5 Top Bitcoin ETFs in 2024: Read This Before You Invest
Bitcoin has become one of the most sought-after and best-performing assets in the world. As more investors and institutional players seek exposure, they are faced with deciding how to enter the market…
Warning: If you arrived here looking for a quick list of the “Top Best and Hottest Bitcoin ETFs for 2024” you’ve come to the wrong place. This is also not some news piece speculating on when SEC will greenlight spot Bitcoin ETFs.
In this definitive guide on Bitcoin ETFs, we will discuss and explain:
Ready? Let’s roll…
We know that some of you are NOT big readers, so here is a quick TLDR about Bitcoin ETFs:
What is it in simple terms? A Bitcoin ETF is an investment product offered through traditional stock exchanges that tracks the price of Bitcoin futures contracts.
Pros: It allows investors who want to avoid the hassle of buying and storing Bitcoin to get exposure to it.
Cons: The main problem with Bitcoin ETFs is that they are NOT actual Bitcoin; as of December 7rd, 2023, the SEC only allows for Bitcoin ETFs to track Bitcoin futures and not the price of real Bitcoin. As a result, you do not get direct Bitcoin exposure and all the benefits that come with it.
Final Verdict: If you want to own oil, you will buy an ETF that tracks the oil price. If you’re going to own gold, you will buy a gold ETF, which tracks the price of gold. If you want to own Bitcoin, currently, you cannot buy an ETF which tracks the price of Bitcoin. You can only purchase a Bitcoin ETF, which tracks the futures price. We suggest you wait for the SEC to allow Bitcoin spot ETFs, which follow the price of actual Bitcoin before you invest.
NOTE: If you want pure Bitcoin exposure, higher returns, lower fees, and less risk, waiting for Bitcoin spot ETFs or buying actual Bitcoin is what we recommend.
An exchange-traded fund (ETF) is a basket of securities that tracks an underlying index of a commodity, bonds, or stocks and trades on an exchange like a stock.
Futures contracts are agreements that allow people to purchase a commodity (Bitcoin, corn, gold, etc.) at a pre-agreed-upon price at a specific date. They started with farmers to help protect them against price volatility.
Click here to read more about how this works with a real-life example below.
Main Advantages of Bitcoin ETF
A Bitcoin ETF is managed by an investment firm and listed on a traditional stock exchange, giving investors a convenient way to gain exposure to Bitcoin through a familiar investment vehicle.
The SEC has approved Bitcoin ETFs tied to futures contracts in 2021. This occurred after years of denying a spot Bitcoin ETF.
A spot ETF is backed by actual Bitcoin. The SEC cited market manipulation and lack of surveillance agreements as critical factors in their denials.
What is a Spot Bitcoin ETF?
A spot Bitcoin exchange-traded fund (ETF) is an investment vehicle that allows ordinary investors exposure to the price moves of actual Bitcoin (not Bitcoin futures) in their regular brokerage accounts. Spot Bitcoin ETFs have yet to be approved by the SEC, but the approval date seems not far away.
Main Advantages of Bitcoin ETF
A Bitcoin ETF is managed by an investment firm and listed on a traditional stock exchange, giving investors a convenient way to gain exposure to Bitcoin through a familiar investment vehicle. The SEC has approved Bitcoin ETFs tied to futures contracts in 2021. This occurred after years of denying a spot Bitcoin ETF.
Here are the 3 main disadvantages of Bitcoin ETFs:
Lower Returns: Remember that Bitcoin ETFs track futures contracts (i.e., the future price of Bitcoin). Futures ETFs have to roll over (carry forward their position from one month to another) their futures contracts regularly because they expire.
The price difference between the expiring and new contracts every month can eat into the returns the ETF generates significantly.
Fees: At a 1% expense ratio, fees will eat roughly a quarter of your returns over a 30-year holding period, even if it could track the bitcoin price perfectly.
Market Hours: Bitcoin trades 24/7, but traditional markets do not. The Bitcoin price could spike and crash the same weekend, preventing you from accessing profits while traditional markets are closed.
A spot ETF is backed by actual Bitcoin. The SEC cited market manipulation and lack of surveillance agreements as critical factors in their denials.
