Best Bitcoin Funds: Where To Invest Your Money

Bitcoin funds have been a hot topic since the first one was proposed in 2013. Since then, investors have been keen to get in on the action, and brokers have struggled to find SEC-approved ways of offering exposure to cryptocurrency.

There are several Bitcoin funds to choose from, but they don't hold Bitcoin directly. Instead, they track Bitcoin futures contracts or invest in companies involved in the Bitcoin industry, like mining.

Some of the best Bitcoin funds include:

- Grayscale Bitcoin Trust (GBTC)

- iShares Bitcoin Trust ETF (IBIT)

- Bitwise Bitcoin ETF (BITB)

- ProShares Bitcoin Strategy ETF (BITO)

- Invesco Galaxy Bitcoin ETF (BTCO)

- Valkyrie Bitcoin Miners ETF (WGMI)

- VanEck Bitcoin Strategy ETF (XBTF)

Bitcoin investment trusts

One of the first BITs was the Grayscale Bitcoin Trust (GBTC), which was launched in 2013 and is now one of the largest Bitcoin funds. It is currently the only fund that invests 100% of its assets directly in Bitcoin. The Grayscale Bitcoin Trust has been through several iterations since its launch, initially being available only to institutional and accredited investors. In 2015, it became available to the public, trading on the OTCQX, an over-the-counter (OTC) market. In 2021, Grayscale began seeking approval from the SEC to operate GBTC as an ETF, which was finally granted in January 2024.

Another example of a BIT is the iShares Bitcoin Trust ETF (IBIT). This fund has grown to over $17.2 billion in assets under management since its debut, offering exposure to Bitcoin's spot price during market hours for a 0.25% expense ratio.

Other notable BITs include the Bitwise Bitcoin ETF (BITB), the ARK 21Shares Bitcoin ETF (ARKB), and the Fidelity Wise Origin Bitcoin Fund (FBTC).

BITs provide a convenient way for investors to access Bitcoin without direct ownership, and they are available to individuals and institutions through brokerage accounts, IRAs, and 401(k)s. However, it is important to note that BITs, like any investment, come with their own risks, and Bitcoin is known for its high volatility.

Bitcoin ETFs vs. direct ownership

There are several ways to get exposure to Bitcoin, including direct ownership, exchange-traded funds (ETFs), and crypto mining stocks. Each of these options has its own pros and cons. This article will explore the benefits and drawbacks of investing in Bitcoin ETFs compared to direct ownership of the cryptocurrency.

Taxes

One of the most significant advantages of Bitcoin ETFs over direct ownership is the tax treatment. Bitcoin and other cryptocurrencies are subject to capital gains tax, which can be quite high, depending on your tax bracket. In contrast, with a Bitcoin ETF, you can benefit from tax-sheltered accounts like a TFSA in Canada, which exempts you from dividend and capital gains taxes. While you may have to pay management fees for the ETF, the tax savings can outweigh these costs.

Using Bitcoin as a Currency

Direct ownership of Bitcoin gives you the advantage of being able to use it as a currency. Bitcoin is legal tender in El Salvador, and an increasing number of businesses worldwide accept it as a form of payment. If you want to use Bitcoin for transactions, direct ownership is the way to go since you cannot spend Bitcoin held through an ETF.

Management and Custody

Bitcoin ETFs are managed by professional fund managers who handle the buying, selling, and custody of Bitcoin. This simplifies the investment process, especially for those unfamiliar with cryptocurrencies. However, it comes with management fees that can reduce overall returns over time. Additionally, investors do not have direct control over the underlying Bitcoin, as decisions are made by the fund managers.

On the other hand, direct ownership of Bitcoin provides a higher level of control and flexibility. You eliminate ongoing management fees, but you are responsible for managing your purchases, sales, and custody, which can be complex and time-consuming. Mismanagement can lead to significant losses, especially for inexperienced investors.

Trading and Liquidity

Bitcoin ETFs are traded on major stock exchanges, providing high liquidity and ease of trading during regular market hours. However, trading is limited to stock exchange hours, unlike the 24/7 crypto market.

Direct Bitcoin ownership offers access to a global market that operates around the clock. This provides high liquidity, and investors can buy and sell at market prices without premiums or discounts. However, the liquidity and trading experience can vary across different cryptocurrency exchanges, and some may charge higher fees for transactions and withdrawals.

Both Bitcoin ETFs and direct ownership have their strengths and weaknesses. The right choice depends on your personal circumstances, goals, and risk tolerance. If you value tax efficiency and simplified management, Bitcoin ETFs may be preferable. On the other hand, if you prioritize control, flexibility, and the ability to use Bitcoin as a currency, direct ownership might be the better option. Ultimately, it is essential to carefully consider your investment objectives and conduct thorough research before deciding.

Bitcoin ETF approval impact

The approval of Bitcoin ETFs has had a significant impact on the cryptocurrency market, bringing about several changes and shaping the future of digital assets. Here are some key ways in which the approval of Bitcoin ETFs has influenced the crypto space:

Increased Adoption

The availability of spot Bitcoin ETFs makes it easier for mainstream investors to gain exposure to Bitcoin within their brokerage accounts. This convenience has led to a surge in demand from new investors, resulting in increased capital inflows and potentially boosting Bitcoin's price.

Market Validation

The approval of spot Bitcoin ETFs by regulatory bodies serves as a form of validation for Bitcoin within the traditional financial system. This perceived legitimacy enhances confidence in Bitcoin, potentially driving its prices higher and attracting more investors.

Heightened Trading Activity

The introduction of spot Bitcoin ETFs has the potential to increase trading activity among hedge funds, day traders, and speculators. This heightened trading volume and increased market participation can introduce volatility to the market.

