What are Bitcoin ETFs? Bitcoin ETFs, Explained
It was only a matter of time before the eventful and volatile world of cryptocurrency merged with the world of traditional finance; alas, Bitcoin ETFs are on the market and seem to have established some form of industry credibility (since its inauguration, in October 2021).
What are Bitcoin ETFs? How do you invest in Bitcoin ETFs? Can you Short Bitcoin ETFs?
Both modern and traditional investors are taking notice of this new investment option. Allow us to break down the details regarding what are Bitcoin ETFs, and how you can invest in them.
Sounds interesting? Let's get started.
Table of Contents
What are ETFs?
Exchange traded funds (ETFs) have been in the traditional investment space for a long time (since 1993, to be exact) and tend to be a generally attractive option for various types of investors.
Why? ETFs are generally considered to be low-risk with low cost to entry - However, this is not always the case.
An ETF is a security which holds a basket of assets such as commodities, stocks, bonds, futures contracts or an index fund, which are traded on the exchange, the same as a stock.
An ETF can also track and trade on the price of one individual asset as well, which would be a correct description of the Bitcoin ETF. Overall, an ETF allows for portfolio diversification which investors of most budgets have access to.
The ETF trades at the live market price (unlike mutual funds), making ETFs attractive to not only investors but traders as well – while also keeping in mind the aforementioned risks or extra costs.
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What are Bitcoin ETFs?
When you take an asset like Bitcoin and combine it with a vehicle like ETFs, it certainly makes for an interesting combination.
Given the above explanation of ETFs, how can this be crossed with the leading cryptocurrency, Bitcoin? What are Bitcoin ETFs?
To put it simply, traders and investors can gain exposure to Bitcoin via Bitcoin ETFs without actually having to own Bitcoin, itself, as an underlying asset. This can be compared slightly to Bitcoin CFDs.
The specified exchange-traded fund tracks the price of Bitcoin via futures contracts on the stock exchange during trading hours, allowing the option to both Buy and Sell positions.
After much back and forth over the years, the Securities and Exchange Commission (SEC) has approved the very first Bitcoin ETF by the ProShares firm on the New York Stock Exchange (NYSE) as of October 19th, 2021.
It is called the ProShares Bitcoin Strategy ETF (BITO.US), pictured below. The ProShares Bitcoin Strategy ETF is currently available only for clients of Admiral Markets AS Jordan Ltd and Admiral Markets Pty Ltd.
See below the Daily price fluctuation of the Bitcoin ETF (BTF) from the TradingView widget:
*Past performance is not indicative of future results.
As of January 10, 2024, the Securities and Exchange Commission (SEC) approved Spot Bitcoin ETFs - 11 applications in total as of the approval date.
The difference between the initially approved Bitcoin ETF (ProShares Bitcoin Strategy ETF) and Spot Bitcoin ETFs, is that the spot market ETFs are traded for immediate delivery, rather than based on future contracts, with a delivery based on a later date.
As of January 10, 2024, the following Spot Bitcoin ETFs have been approved by the SEC:
- iShares Bitcoin Trust (IBIT)
- Franklin Bitcoin ETF (EZBC)
- Fidelity Wise Origin Bitcoin Trust (FBTC)
- Grayscale Bitcoin Trust (GBTC)
- VanEck Bitcoin Trust (HODL)
- Hashdex Bitcoin ETF (DEFI)
- ARK 21Shares Bitcoin ETF (ARKB)
- WisdomTree Bitcoin Fund (BTCW)
- Valkyrie Bitcoin Fund (BRRR)
- Bitwise Bitcoin ETF (BITB)
- Invesco Galaxy Bitcoin ETF (BTCO)
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What Are the Advantages of Bitcoin ETFs?
Many crypto enthusiasts will argue that rather than investing in or trading a Bitcoin ETF, it is better to buy Bitcoin, as an asset, from an exchange.
As with all forms of investing, there are always multiple perspectives here and not every solution is suitable for everyone.
Most likely, the main advantage of Bitcoin ETFs is that investors who may not be considered crypto savvy can take part in the cryptocurrency market.
Your average person is not necessarily familiar with cryptocurrency exchanges, wallet keys, and secure crypto storage in hard wallets – all of the aspects which hold high importance to protecting literal crypto or Bitcoin assets.
With a Bitcoin ETF, investors can access the ETF via their usual broker and either trade or invest in the Bitcoin ETF as they would any usual stock or asset.
What Are the Disadvantages of Bitcoin ETFs?
With any advantage of an investment option, there are naturally always disadvantages as well.