Main Disadvantages of Bitcoin ETFs
The main problem with Bitcoin ETF is that it does not give you direct exposure to the asset. In other words — if you want to own oil, you can buy an oil ETF which tracks the oil price. If you’re going to own gold, you can buy a gold ETF, which tracks the price of gold.
If you want to own Bitcoin, currently, you cannot buy an ETF which tracks the price of Bitcoin. You can only buy a Bitcoin ETF, which tracks the Bitcoin futures price.
Counterparty and Custodial Risks: Bitcoin ETFs involve third-party entities for custody and management, introducing counterparty risk if these entities fail or face financial troubles.
Regulatory Uncertainties: Approval processes for Bitcoin ETFs face regulatory uncertainties, and changes in regulatory stance can impact the viability and acceptance of these financial instruments, affecting investor confidence.
Futures ETFs are not the purest form of exposure to the asset. While they might come close to tracking Bitcoin prices, there is ample risk it might not.
Bitcoin Futures are contracts that allow someone to buy or sell an asset at a set price at a set date and time in the future. In a way, it’s just a gauge of what people think the price might be in the future; it’s not the actual price of Bitcoin itself.
Futures contracts do not always track the price of the underlying assets.
Take oil, for example. The largest U.S.-traded oil ETF primarily invests in crude oil futures contracts and only sometimes tracks the oil price, while other times, it is wildly different.
The bottom line is that if you want the asset, you should invest in an ETF that holds the actual asset.
To invest in oil, you should buy an ETF that holds real oil, not oil futures.
If you want to invest in gold, you should buy an ETF which just holds gold, not gold futures.
If you want to invest in stocks, you should buy an ETF that tracks the S&P 500 index, not futures.
The same goes for Bitcoin; if you want to invest in Bitcoin, you should buy Bitcoin (the bearer asset) over investing in a Bitcoin ETF.
Now that you understand how Bitcoin ETFs work and their main benefits and risks, let’s review our analysis of the biggest ETFs on the market.
As of December 3rd, 2023, the SEC has approved several Bitcoin Futures ETFs; here are our top picks for the best Bitcoin ETFs to invest in right now.
Website: ProShares Bitcoin Strategy ETF (BITO)
Date Launched: October 2021
Assets Under Management: $1.2B
Investing Strategy: Mainly Bitcoin futures, which may hold some treasury securities and cash
This is the first Bitcoin ETF approved to trade in U.S. markets. After it went live in 2021, it attracted close to $1B in assets within the first week of trading publicly. Since it has the largest assets under management and trading volume, BITO will likely be the best bet for investment liquidity.
Low liquidity funds add an extra layer of risk called slippage. Think of it like a skipping record. If you try to buy or sell less at once, a low-liquidity asset may skip around, filling your orders in small chunks with a lot of price discrepancy. High liquidity funds have much less slippage and may result in more favorable buy and sell order price fills.
Website: VanEck Bitcoin Strategy ETF (XBTF)
Date Launched: November 2021
Assets Under Management: $45M
Investing Strategy: Bitcoin futures
XBTF launched on November, 2021. Its is a similar fund to all other Bitcoin futures ETFs, which focuses on capital appreciation by investing in Bitcoin futures with some assets invested into Treasuries and cash. However, one big difference is that VanEck Bitcoin Strategy ETF is structured as a C-corp vs. most other ETFs, which are investment corporations. C-Corps are not required to distribute capital gains as dividends to investors.
Interest rates and bond prices live on opposite sides of a seesaw.
As interest rates go down, bond prices rise. The strategy could receive short-lived gains on their treasuries, but lower interest rates mean the income will likely dwindle. Will the bond gains be enough to offset the loss in income?
Perhaps for a time, but as short-dated treasuries mature, cash will have to rotate into newly issued treasuries at lower interest rates.
The highly anticipated change in Federal Reserve interest rate policy will likely significantly affect Bitcoin’s price trajectory to the upside.
Additionally, this product doesn’t actually hold any Bitcoin.
Website: Global X Blockchain & Bitcoin Strategy ETF (BITS)
Date Launched: November 2021
Assets Under Management: $21M
Investing Strategy: Bitcoin futures and blockchain companies
This ETF not only invests in Bitcoin futures but blockchain companies as well. It allows investors to experience price appreciation from Bitcoin while supporting the growing ecosystem.
