Takeaways
- Spot Bitcoin ETFs hold Bitcoin as an underlying asset, so investors don’t have to.
- Spot Bitcoin ETF shares can be traded through a stock brokerage account.
- The SEC approved the first spot Bitcoin ETFs in January of 2024.
- Spot Bitcoin ETFs are highly liquid, give Bitcoin exposure, and are easy to trade.
- Spot Bitcoin ETFs have higher fees than equity-based ETFs because of the increased costs associated with trading crypto.
What Is Bitcoin?
Bitcoin is a decentralized digital currency created in 2009. It operates without a central bank or monetary authority, like the U.S. Federal Reserve. As a widely accepted cryptocurrency, Bitcoin is a digital asset that is mined to create new coins that users store, trade, and transact with this digital currency. A Bitcoin ETF gives investors exposure to Bitcoin.
Bitcoin transactions are authorized and verified by a distributed network of notes using advanced cryptographic calculations. They are subsequently recorded with blockchain technology on an immutable public ledger.
While Bitcoin miners continuously try to generate new Bitcoin, the supply of Bitcoin is permanently limited to 21 million individual coins, making it a deflationary asset. It is commonly referred to as “digital gold” because investors view it as a store of value, a hedge against inflation, and a regular medium for exchange.
What Is a Bitcoin ETF?
An ETF is an exchange-traded fund, and a Bitcoin ETF is a regulated financial product that helps investors gain investment exposure to Bitcoin without having to buy or store any Bitcoin or keys personally. The Securities and Exchange Commission approved spot Bitcoin ETFs first in January 2024.[1] Before to this approval, the most common way to gain exposure to Bitcoin and cryptocurrencies was to buy coins from cryptocurrency exchanges.
Now, investors can own Bitcoin without the hassle of buying and storing the coins. Much like owning common stock in a publicly traded company, Bitcoin ETFs are traded on conventional stock exchanges, like the Nasdaq, which makes them accessible to a wide range of institutional, accredited, and retail investors.
A spot Bitcoin ETF invests directly in Bitcoin and manages the storage of the coins on behalf of the fund. The Bitcoin ETF aims to track the price of Bitcoin or a similar, related index, letting investors participate in cryptocurrency investing through a recognized and regulated SEC security.
What was once the Wild West of cryptocurrency investing has now become a commonplace investing strategy. Bitcoin ETFs have become mainstream through their simplicity, security, and ease of access. Now, investors don’t need to worry about the complexities of owning and personally safeguarding Bitcoin through a crypto wallet.
Learn More How to Store Bitcoin Securely: What is a Cold Wallet? Here are the 5 Best Cold Wallets
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How Spot Bitcoin ETFs Works
A Bitcoin ETF works by first acquiring a large quantum of Bitcoins through a cryptocurrency exchange and storing them in a digital wallet. Individual investors can do this, too but spot Bitcoin ETFs do this at a much larger scale.
After the spot Bitcoin ETF has acquired Bitcoin, it issues shares to investors and lists the fund on a stock exchange. For investors who buy shares of the ETF, they are an equity-based security linked to Bitcoin.
The value of the ETF will change with Bitcoin's movement, creating a structure that gives investors access to Bitcoin without the need to deal with a cryptocurrency platform or manage digital wallets. Because ETFs are traded on major exchanges, they offer tremendous liquidity, regulatory oversight, and ease of access.
The creation of spot Bitcoin ETFs allows more investors to access Bitcoin. Hedge funds, pension funds, and endowments can now easily own exposure to crypto by purchasing a share of a publicly traded Bitcoin ETF.
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How to Buy Bitcoin ETFs
With Bitcoin ETFs now traded daily on major stock exchanges, buying spot Bitcoin ETFs has become similar to buying stocks. Here’s how it works:
- Set Up Brokerage Account: If you want to buy a spot Bitcoin ETF, you will need to sign up for a stock brokerage account. Signing up for a stock brokerage account only takes a couple of minutes. Once you set up your account, you can fund it and start investing.
- Research Options: To buy a spot Bitcoin ETF, you must sign up for a stock brokerage account. Signing up for a stock brokerage account only takes a couple of minutes. Once you set up your account, you can fund it and start investing.
