its brokerage platform? Then, you can access Bitcoin exposure via the Fidelity Wise Origin Bitcoin Fund. While its fee waiver expired on Aug. 1, 2024, FBTC remains affordable. It isn’t as well capitalized as the Grayscale Bitcoin Trust ETF or iShares Bitcoin Trust. But you should have no problem buying or selling at your desired ask or bid.
Pros
An affordable expense ratio. Backed by a reputable investment firm. A decently high AUM.
Cons
The fee waiver expired in August 2024. Highly volatile. Doesn’t trade 24/7 like bitcoin.
4. ARK 21Shares Bitcoin ETF (ARKB)
Net Assets: $3.2 billion
Expense Ratio: 0.21%
Cathie Wood and ARK Invest aren’t just known for their suite of innovation-themed ETFs. Thanks to a partnership with digital asset manager 21Shares, ARK also has a spot bitcoin ETF. ARKB trades on the Cboe BZX exchange. It tracks the CME CF Bitcoin Reference Rate – New York Variant index.
Pros
A reasonable expense ratio. A high trading volume. Tracks a well-known Bitcoin index.
Cons
A lower AUM. No fee waiver. Highly volatile and doesn’t trade 24/7 like Bitcoin.
5. Bitwise Bitcoin ETF (BITB)
Net Assets: $2.5 billion
Expense Ratio: 0.20%
Do you value transparency? The Bitwise Bitcoin ETF is the clear winner. It discloses the public wallet addresses of its Bitcoin holdings, which allows you to verify transactions and reserves. Otherwise, BITB is a pretty standard Bitcoin ETF. It charges a reasonable fee and has attracted sufficient AUM and liquidity for most investors.
Pros
Managed by a reputable, dedicated digital assets firm. A high degree of transparency with disclosed wallet addresses. A reasonable expense ratio.
Cons
The fee waiver expired in July 2024. The lowest AUM on this list. A lower trading volume than some other ETFs on this list.
6. Invesco Galaxy Bitcoin ETF (BTCO)
Assets Under Management: $614.4 million
Expense Ratio: 0.00%
Invesco Galaxy Bitcoin ETF, another spot Bitcoin fund, is on our list because of its generous approach to winning new business. BTCO is waiving its official 0.25% fee to zero for the first six months on the first $5 billion in assets. After July 11, the waiver expires unless renewed.
The 0.25% fee will be a bit higher than some of its competitors, but the discount is hard to pass up for many short-term swing traders who don’t think about their Bitcoin positions in a long-term way. With a few hundred million in assets, BTCO is gathering support that could cement it as one of the few 100% Bitcoin funds that might have staying power. That presumes that investors who recently piled in because of the fee waiver don’t bolt if the waiver expires this summer.
7. ProShares Bitcoin Strategy ETF (BITO)
Assets Under Management: $2.0 billion
Expense Ratio: 0.95%
ProShares Bitcoin Strategy ETF was a first-mover in this space and remains the leader among bitcoin futures ETFs. Keep in mind, however, that BITO is an actively managed fund linked to future contracts with Bitcoin. Those financial products derive their value from the potential future prices of an asset not the current or “spot” price.
First-movers are often more successful at attracting shareholders and their money in the long run. ProShares Bitcoin Strategy ETF launched in 2021 as the first bitcoin futures ETF and is still the leader in that category. Within a few days of its launch, it attracted around $1 billion in assets.
8. Volatility Shares 2x Bitcoin ETF (BITX)
Assets Under Management: $2.0 billion
Expense Ratio: 1.90%
One factor that makes futures markets popular with some investors is the potential for “Leverage.”The ability to trade with borrowed cash to supercharge your bets. This comes with elevated risks, but the rewards can be significant. Volatility Shares 2x Bitcoin ETF, which seeks to use futures to provide two times the daily price movement of bitcoin, has notched a total return of about 66% in the past six months versus about 6% for the broad stock market in the form of the S&P 500 Index.
The expense ratio for this complex fund is steep. Thanks to the friction of levered funds, that is, the combined direct and indirect costs of trading them, you are unlikely ever to get a performance that is exactly twice Bitcoin’s performance. But with a gain of about 51% since its June 2023 inception date, it’s hard to argue there isn’t a use for this admittedly aggressive bitcoin ETF.
9. ProShares Short Bitcoin ETF (BITI)
Assets Under Management: $73.9 million
Expense Ratio: 1.33%
The ProShares Short Bitcoin ETF has existed since June 2022. BITI aims to return the inverse of the S&P CME Bitcoin Futures Index for a single day if and when Bitcoin stumbles. This unique ETF may be of interest to investors. A “short” ETF is a risky long-term bet amid inflationary pressures that raise the prices of many assets. In the case of an asset like bitcoin, which has been on a tear, ETFs set up to profit from the decline of digital currency have been painfully punished.