Companies involved with Bitcoin can act as leveraged positions on the price of Bitcoin. Historically, mining companies and MicroStrategy have, at times, outperformed Bitcoin itself.
Unfortunately, however, many of these companies fall faster during protracted price downturns than bitcoin, making the losses more significant.
Investing in other blockchain companies may also mean supporting companies outside the Bitcoin ecosystem, like Coinbase. Crypto writ large has been referred to as unregistered securities by the SEC, which could add unnecessary regulatory risk to your portfolio.
BITS exposure to Bitcoin futures and blockchain companies means that investors are subject to increased regulatory risks if the SEC decides to pursue their efforts further. Companies like Coinbase have recently experienced high scrutiny as many crypto tokens get classified as unregistered securities.
If you believe that Bitcoin and crypto are different, this fund may not be for you considering the need for more differentiation between the two spaces. Though the companies held in 50% of the ETF are bitcoin miner-heavy, others are not necessarily bitcoin companies. These include Coinbase, PayPal, Robinhood, Nvidia, and Galaxy Digital Holdings.
Website: Simplify Bitcoin Strategy PLUS Inc ETF (MAXI)
Date Launched: September 2022
Assets Under Management: $30M
Investing Strategy: Bitcoin futures with income generation through selling short-dated options
Simplify is the first fund to provide exposure to Bitcoin while generating income by selling short-dated put or call spread. It launched near the end of September 2022. The fund invests in futures contracts for price appreciation, much like the other funds.
MAXI had an 11.74% yield as of September 2023; however, with such high expenses, most of those gains were likely eaten by the fees.
The ETF also has a relatively low trading volume compared to the other products, which may be unsuitable for more significant investments or taking profits.
Their income generation strategy also includes treasuries and options contracts. If the Federal Reserve lowers interest rates again, the fund may lose an essential source of income for its strategy.
Options contracts are also very volatile, adding an extra layer of risk to an already volatile investment.
Website: ProShares Short Bitcoin ETF
Date Launched: June 2022
Assets Under Management: $80M
Investing Strategy: Return is the inverse of Bitcoin’s daily performance
BITI is the ONLY Bitcoin ETF approved by the Securities and Exchange Commission, focusing on trading the inverse of Bitcoins ' performance. BITI calculates its return by tracking the inverse of the S&P CME Bitcoin Futures Index for a single day at a time.
BITI is unique among these other ETFs because it is a short Bitcoin fund. BITI will buy and sell Bitcoin futures contracts to try and return the opposite of what Bitcoin returns.
Let’s say you invest $1,000 into BITI.
The next day, Bitcoin price goes down by 20%.
Your return would be 20% that day, so you would gain $200 on your investment, making your portfolio worth $1,200.
Now, the next day, the price of Bitcoin goes up by 30%, you would lose 30% and be down to $900 in your portfolio. Again, you are not holding actual Bitcoin, and you are not shorting actual Bitcoin.
BITI is not shorting Bitcoin but shorting Bitcoin derivative holdings over 1 day.
So, your portfolio looks very different from what you’d expect if it strictly tracks Bitcoin price because of fees, expenses, and tracking errors. The problem here is similar to BITO: Proshares is emulating shorting by buying and selling futures on Bitcoin.
Because Proshares is not actually buying/selling Bitcoin itself, the return does not always correlate 1-to-1 with the inverse of Bitcoin.
When investing in BITI, keep the following in mind:
Management and Tracking Risks: Inverse products may not perfectly track the inverse of Bitcoin prices due to factors such as fees, expenses, and tracking errors.
Timing Risks: Is the Bitcoin price going up or down? Successfully timing the market is crucial when using inverse products, as they aim to profit from price declines. Incorrect timing can result in significant losses.
Volatility Amplification: The prices of bitcoin futures have historically been highly volatile. The value of inverse exposure to Bitcoin futures could decline significantly and without warning, including to zero. Inverse products like BITI often amplify the impact of price movements, leading to higher volatility for the fund and potential magnification of losses.
Short-Term Focus: These instruments are designed for short-term trading and may not perform as expected over extended periods due to compounding effects.
A Bitcoin ETF is an exchange-traded fund that invests in Bitcoin-related assets in an attempt to mimic Bitcoin’s price action.
