What is the difference between spot bitcoin and bitcoin ETF?
Unlike bitcoin futures ETFs, a spot bitcoin ETF invests directly in bitcoins as the underlying asset, not derivatives contracts based on their prices. Spot bitcoin ETFs—a type of exchange-traded product (ETP)—offer a regulated and accessible way for mainstream investors to invest in the digital currency.
If long-term price performance is your only investment goal, then the new Bitcoin ETFs make a lot of sense. However, you could prefer direct-asset ownership of Bitcoin if you are concerned about the regulatory or legal aspects of crypto.
Spot bitcoin ETFs hold actual bitcoin, while bitcoin futures ETFs do not. Spot ETFs are designed to hold an equivalent amount of the underlying asset that is represented by the ETF. This gives investors direct exposure to the spot price of bitcoin without having to purchase or store it themselves.
While the new spot bitcoin ETFs are designed to track the bitcoin price directly, they do not impact it in the same way. Buying a share of an ETF has no real-time impact on bitcoin's price through direct means. In fact, the bitcoin represented by the share is not even purchased until the next trading day.
| Fund (ticker) | YTD performance | Expense ratio |
|---|---|---|
| IShares Bitcoin Trust (IBIT) | 50.2% | 0.12% |
| Fidelity Wise Origin Bitcoin Fund (FBTC) | 50.2% | 0%* |
| ARK 21Shares Bitcoin ETF (ARKB) | 50.0% | 0.21% |
| Bitwise Bitcoin ETF Trust (BITB) | 49.8% | 0.20% |
However, investing in crypto ETFs is not without risk. The market is volatile, with prices fluctuating significantly in short periods. In addition, the regulatory landscape for crypto is evolving, and changes in regulations will undoubtedly impact the performance and availability of these ETFs.
Plus, bitcoin ETFs will make it easier for financial advisers to access the cryptocurrency for their clients who can afford to invest in alternative asset classes. But make no mistake, the price of a bitcoin will be just as volatile whether you invest in it directly yourself or through an ETF.
| Fund (ticker) | YTD performance | Expense ratio |
|---|---|---|
| ARK 21Shares Bitcoin ETF (ARKB) | 50.0% | 0.21% |
| Bitwise Bitcoin ETF Trust (BITB) | 49.8% | 0.20% |
| VanEck Bitcoin Trust (HODL) | 49.8% | 0.25% |
| Valkyrie Bitcoin Fund (BRRR) | 49.6% | 0.25% |
While that application was eventually rejected, bitcoin ETFs based on futures products were eventually approved by the SEC starting in 2021. Up until now, a large number of spot-based bitcoin ETF applications had been rejected on the grounds that bitcoin's unregulated nature creates too much risk for investors.
Structure: Spot ETFs hold actual bitcoin, providing direct exposure to price movements and implementing a creation/redemption mechanism like other ETFs, whereas bitcoin futures ETFs hold futures contracts to track the price of bitcoin, not the actual asset itself.
How much will a spot Bitcoin ETF cost?
| ETF name & symbol | Fee |
|---|---|
| Invesco Galaxy Bitcoin ETF (BTCO) | 0.25% |
| Valkyrie Bitcoin Fund (BRRR) | 0.25% |
| Hashdex Bitcoin ETF (DEFI) | 0.90% |
| Grayscale Bitcoin Trust (GBTC) | 1.50% |
A spot bitcoin ETF is an exchange-traded fund that tracks the price of bitcoin. The term "spot" refers to the actual immediate purchase and ownership of the underlying asset, which, in this case, is bitcoin. This means that the value of a spot bitcoin ETF will be directly correlated to the price of bitcoin.
A spot bitcoin ETF does not directly affect the price of bitcoins, but it can indirectly affect their price in several ways: Increased adoption: A spot bitcoin ETF will likely attract significant investment inflows from mainstream investors who want exposure to bitcoins within their brokerage accounts.
| Self-Directed Brokerages | Account Minimum | Available Crypto Assets |
|---|---|---|
| Fidelity | $0 | Coins, ETFs |
| Robinhood | $0 | Coins, ETFs |
| Charles Schwab | $0 | ETFs |
| E*TRADE | $0 | ETFs |
For ETFs, what's called a custodian will be in charge of holding the actual bitcoin and protecting it. Different ETFs are using different custodians. Several are using Coinbase. Others aren't, including Fidelity, which is housing its bitcoin at Fidelity Digital Asset Services.
iShares Bitcoin Trust (IBIT)
Like many of the new spot bitcoin ETFs, the iShares Bitcoin Trust uses a fee waiver to lower the initial cost of investing and attract more investors. For the first 12 months of trading or the first $5 billion in fund assets (whichever comes first), the annual fee will be just 0.12%.
The firm has made clear, most recently in a Jan. 24 message to its clients, that it has no plans to offer a bitcoin exchange-traded fund (ETF) or any other cryptocurrency-related products. Nor will it allow any such products from other firms to be offered via its brokerage arm.
The Fidelity® Wise Origin® Bitcoin Fund (FBTC) is an exchange-traded product that seeks to track the performance of bitcoin. FBTC provides investors with the opportunity to gain exposure to the price of bitcoin in a familiar investment structure that passively invests in bitcoin.
Diversification and Accessibility: Bitcoin ETFs provide investors with a diversified portfolio of Bitcoin holdings, reducing the risk associated with owning a single cryptocurrency. Additionally, ETFs offer ease of access, allowing investors to buy and sell shares through traditional brokerage accounts.
The term "spot" refers to the actual immediate purchase and ownership of the underlying asset, which, in this case, is bitcoin.
What is the downside to an ETF?
At any given time, the spread on an ETF may be high, and the market price of shares may not correspond to the intraday value of the underlying securities. Those are not good times to transact business. Make sure you know what an ETF's current intraday value is as well as the market price of the shares before you buy.
Spot Bitcoin ETFs are available at many online brokers that offer ETFs, often with no trade commission. One major brokerage, Fidelity, had its own spot Bitcoin ETF, the Fidelity Wise Origin Bitcoin Fund (FBTC), approved.
The 15 biggest Bitcoin (BTC) ETFs worldwide as of April 15, 2024. Grayscale's Bitcoin ETF was nearly the same value as iShares Bitcoin Trust or other ETFs from across the world. This is according to a custom ranking on exchange trade funds filed in different countries.
From these numbers we can see that Grayscale's Bitcoin Trust (GBTC) is the largest by a wide margin. As its name implies, GBTC was originally structured as a trust, but was converted to an ETF on Jan. 11, 2024.
Clients looking for spot Bitcoin ETFs can find these and other third-party ETF and mutual fund products available at Schwab. These funds invest in cryptocurrencies, cryptocurrency futures contracts, or equities related to cryptocurrencies.
