Best Bitcoin Etfs: Where To Invest Your Money

Bitcoin ETFs are a hot topic in the world of cryptocurrency and investing. With the recent approval of spot Bitcoin ETFs by the Securities and Exchange Commission, traders now have an easier and cheaper way to buy and sell Bitcoin through online brokers. This has opened up a new avenue for investors to gain exposure to Bitcoin without the risks associated with crypto exchanges. When considering the best Bitcoin ETF to invest in, factors such as cost (expense ratio), trading volume, and the reputation of the fund provider should be taken into account. While there is no one-size-fits-all answer, here are some of the top contenders in the market:

- iShares Bitcoin Trust (IBIT)

- Fidelity Wise Origin Bitcoin Fund (FBTC)

- ARK 21Shares Bitcoin ETF (ARKB)

- Bitwise Bitcoin ETF Trust (BITB)

- VanEck Bitcoin Trust (HODL)

- Valkyrie Bitcoin Fund (BRRR)

- Franklin Bitcoin ETF (EZBC)

How to choose a Bitcoin ETF

As of January 2024, the U.S. Securities and Exchange Commission (SEC) has approved multiple spot Bitcoin ETFs, making it easier for everyday investors to trade the world's most valuable cryptocurrency.

Cost and Expense Ratio

The expense ratio is the percentage of your investment charged as a fee. Since spot Bitcoin ETFs give you exposure to Bitcoin in the same way, their defining feature is their expense ratio. Some ETFs may initially charge 0% fees for the first few months as they pursue new investors, but these fees will eventually revert to the standard rate.

Trading Volume

Funds with high trading volume tend to be cheaper and easier to trade. Higher trading volume also tends to result in lower bid-ask spreads, which are the discrepancies between the prices that investors looking to buy or sell Bitcoin ETFs will pay or receive.

Brand Reputation and Track Record

Given the uncertainties surrounding crypto, you may want to favour a Bitcoin ETF from an established investing brand. Opting for a well-known and trusted brand may lower the chance of unpleasant surprises. Consider the track record of the fund provider and whether they have experience in the crypto space.

Liquidity

ETFs with higher net assets imply greater stability and minimise risks related to low liquidity, such as ETF closure or high bid-ask spreads.

Custodianship Risk

Most spot Bitcoin ETFs rely on a third-party custodian to store the Bitcoin they hold. For example, eight out of the ten currently trading spot Bitcoin ETFs use Coinbase as their Bitcoin custodian. Consider the potential risks if the third-party custodian encounters financial trouble or a cyberattack.

Investment Goals and Risk Profile

When choosing a Bitcoin ETF, it is crucial to consider your personal financial goals, investment timeline, and risk tolerance. Bitcoin is a highly volatile and speculative investment, and you should be prepared for potential losses.

Investment Strategy

Evaluate the investment strategy of the fund. Some Bitcoin ETFs invest in Bitcoin futures, while others may hold Bitcoin mining stocks or invest in blockchain companies. Understand the level of direct exposure to Bitcoin you desire.

Assets Under Management

Consider the assets under management (AUM) of the ETF. For spot Bitcoin ETFs, look for funds with substantial AUM, as smaller funds may struggle to stay in business.

Regulatory Compliance

Ensure that the Bitcoin ETF complies with SEC regulations. Prior to January 2024, Bitcoin ETFs could not trade Bitcoin at its spot price due to SEC regulations.

Ease of Trading

Bitcoin ETFs can be bought and sold through any brokerage account, whereas buying Bitcoin directly typically requires a cryptocurrency exchange.

Remember to conduct thorough research before investing in any Bitcoin ETF and consult with a financial advisor to make informed investment decisions.

How to buy a Bitcoin ETF

Step 1: Choosing a Bitcoin ETF

When choosing a Bitcoin ETF, it's important to consider your financial goals, investment timeline, and risk tolerance. Other factors to keep in mind include the fund's assets under management, investment strategy, and expense ratio.

Step 2: Opening a Brokerage Account

To invest in a Bitcoin ETF, you'll need a brokerage account. There are many online brokers to choose from. It's worth shopping around to find one that suits your needs.

Step 3: Placing Your Order

Once you've selected a broker and opened an account, you can place your order. It's recommended to use a limit order, which allows you to specify the maximum price you're willing to pay per share, giving you more control over the price.

Step 4: Executing the Order

After placing your order with the specified conditions, it will be executed once a seller is willing to meet your price. This can happen instantly or may take some time, depending on market conditions and your specified price.

Step 5: Holding the ETF

Once the order is executed, the Bitcoin ETF shares will be added to your portfolio. Remember that, like with other ETFs, if the Bitcoin ETF rebalances its portfolio or realises capital gains, you may receive periodic distributions.

Final Thoughts

Investing in Bitcoin ETFs comes with risks, and it's important to do your research before making any investment decisions. Consider consulting a financial advisor to help you navigate the complexities of this emerging investment landscape.