As of December 3rd, 2023, almost all SEC-approved Bitcoin ETF funds use futures contracts to mimic Bitcoin price action.
Hang on… Huh? What is a futures contract?
Futures allow people to purchase a commodity at a pre-agreed-upon price at a specific date. They started with farmers to help protect them against price volatility when going to harvest.
It’s currently November 2023, and corn season is over. Let’s say farmers grew too much corn in 2023; too much supply of corn means it’s cheap. It’s VERY cheap in 2023.
So many farmers cannot earn much money from all the corn they produce. Many farmers are experiencing a great deal of pain.
However, a handful of farmers entered into a futures contract in January 2023, allowing them to sell X tons of corn at a pre-agreed price, which is MUCH higher than the going rate.
Now, these farmers are innovative and making out like bandits.
They can protect themselves from a downturn by selling at least a portion of their expected harvest via their futures contract pre-negotiated price.
Stockbrokers and investors can trade these contracts as well. If the corn harvest fell short of expectations, the contracts would increase in value because they allow people to purchase corn below market value.
The same goes for Bitcoin…
Futures contracts are sold and traded on Commodities Futures Trading Commission (CFTC) regulated exchanges, predominantly the Chicago Mercantile Exchange (CME).
Unlike traditional commodity futures, there isn’t actually any Bitcoin being bought or sold. With Bitcoin futures, each contract represents 5 Bitcoin (s) and a two-sided bet on the future price of Bitcoin.
The seller pays the buyer the difference if the contract expires below Bitcoin’s market price. If Bitcoin’s market price is below the contract price, the buyer pays the seller the difference.
Between issuance and settlement, these contracts trade freely between speculators. They are valued in reference to the current price of Bitcoin.
Let’s say I purchased a Bitcoin futures contract for $25,000 bitcoin in January 2023.
As of November 2023, the market price has risen to $35,000.
The futures contract I purchased will be worth more than futures contracts for $27,000 or $36,000 Bitcoin. I can buy Bitcoin at a more significant discount than the $27,000 contract. The $36,000 contract has no discount, so it would be considered” out of the money” and of little value at the time.
ETFs will trade the contracts that are about to expire to roll them over into new futures. If the price of Bitcoin is higher than the future contracts, then the proceeds from the sale purchase will not be able to purchase the same amount of contracts. The situation is one of the factors that may lead to imperfect price tracking and lower investment performance.
ETF fees are the annual charges the managers take to cover operations costs as they manage the fund, like making trades and meeting compliance requirements.
Trading assets entails transaction costs. Many companies, like Bitcoin exchanges, charge fees for making trades; asset managers are also subject to those fees. Managers must also keep within compliance laws, necessitating reports and paperwork. Somebody’s gotta do all these things to keep the fund in order, right?
Fund managers must charge fees to cover those costs and remain profitable. They’re not doing this for charity, after all.
Through research, Bitcoin ETF fees can range from 0.65% to 1.2%, averaging around 1% annually. Though a 1% annual fee may sound like little, it will significantly affect your long-term returns. In fact, the fees will reduce the amount of bitcoin you own by 26% over 30 years.
To date, the SEC has only approved Bitcoin futures ETFs to operate in the U.S. The SEC denied requests for ETFs to hold actual Bitcoin because of market manipulation concerns.
SEC believes that by holding real Bitcoin, an ETF would have the power to manipulate the market unlawfully.
Grayscale'’ Bitcoin Trust (GBTC) is a prominent Bitcoin exchange-traded product attempting to convert to an ETF for years. The SEC has denied the request, citing market manipulation concerns.
There is a light at the end of the tunnel, however. Grayscale recently won a court case against the SEC. Since the court found the SEC’s decision arbitrary and capricious, the SEC has been forced to reevaluate their policies.
Many expect a Bitcoin-backed ETF to be approved by January 2024. With it may come some positive price action as traditional investors and institutions dip their toes into the water.
Bitcoin can be intimidating! As a digital bearer asset, you can hold and transact with Bitcoin without needing a third party.
With great power comes great responsibility, however. Managing private keys that control Bitcoin can be scary; losing your keys means losing your Bitcoin.