Enhanced Liquidity

Spot Bitcoin ETFs attract more buyers and sellers, improving the overall liquidity of the Bitcoin market. This increased liquidity can lead to more stable prices and reduced volatility, making Bitcoin a more appealing investment option for risk-averse investors.

Institutional Participation

The approval of Bitcoin ETFs provides the regulatory clarity and legitimacy that institutional investors seek. This could lead to increased institutional involvement in the market, infusing significant capital and contributing to the maturation of the cryptocurrency ecosystem.

Regulatory Clarity

The regulatory approval of Bitcoin ETFs sets a precedent for the treatment of digital assets and provides much-needed clarity for investors and market participants. This encourages further institutional participation and investment in the cryptocurrency space.

Price Discovery and Transparency

ETFs are required to disclose their holdings regularly, providing transparency into the supply and demand dynamics of Bitcoin. This improved transparency enhances price discovery and helps investors make more informed decisions.

Competition and Innovation

The approval of Bitcoin ETFs paves the way for the development and launch of similar investment products. This fosters competition and innovation in the cryptocurrency investment landscape, leading to a more diverse range of options for investors.

Impact on Bitcoin Price

The approval of spot Bitcoin ETFs has had a positive impact on Bitcoin's price. The ease of investing through ETFs, combined with the entry of reputable financial institutions, has resulted in increased demand for Bitcoin. As a result, Bitcoin prices have surged, with a significant rise observed following the ETF approvals.

Bitcoin ETF fees

Bitcoin ETFs are a relatively new product, with the first spot Bitcoin ETFs being approved by the SEC in January 2024. As such, there is a lot of competition between ETF providers, with many offering discounted fees for a limited time to attract investors. Here is a list of some of the best Bitcoin ETFs and their fees as of August 2024:

• IShares Bitcoin Trust (IBIT): 0.25% fee for the first 6 months or $5 billion, then 0.12% for the next 6 months or until $5 billion is reached.
• Fidelity Wise Origin Bitcoin Fund (FBTC): 0% fee until August 1, 2024, then 0.25% annually.
• ARK 21Shares Bitcoin ETF (ARKB): 0% fees for the first 6 months or $1 billion, then 0.21%.
• Bitwise Bitcoin ETF Trust (BITB): 0% fees for the first 6 months or $1 billion, then 0.2%.
• VanEck Bitcoin Trust (HODL): 0% fee until March 31, 2025, or until the fund reaches $1.5 billion in assets, then 0.2%.
• Valkyrie Bitcoin Fund (BRRR): 0% fees for the first 3 months, then 0.49%.
• Grayscale Bitcoin Trust (GBTC): 1.5% management fee.
• Franklin Bitcoin ETF (EZBC): 0% fee until August 2, 2024, or until the fund reaches $10 billion in assets, then 0.19%.
• Invesco Galaxy Bitcoin ETF (BTCO): 0% fees for the first 6 months or $5 billion, then 0.25%.
• WisdomTree Bitcoin Trust (BTCW): 0% fee for the first 6 months or $1 billion in assets, then 0.3%.
• Hashdex Bitcoin ETF (DEFI): 0.9% fee.

It is worth noting that the fees listed above are subject to change and investors should always research the most up-to-date information before investing. Additionally, when choosing a Bitcoin ETF, investors should consider not only the fees but also the liquidity, fund trading costs, and their own financial goals and risk tolerance.

Bitcoin ETF risks

While investing in a Bitcoin ETF can be a more convenient and secure way to gain exposure to Bitcoin, it is not without its risks. Here are some key risks that investors should consider:

Price Volatility

The value of Bitcoin is known for its high volatility, with large swings in price occurring in a short period. This volatility is reflected in the price of Bitcoin ETFs, which are directly tied to the real-world value of Bitcoin. As a result, investors in Bitcoin ETFs accept the risk of potential losses when the value of Bitcoin decreases.

Liquidity Risk

Bitcoin ETFs may face liquidity issues, especially during periods of rapid price changes. This means that investors may have difficulty buying or selling their ETF shares at their desired price points and times.

Counterparty Risk

When investing in a Bitcoin ETF, you are trusting the ETF issuer's management of the fund. If the issuer mismanages the ETF or faces operational issues, investors may lose money.

Regulatory Risks

The regulatory landscape for Bitcoin and cryptocurrencies is still evolving, and changes in regulations can impact the viability and value of Bitcoin ETFs. While spot Bitcoin ETFs have been explicitly approved by the SEC, future regulatory changes could affect the ability to invest or dilute the investor pool if spot ETFs for other cryptocurrencies are approved.

Supply Chain Risks

Many Bitcoin ETF issuers use the same custodial provider, such as Coinbase, creating centralization risks. This means that issues with the custodial provider could impact multiple ETFs and increase the potential for security breaches.

Account Security

While Bitcoin ETFs eliminate the need for investors to manage their own wallets and private keys, they still need to secure their accounts with their investment account provider. Failure to do so could result in unauthorized buying and selling on their behalf.

Fees

Bitcoin ETFs typically charge expense ratios, which can range from 0.2% to 1.5%. These fees are generally higher than the transaction fees charged by crypto exchanges, making Bitcoin ETFs a more expensive option for investing in Bitcoin.

Limited Trading Hours

Unlike crypto exchanges, which often operate 24/7, Bitcoin ETFs can usually only be traded during regular market hours. This limits the flexibility of investors who want to trade outside of standard market hours.

No Direct Ownership of Bitcoin

With a Bitcoin ETF, investors do not own the underlying cryptocurrency directly. This lack of direct ownership means that investors must rely on the ETF's management strategy and may have less control over their investment.

Frequently asked questions