What is a Bitcoin ETF?
An exchange traded fund, often referred to as an ETF, is an investment fund that tracks the price of an underlying asset, such as gold, oil, an index or a basket of stocks. Well, a Bitcoin ETF is an investment fund that tracks the price of Bitcoin.
ETFs are traded on exchanges in the same way as stocks. This means that any investor – retail or institutional – can buy and sell an ETF’s holdings to other market participants through a stock exchange.
ETFs are typically cheaper than mutual funds because they are passive index-tracking funds. As such, they allow investors – even private investors – to access asset classes and niche markets that would otherwise be difficult to invest in.
Buying a Bitcoin ETF VS.
Bitcoin ETFs were proposed by the Winklevoss twin brothers in 2013 and use the digital currency Bitcoin as the underlying asset. This means that by buying a Bitcoin ETF, investors will be indirectly buying Bitcoin as they will be holding the Bitcoin ETF in a portfolio rather than buying and holding the digital currency itself.
However, since the ETF will closely track the bit price, it should make no difference to investors whether they hold the bitcoin ETF or the actual digital currency. The main difference between buying a Bitcoin ETF and Bitcoin itself is that investors are buying a regulated investment vehicle, rather than buying and owning a cryptocurrency asset.
Bitcoin ETFs have several benefits for investors.
1. Greater convenience. You don’t have to worry about properly storing your bitcoins securely. There is no need to learn the intricacies of using a wallet or dealing with a cryptocurrency exchange. Buying an ETF simplifies the entire process of investing in cryptocurrencies.
2. It’s regulated. As a decentralized and often unregulated asset class, access to bitcoin is fraught with regulatory complexity in many jurisdictions. etf’s are traded under the strict institutional oversight of mainstream market exchanges. This is useful from a legal as well as a tax efficiency perspective.
3. 3. Diversify risk. Investing in bitcoin brings high volatility and risk exposure to a portfolio. This is where the ETF model can work great – you can find funds that mix bitcoin with other popular alternative coins, traditional commodities, AAA stocks, etc. for additional diversification. Providing you with more risk management options while still seeing the dynamic cryptocurrency market
How to Invest in Bitcoin ETFs
As of today, there are three bitcoin futures ETFs for investors to choose from.
1. prosharesProshares Bitcoin ETF (BITO)
BITO currently holds the record for being the fastest ETF to reach $1 billion in assets under management. proshares Bitcoin ETF has attracted a lot of investor interest.
Its primary strategy is to invest in cash-settled bitcoin futures contracts on the Chicago Mercantile Exchange (CME). Investors buy in exchange for a 0.95% fee. Funds with an expense ratio of more than 1.5% are the ones to avoid in ETFs.
2.Valkyrie-Logo-icon-taglineValkyrie Bitcoin Strategy Fund (BTF)
Instead of focusing solely on bitcoin futures contracts, Valkyrie combines them with other instruments such as treasury bills, bonds, corporate debt securities and cash. valkyrie has an expense ratio of 0.95% of the market, just like Proshares.
3. VaneckVan Eck Bitcoin Strategy Fund (XBTF)
New York-based VanEck Investment Fund has floated several bitcoin ETFs, primarily on European exchanges.
With an expense ratio of 0.65%, XBTF is one of the lowest priced cryptocurrency futures ETFs in the world.