Pros and cons of buying Bitcoin vs a Bitcoin ETF

Buying Bitcoin

Pros

• Direct ownership of the BTC you buy
• Full control through self-custody
• Unlimited trading hours and lower fees

Cons

• Storing your BTC can be challenging and requires higher technical expertise
• Can't include it in traditional retirement plans and 401(k)
• Not recognised as a financial instrument

Bitcoin ETF

Pros

• Provides easy exposure to crypto markets without having to learn about wallet setup or other complexities of blockchain technology
• No need for the investor to hold cryptocurrency directly, meaning less exposure to hacking risk or loss
• Professional fund management in a space that moves quickly and comes with many complexities

Cons

• Fees tend to be higher than other ETFs
• Investors do not own the cryptocurrency directly, and they must defer to the fund's management strategy
• Unlike cryptocurrencies, ETFs can only be traded during market hours
• Crypto markets on which the ETFs are based are still largely unregulated

The future of Bitcoin ETFs

The emergence of Bitcoin ETFs has opened up new avenues for investors to gain exposure to the cryptocurrency market, particularly Bitcoin. With the recent approval of spot Bitcoin ETFs by the SEC, the landscape of crypto investments is evolving. Here's a deeper look at what the future might hold for Bitcoin ETFs:

Wider Acceptance and Mainstream Appeal

The introduction of spot Bitcoin ETFs has made trading in Bitcoin more accessible and convenient for a broader range of investors. This development is expected to drive wider acceptance of Bitcoin as a legitimate investment asset and could push its price even higher. As more investors recognise the benefits of Bitcoin ETFs, such as ease of trading and lower costs, we can anticipate a growing demand for these financial products.

Competition and Consolidation

The Bitcoin ETF space is highly competitive, with various providers vying for market share. This competition has led to a price war, with many ETFs slashing fees and offering promotional waivers to attract investors. As a result, we may see a consolidation in the market, with some ETFs dominating and others struggling to survive. The ETFs that can offer the most competitive fees and establish a solid performance track record will likely come out on top.

Regulatory Landscape

The regulatory environment surrounding cryptocurrencies and Bitcoin ETFs is ever-changing and plays a crucial role in shaping the future of these investment vehicles. The recent SEC approval of spot Bitcoin ETFs was a significant milestone, but it's important to recognise that regulations can shift. Investors should stay informed about any regulatory developments that may impact the availability and structure of Bitcoin ETFs.

Performance and Volatility

Bitcoin is known for its volatile nature, and this volatility extends to Bitcoin ETFs as well. The performance of these ETFs is closely tied to the price movements of Bitcoin. Therefore, investors should be prepared for potential price swings and understand the risks associated with investing in such a volatile asset.

Investor Education and Awareness

As Bitcoin ETFs gain traction, investor education becomes increasingly important. Prospective investors should thoroughly understand the mechanics of Bitcoin ETFs, the risks involved, and how these investments fit into their broader financial goals. It's crucial to conduct thorough research and due diligence before investing in any Bitcoin ETF.

Impact on the Cryptocurrency Market

The popularity of Bitcoin ETFs has the potential to influence the broader cryptocurrency market. As more investors allocate funds to these ETFs, it can drive demand for Bitcoin and impact its supply. Consequently, we may see further growth in the crypto space, with altcoins (alternative coins to Bitcoin) also rising in value.

In conclusion, the future of Bitcoin ETFs appears bright, with the potential for wider adoption, increased regulatory recognition, and a reshaping of the crypto investment landscape. However, investors should approach these volatile investment vehicles with caution, conducting thorough research and understanding the risks involved.

How do Bitcoin ETF approvals affect other crypto investments?

The approval of Bitcoin ETFs is expected to have a significant impact on the cryptocurrency market, including other crypto investments. Here are some ways in which Bitcoin ETF approvals can affect other crypto investments:

Increased Adoption and Market Validation:

Bitcoin ETF approvals can lead to increased adoption of cryptocurrencies by mainstream investors. This can result in a surge in demand and capital inflows, potentially bolstering the prices of Bitcoin and other cryptocurrencies. Market validation and enhanced liquidity brought about by Bitcoin ETFs can also drive prices higher.

Heightened Trading Activity and Volatility:

The availability of Bitcoin ETFs makes it easier for hedge funds, day traders, and speculators to actively trade Bitcoin and other cryptocurrencies. This increased trading activity can introduce volatility to the market, affecting the prices of various crypto investments.

Enhanced Liquidity and Institutional Participation:

Bitcoin ETFs can attract more buyers and sellers, enhancing the overall liquidity of the cryptocurrency market. This increased liquidity may lead to more stable prices and reduced volatility, making cryptocurrencies more appealing to everyday investors. Additionally, institutional investors who have been cautiously observing the crypto industry may view Bitcoin ETFs as providing the necessary legitimacy and regulatory framework, leading to increased institutional participation.

Market Maturity and Regulatory Clarity:

The approval of Bitcoin ETFs indicates that the cryptocurrency market is maturing and gaining regulatory acceptance. This maturation process may lead to advanced trading techniques, improved market infrastructure, and enhanced investor protection. Regulatory clarity provided by Bitcoin ETF approvals can encourage further institutional participation and investments across the cryptocurrency space, impacting the prices of various crypto investments.

Competition and Innovation:

The approval of Bitcoin ETFs can pave the way for similar investment products, fostering competition and innovation in the cryptocurrency investment landscape. This competition may drive down fees and improve the overall investor experience, making crypto investments more accessible and attractive.

It is important to note that the effects of Bitcoin ETF approvals on other crypto investments may vary depending on market conditions, investor sentiment, and regulatory factors. While Bitcoin ETFs can have a positive impact on the broader cryptocurrency market, it is essential to carefully consider the risks and volatility associated with crypto investments.

Frequently asked questions