- Purchase Shares: After researching what account best suits your investment goals and risk appetite, you can curate how much spot Bitcoin you want to own. You can invest a specific amount, say $1,000, or a set number of shares. From there, you place your trade order.
- Monitor Your Investment: Once your trade has been settled and executed, you should monitor your investment’s performance. Depending on whether your spot Bitcoin ETF is a part of an active trading approach or a passive strategy, you can check in on your investment daily, monthly, or quarterly.
Where to Buy Bitcoin ETFs
Since the SEC approved them in January 2024 spot Bitcoin ETFs have gone mainstream. Financial advisors consider crypto exposure an essential element of a diversified investment portfolio. Household brokerage names, like E*Trade, Fidelity, and Robinhood offer spot Bitcoin ETF products.
You can invest in Spot Bitcoin ETFs at the following brokerages:
- Charles Schwab
- E*Trade
- Fidelity
- Robinhood
If you already have an account with one of these brokerages, explore their offering. If not, check out our list of the best online stock brokerage accounts to see which platform best suits your investing needs.
Learn More: What is a Stock Trader?
What Are Bitcoin Futures ETFs?
Spot Bitcoin ETFs are not the only ETF game in town. Bitcoin Futures ETFs are another exchange-traded fund that offers investors exposure to the price movements of Bitcoin futures contracts.[2] These ETFs itself do not buy, sell, or hold Bitcoin directly but instead will invest in Bitcoin futures, much like how commodities futures contracts work. These contracts don't convey ownership of Bitcoin itself. Bitcoin Futures ETFs are another avenue for investors to gain exposure to Bitcoin's price movement.
Pros of Spot Bitcoin ETFs
There are many advantages to investing in Bitcoin and other cryptocurrencies. However, spot Bitcoin ETFs have many unique advantages over owning standalone Bitcoin. Here are some crucial pros to investing in spot Bitcoin ETFs:
- Simple Crypto Investing: First and foremost, they provide a simplified investment process. To purchase shares, you simply log in to your online brokerage account.
- No Need for Wallets: Owning the ETF share instead of Bitcoin eliminates the need for wallet management and figuring out whether hot wallet or cold wallet storage is better for you.
- Regulatory Oversight: Bitcoin ETFs are SEC-regulated financial products. While regulation does not mean "risk-free," it certainly creates an actual layer of security, oversight, and transparency that direct cryptocurrencies lack.
- Liquidity: Bitcoin ETF funds have a high degree of trading liquidity and can be bought and sold throughout the day. This liquidity can be highly appealing to active investors who try to keep a pulse on the market.
Cons of Spot Bitcoin ETFs
Investing in crypto can be risky. While they have some substantial advantages, spot Bitcoin ETFs also have drawbacks. Before investing, here are several to consider:
- High Fees: Bitcoin ETFs save you the hassle of dealing with Bitcoin directly, but not without a cost. Like regular ETFs, Spot Bitcoin ETFs charge expense ratios or management fees. This is, of course, to cover fund management, trading costs, and other fund expenses. These fees can eat into investment returns.
- Investment Volatility: One of Bitcoin's most significant drawbacks for many investors is its volatility. Bitcoin can scramble your investment portfolios' stability, especially for those nearing retirement or who need a fixed-income investment approach.
- Evolving Regulations: Regulations on Bitcoin are still changing, and these funds may have future limitations. This regulatory risk has been a hurdle for many institutional investors who want to participate in Bitcoin ETFs.
Smart Summary
Investing in cryptocurrencies has become easier with the advent of spot Bitcoin ETFs. Instead of buying cryptocurrencies alone, you can now purchase shares of a spot Bitcoin ETF. These funds own Bitcoin in reserve and offer you direct exposure without having to have the headache of storing and protecting your crypto. Now, you own Bitcoin through your online brokerage account in minutes.
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(1) SEC. Statement on the Approval of Spot Bitcoin Exchange-Traded Products. Last Accessed January 7, 2025.
(2) Commodity Futures Trading Commission. What is a Bitcoin Futures ETF? Last Accessed January 7, 2025.
