Investing directly in Bitcoin can be complex, requiring technical knowledge to manage a digital wallet and securely store private keys. However, Bitcoin exchange-traded funds (ETFs) provide a more accessible way for investors, especially institutions, to gain exposure to the cryptocurrency without the challenges of direct ownership. What are Bitcoin ETFs? Bitcoin ETFs are investment vehicles that track the price of Bitcoin, allowing investors to gain exposure to the cryptocurrency's price movements without actually owning it directly. While Bitcoin itself trades on crypto exchanges, Bitcoin ETFs trade on traditional stock exchanges, combining features of mutual funds, stocks and bonds. There are two main types of Bitcoin ETFs:
Spot Bitcoin ETFs
Bitcoin Futures ETFs
Spot Bitcoin ETFs
Spot Bitcoin ETFs offer direct exposure to the current market price ("spot price") of Bitcoin. They hold actual Bitcoin as the underlying asset, not derivatives.
How Spot Bitcoin ETFs Work
The ETF issuer purchases Bitcoin from holders or exchanges and stores it securely in a digital wallet. Shares of the ETF are then issued, with each share representing a certain amount of Bitcoin held. The ETF share price is designed to track the current Bitcoin market price. Market makers help maintain liquidity by constantly offering to buy and sell ETF shares. Currently, spot Bitcoin ETFs are available in only 8 countries including Canada, Germany, Brazil and Australia. The U.S. has not yet approved any spot Bitcoin ETFs due to investor protection and market manipulation concerns.1
Bitcoin Futures ETFs
Unlike spot ETFs, Bitcoin futures ETFs do not hold actual Bitcoin. Instead, they use derivatives like futures contracts to gain exposure to Bitcoin's price movements.
How Bitcoin Futures ETFs Work
Futures contracts are agreements to buy or sell Bitcoin at a set price on a future date. Investors essentially bet on whether Bitcoin's future price will be higher or lower than the current price. These contracts trade on exchanges like the Chicago Mercantile Exchange (CME). The U.S. SEC has approved several Bitcoin futures ETFs, such as the ProShares Bitcoin Strategy ETF (BITO). Futures-based Bitcoin ETFs also exist in Canada and Hong Kong.1
Spot vs Futures Bitcoin ETFs
The key differences between spot and futures Bitcoin ETFs are:
Spot ETFs hold actual Bitcoin, while futures ETFs hold derivatives contracts
Spot ETFs directly track Bitcoin's current price, while futures ETFs track the price indirectly
Spot ETFs require secure custody of Bitcoin, while futures ETFs do not.
Impact on Bitcoin's Price
Bitcoin ETFs, especially spot ETFs, could significantly impact Bitcoin's price by:
Increasing demand from new investors who prefer ETFs over direct Bitcoin ownership
Providing a stamp of legitimacy and boosting confidence in Bitcoin
Enabling more active trading of Bitcoin exposure by institutions and speculators
Conclusion The emergence of Bitcoin ETFs, particularly spot ETFs, represents a major development in making Bitcoin more accessible to mainstream investors. By enabling regulated Bitcoin investment without the complexities of direct ownership, ETFs could improve market liquidity and accelerate institutional adoption of the cryptocurrency.