That explains why the ProShares Short Bitcoin ETF's total net assets are tiny and its performance has been abysmal. However, BITI has been around since June 2022. It may persist despite recent troubles since ProShares regularly supports hypertechnical funds like this, which are completely ignored when they’re not working but have the potential to attract immediate interest when market conditions change.
10. VanEck Bitcoin Trust (HODL)
The VanEck Bitcoin Trust (HODL) is designed to mirror Bitcoin's performance minus the Trust's operational expenses. Launched on Jan. 4, 2024, the Trust holds Bitcoin and calculates its share values based on the prevailing market price of Bitcoin, as determined by the MVIS CryptoCompare Bitcoin Benchmark Rate.
With net assets amounting to $626.07 million as of May 16, 2024, HODL offers investors exposure to the Bitcoin market through a regulated offering. Traded on the CBOE under the ticker symbol HODL, the Trust carries an expense ratio of 0.20%. However, investors should exercise caution because Bitcoin prices are inherently volatile, influenced by:
- Market demand
- Investor sentiment
- Regulatory developments
11. Franklin Bitcoin ETF (EZBC)
Franklin Templeton Investments, a reputable and well-established investment firm, manages the Franklin Bitcoin ETF (EZBC). What sets the Franklin Bitcoin ETF (EZBC) apart from other Bitcoin investment options is that physical Bitcoin holdings back it. The ETF holds actual Bitcoin instead of futures contracts or other derivatives. This gives investors a more direct and secure way to access the potential benefits of investing in Bitcoin.
One of the Key Benefits
The Franklin Bitcoin ETF is accessible to a wide range of investors. Whether you are an individual looking to dip your toes into the world of Bitcoin or a seasoned investor seeking to diversify your portfolio, this ETF provides a convenient and cost-effective way to gain exposure to Bitcoin.
The Franklin Bitcoin ETF is designed to provide investors with transparency and liquidity, allowing for easy buying and selling of shares on the open market. This flexibility is essential for investors who want to capitalize on market trends and make informed investment decisions. The Fund is not registered under the Investment Company Act of 1940 (1940 Act), so it is not held to the same regulatory standards as mutual funds or ETFs registered under the 1940 Act.
12. Valkyrie Bitcoin Strategy ETF (BTF)
Pros
All transactions are managed through a digital asset investment firm. A futures market regulates all the investments made.
Cons
The fund is not diversified as it focuses on just one type of asset. It is an actively managed fund with a higher expense ratio. Highlights Price: $11.84
Expense Ratio: 0.95%
Minimum Investment Amount: $25,000
Assets Under Management: $28.8 million
Another Bitcoin ETF worth investing in is the Valkyrie Bitcoin Strategy ETF (BTF). BTF launched in October 2021 to provide investors with capital appreciation. This fund is an actively managed ETF. Actively managed ETFs are a type of investment fund that combines traditional ETF features with active portfolio management. Fund managers actively research, analyze, and select lucrative investments with these ETFs. They may also actively trade or rebalance the portfolio in response to market conditions or investment opportunities.
In the BTF’s case, it invests most or all of its assets in Bitcoin futures contracts traded on exchanges. If any assets remain, BTF will hold them in U.S. government securities, money market funds, and corporate bonds. It’s worth noting that BTF does not directly invest in Bitcoin, so its price may not be the same as the current price of Bitcoin.
13. VanEck Bitcoin Strategy ETF (XBTF)
Pros
The fund has no upfront performance or redemption fees. It offers investors flexible ways to manage their investments.
Cons
Has a high minimum investment requirement. When you buy shares, they can only be traded through a direct brokerage account. Highlights Price: $29.83
Expense Ratio: 0.76%
Minimum Investment Amount: $100,000
Assets Under Management: $46.50 million
Bitcoin ETF investors can also explore the VanEck Bitcoin Strategy ETF (XBTF). This actively managed ETF was launched in November 2021 to provide capital appreciation for investors. Like many other ETFs, the fund acquires its exposure to Bitcoin through futures contracts. However, the distinguishing factor is that while other ETFs are designed as investment corporations, XBTF is intended as a C-corporation.
C-corporations are tax-efficient corporate designs with tax-tracking systems that can save investors from tax liabilities. Besides this structural difference, XBTF also has a slightly different investment strategy. The ETF diversifies its investments from Bitcoin futures to other assets, including stocks, bonds, and cash.
14. Simplify U.S. Equity PLUS GBTC ETF (SPBC)
Pros
The fund has a relatively low expense ratio, making it ideal for investors seeking little exposure to Bitcoin while holding the S&P 500.