Traditional institutions provide a sense of familiarity, which may help people feel more comfortable taking the plunge. Convenience may also be a factor, with people wanting to consolidate all their assets on one account.
As of October 2023, assets managed by brokers, banks, and various financial institutions are estimated to reach around $50 trillion, encompassing different channels such as:
- Retirement Accounts
- Mutual Funds
- Investment Portfolios
Predicting how much money will inflow to Bitcoin ETFs after approval from the U.S. Securities and Exchange Commission is tough, but let’s try it.
Let’s say there are $50 trillion in managed assets; we also anticipate around 5% to 15% of these assets gradually allocating a portion into Bitcoin; let’s say that portion is 3% to Bitcoin ETFs, given the growing interest in Bitcoin as an investment class.
Based on these estimates, we can try to calculate potential inflows to Bitcoin ETFs:
Year 1 after SEC approval = $75B: Assuming 5% adoption and a 3% allocation, this would translate to approximately $75 billion flowing into Bitcoin ETFs.
Year 2 after SEC approval = $150B: With growing interest, let’s estimate 10% adoption and a 3% allocation, resulting in roughly $150 billion invested in Bitcoin ETFs.
Year 3 after SEC approval = $225B: If adoption increases to 15% and the allocation remains at 3%, we can expect approximately $225 billion in inflows into Bitcoin ETFs.
However, $225B worth of inflows do not affect the market cap proportionately. Because of Bitcoin’s scarcity and a holder mentality, additional dollars fighting for increasingly scarce Bitcoin can impact the market cap disproportionately.
LukeMikic’s X thread states that scarcity can trigger as much as a 3x multiplier on the market cap for every dollar invested into Bitcoin. After ETF approval and acceptance, retail investors mentioned above could effectively double the Bitcoin price.
This does not consider companies adding Bitcoin to their balance sheets or the trillions of dollars in pension funds dipping their toes into the water. With global assets at $900T, a less than 1% global allocation, or $8T, is expected to be able to take Bitcoin’s price to the $1M benchmark.
Bitcoin ETFs' future is likely to include the approval of multiple spot Bitcoin ETF product offerings.
On October 23rd, the iShares Bitcoin Trust has been listed on the DTCC (Depository Trust & Clearing Corporation, which clears NASDAQ trades). The ticker will be $IBTC.
However, the next day the DTCC removed BlackRock’s Bitcoin ETF, iBTC, from its ETF list.
NOTE: The iBTC ETF was again re-listed later that same day.
The inclusion of BTCC on the list came in the wake of a U.S. appellate court’s issuance of a mandate, which enforced the decision made on August 29. This decision mandated the SEC to conduct a review of Grayscale Investments' application for a spot BTC ETF.
Grayscale, on October 19, submitted a registration statement to the SEC for the purpose of listing shares of its Bitcoin trust on the New York Stock Exchange Arca, using the ticker symbol GBTC.
Fees will eat into long-term returns, so those should be weighed heavily in deciding to invest. Think of it like a leaky engine — you might be able to get where you’re going, but it can do a lot of damage over a long period.
The fees should be weighted against assets under management and trading volume as well, however. Unfortunately, the lowest fee Bitcoin ETF I could find also has the lowest trading volume and assets under management.
What this means is that if you’re trying to cash out, you might not be able to get the best prices because the market isn’t running smoothly. Like a conveyor belt that keeps sticking, illiquid markets can be choppy, resulting in gaps when buying and selling, especially in large amounts.
Though Bitcoin ETFs are managed through regulated entities, they add layers of counterparty risk that do not exist through holding Bitcoin directly. The structures reduce transparency, which runs the risk of companies issuing more shares than Bitcoin actually held. This is commonly referred to as paper Bitcoin or rehypothecation.
It also adds counterparty risk, relying on third parties to securely hold the underlying Bitcoin. With recent custodian hacks resulting in the loss of customer Bitcoin, this is a significant risk that prospective investors should weigh heavily.
Bitcoin was designed as peer-to-peer money without the need for intermediaries. When opting into a Bitcoin ETF, investors can leverage price action, but at the cost of self-sovereignty and long-term returns.
We urge you to research to fully understand the trade-offs between owning Bitcoin and currently purchasing a Bitcoin ETF.
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