When comparing trading Bitcoin ETFs with crypto itself, Bitcoin ETFs can only be bought or sold during market trading hours. As you may know, when buying and selling Bitcoin or any cryptocurrency on the exchange, you are able to do so 24/7.
Holding your own crypto in an exchange does not in fact render any fees or management fees. Often when holding ETFs with a broker, you will incur management fees for the maintenance of the account.
This may not make financial sense from a Dollar Cost Averaging perspective, if you plan to make multiple transactions over time – as, for example, a trader would.
Lastly, when purchasing Bitcoin ETFs via a broker, you must always adhere to the Know Your Customer (KYC) policy, where the cryptocurrency exchange is generally free range. This can be considered both an advantage and disadvantage, as having a KYC policy in place ensures your account protection.
If you would like to learn more about Bitcoin, cryptocurrency and blockchain in general, feel free to view the below video from our experienced trader, Jens Klatt:
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How to Trade or Invest in Bitcoin ETFs?
Any individual who has any involvement in the financial industry has certainly heard of Bitcoin, as well as the many other cryptocurrencies in existence.
It is always wise to first have some general understanding about the cryptocurrency market before depositing real capital to trade or invest – Feel free to browse our Cryptocurrency article library in order to get more familiar.
If you feel now is the right moment to diversify your investing and trading efforts in order to gain exposure to cryptocurrencies, we will explain how you can do so with Admirals.
In regards to the ProShares Bitcoin Strategy ETF (available to users with Admiral Markets AS Jordan Ltd and Admiral Markets Pty Ltd accounts), you can access this via our Invest.MT5 account. You have the option to both Buy and Sell the Bitcoin ETF, allowing you to diversify your position opportunities based on the price movements.
What is the Bitcoin ETF Ticker?
You can find the ProShares Bitcoin Strategy ETF CFD under the ticker BITO.US in accounts registered under Admiral Markets AS Jordan Ltd and Admiral Markets Pty Ltd.
How to Short Bitcoin ETFs
As mentioned, we give the option to both Buy and Sell the ProShares Bitcoin Strategy ETF.
If you want to short the Bitcoin ETF CFD, you are to choose the Sell option. Short-selling is a strategy to put in place if you believe the asset will fall in price.
For example, new assets on the market are generally known to peak in price when they are first released on a given exchange. So, what many traders may do, is wait for a 24-hour period after a stock's release, and then short the market by opening a Sell position on the asset.
To further on that example, the BITO.US price peaked at the price of around $43 around its debut in 2021.
At this point, if you decided to open a Sell position of 100 shares at the price of $43, and waited until the price fell to $36, you could close the position for a profit of $700. The calculation of this is very simple: [($43 - $36) x 100].
It is also important to keep in mind that any broker commissions may be deducted from the trade profit. There is also always the possibility of acquiring a loss when Shorting or Selling the market.
You can utilize the MetaTrader5 tool, free for Admirals users, by clicking the banner below to download - This tool allows you to analyse various price swings on the market:
What is the ProShares Bitcoin Strategy ETF?
The ProShares Bitcoin Strategy ETF, as mentioned, is the very first SEC-approved Bitcoin ETF which was made available on any given stock market, in this case, the New York Stock Exchange (NYSE).
This fund is based on managed exposure to Bitcoin futures contracts as a way to gain capital appreciation during trading hours, without of course having to own the actual Bitcoin underlying asset, itself. Impressively, the BITO ETF made record highs with a $1.2 billion trading volume on its second day of trading – the fastest any ETF has ever reached the $1 billion mark, according to Bloomberg.
As we have mentioned several times, the BITO.US ETF is only available to Admirals AS Jordan Ltd and Admirals Pty Ltd clients currently.
Bitcoin ETFs: Conclusion
The evolution of cryptocurrency crossing with the traditional world of finance is thriving. Where will this direction go next? Only time will tell, but as this progression is in the early stages, now is the time to take notice as an investor.
Education is key, and the more you know, the better you can inform yourself about future investment decisions.
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Is owning a Bitcoin ETF the same as owning Bitcoin?
No, owning a Bitcoin ETF share(s) is not the same as owning Bitcoin. Owning direct Bitcoin means you own the crypto asset directly on the blockchain. Bitcoin ETFs don't grant direct ownership to any underlying financial asset, rather, one is investing in a synthetic asset which tracks the price of the asset - In this case, Bitcoin.
What is a Bitcoin ETF?
A Bitcoin ETF (Exchange Traded Fund) is considered a futures ETF which issues publicly traded securities based on the price movements of the given asset, in this case, Bitcoin.
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