Cons
As an investor, you have little control over non-BTC asset allocation. Trading of equity securities makes it vulnerable to stock market variations. Highlights Price: $24.87
Expense Ratio: 0.73%
Minimum Investment Amount: Not Available
Assets Under Management: $8.70 million
The Simplify U.S. Equity PLUS GBTC ETF (SPBC), launched in 2021, is not entirely a Bitcoin ETF. It invests in U.S. securities, including stocks and other ETFs. However, it offers some exposure to Bitcoin by allocating 10-15% of its assets to the Grayscale Bitcoin Trust (GBTC). This makes it one of the top Bitcoin ETFs to consider. Bitcoin allocation aside, SPBC has diverse holdings. The ETF invests in other assets beyond BTC, including iShares’ Core S&P 500 ETF. SPBC actively rebalances its Bitcoin holdings to 10% of its portfolio to avoid overexposure to the Bitcoin markets.
15. Global X Blockchain & Bitcoin Strategy ETF (BITS)
Pros
The fund invests in innovative blockchain and digital asset providers. Exposes you to blockchain technology stocks and Bitcoin futures in just a single trade.
Cons
It has just a few assets under management compared to other options, suggesting a lack of confidence from investors. Highlights Price: $42.00
Expense Ratio: 0.65%
Minimum Investment Amount: $25,000
Assets Under Management: $14.20 million
Another leading Bitcoin ETF is the Global X Blockchain & Bitcoin Strategy ETF (BITS). This actively managed fund, launched in 2021, derives its profits from Bitcoin-linked ETFs and investments in other blockchain firms.
BITS is an ideal investment strategy because it combines Bitcoin futures with a portfolio of industry stocks. Approximately 55% of the fund’s ETF is in the Global X Blockchain ETF, with 25 Bitcoin companies specializing in mining, exchanges, hardware manufacturing, and software development. The remaining 45% of the fund exists in monthly CME Bitcoin futures. Therefore, investors get diverse investment approaches in the blockchain and Bitcoin space while mitigating the risks associated with a single asset class.
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Why Should You Buy a Bitcoin ETF Instead of Bitcoin?
Investors looking to get exposure to Bitcoin in their portfolio may feel safer buying a Bitcoin ETF than directly purchasing it. A Bitcoin ETF is a professionally managed investment product traded on public exchanges. Directly buying Bitcoin requires investors to open an account at a Bitcoin exchange and secure their investment using a digital wallet. This comes with risks that can be off-putting to some investors.
If an investor buys Bitcoin and stores it in a wallet, there’s a risk that a hacker could steal their investment. There’s also the risk that the investor could lose access to their Bitcoin if they forget their password or lose the private keys needed to access their wallet. The IRS treats Bitcoin as an asset for tax purposes, so investors must keep records of their transactions for tax reporting purposes. Some people might be uncomfortable with these risks and prefer to be exposed to Bitcoin by purchasing a professionally managed ETF instead.
How to Invest in Bitcoin ETFs
Investing in Bitcoin ETFs is a process similar to buying any other ETF. Here’s how to do it: Finding the ETF. Log in to your brokerage account. To find Bitcoin ETFs, use the search function and type “Bitcoin.” This should bring up a list of relevant results. However, differentiate between ETFs and investment vehicles, such as closed-ended trusts or direct futures contracts. If you already know the ETF you want, enter its ticker symbol.
Calculating Your Investment
Decide how many shares you want to purchase. Calculate the total investment amount based on the price of the ETF. Most brokerage platforms automatically do this once you input the number of shares.
Placing The Order
Using a limit order is generally recommended. It allows you to specify the maximum price you will pay per share, giving you control over the price, unlike a market order, which executes the trade at the current market price. Using a limit order can help prevent buying at a higher price in a volatile market, which is a common scenario with assets related to Bitcoin.
Executing The Order
Your order will be executed once a seller is willing to meet your price. Depending on market conditions and your specified price, this process can be instantaneous or may take some time.
Holding The Etf
Once the order is executed, the Bitcoin ETF shares will be added to your portfolio. You may receive periodic distributions if the Bitcoin ETF rebalances its portfolio or realizes capital gains.
The Future of Bitcoin ETFs Is Bright
The Bitcoin ETF space is holding stable. It shows promising signs of growth and investor interest despite ever-present volatility. Bitcoin ETFs have seen over $68 billion in investor inflows year-to-date as of Sept. 25, 2024. This figure represents the amount of money invested in these funds in 2024.
It highlights significant market confidence and investment activity. Performance-wise, this segment has also increased, with a rise of over 40% year to date. This uptick reflects expansion within the Bitcoin market and underscores the growing acceptance of Bitcoin ETFs as a legitimate investment avenue.
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