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Investing in Bitcoin ETFs | The Motley Fool

Investing in Bitcoin ETFs | The Motley Fool
Written by publisher team

Bitcoin (CRYPTO: BTC) It was one of the most exciting investments of the 2000s. One bitcoin was worthless when it was launched in 2009, but today each coin is worth the equivalent of tens of thousands of dollars. The blockchain technology that powers the native digital currency has spawned thousands of altcoins and decentralized finance applications along the way, with the most successful being Ethereum (CRYPTO: ETH). No wonder many investors like to hide their money in Bitcoin.

But investing in Bitcoin is not always so simple. This is where the Bitcoin ETF (Exchange Traded Fund) might come into play. Here’s what you need to know.

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Investing in Bitcoin ETFs

Investing in Bitcoin and other cryptocurrencies requires some extra work in addition to what investing in stocks, bonds, and the like. Most of the traditional brokerages do not support cryptocurrency trading, so an account with a cryptocurrency exchange is required. In addition, there is the issue of cryptocurrency storage, which requires the use of a crypto wallet.

An alternative solution to these issues is to buy a Bitcoin ETF or exchange-traded fund so that your Bitcoin investment can be held in the same account as stocks, bonds, and other traditional investment securities.

What are Bitcoin ETFs?

Bitcoin ETFs are exchange-traded funds that attempt to track the performance of Bitcoin. When you buy an ETF, you are not buying the underlying investment outright. Instead, you are buying shares in a fund that is investing in, or trying to mimic the performance, of a particular security or index – Bitcoin in this case.

So far, there are no ETFs that are able to directly own Bitcoin. That’s because the trading of cryptocurrency and other digital currencies is still not regulated by the Securities and Exchange Commission (SEC). A number of ETFs and investment firms have submitted requests to the SEC to launch ETFs that buy Bitcoin directly (including Cathie Wood’s Ark Invest), but approval of crypto funds does not appear to be high on the regulator’s agenda at the moment.

Bitcoin vs Bitcoin ETFs

Why buy a Bitcoin ETF instead of Bitcoin directly? After all, even the best fund will not fully track the price of cryptocurrency because there are fees built into the ETFs to pay for management.

Besides avoiding the added complexity of opening an account with a crypto exchange and storing Bitcoin securely, one of the main reasons for choosing an ETF is that it is easier to get exposure to investing Bitcoin in an Individual Retirement Account (IRA). At this point, only a few specialized investment firms support cryptocurrency trading within an IRA. But if you want to keep bitcoins with the rest of your investment money, buying a fund might be your ticket.

5 ETFs and Bitcoin Funds for 2022

Although there aren’t any ETFs yet that buy Bitcoin directly, there are options out there. Here are five to keep in mind:

ETF name



Grayscale Bitcoin Box (OTC: GBTC)

$27.2 billion

This is an investment fund, not an ETF, but the first and largest fund that tracks Bitcoin’s performance.

ProShares Bitcoin Strategy ETF (NYSEMKT: BITO)

$1.41 billion

A newly launched ETF attempts to track Bitcoin using Bitcoin futures.

Bitwise 10 Crypto Index Fund (OTC: BITW)

$894 million

This fund is 60% Bitcoin, with the balance being invested in other cryptocurrencies.

Bitwise Crypto Industry Innovators ETF (new: BITQ)

117 million dollars

The ETF invests in bitcoin and cryptocurrency stocks.

Valkyrie Bitcoin ETF Strategy (NASDAQ: BTF)

$51 million

This is a new ETF investing in Bitcoin futures from a cryptocurrency investment company.

Data as of January 12, 2022.

1. Grayscale Bitcoin Trust

The Grayscale Bitcoin Trust is not an ETF, but rather an investment trust with units that trade over-the-counter (traded via networks of brokers and dealers rather than a central exchange). This means that this closed fund is not open to new investment, but units can be purchased if the broker supports them. However, the fund directly owns bitcoin.

As with the other ETFs on this list, since the Grayscale Bitcoin Trust is not a direct investment in Bitcoin itself, the units of the fund can trade at a steep discount or premium to the actual Bitcoin price. When the demand for the shares is high, the units will tend to trade at a premium on the base Bitcoin owned by the fund, and the units will trade at a discount on Bitcoin when the demand is low. Additionally, since the Grayscale Bitcoin Trust charges an annual fee of 2% ($200 for every $1,000 invested each year), it tends to underperform Bitcoin’s price performance over time.

However, this is currently the largest fund associated with Bitcoin’s fate, and has been around since 2013. If you want a product that seeks to track Bitcoin price changes without buying Bitcoin, the Grayscale Bitcoin Trust is a good place to start your search.

2. ProShares Bitcoin Strategy ETF

The ProShares Bitcoin Strategy ETF was launched in late 2021 and uses Bitcoin futures (a derivative contract, traded on CBOEGlobal‘s (new: CBOE) exchange) to track the original crypto price. Although it does not directly own Bitcoin, ProShares’ offering is the first ETF to attempt to pursue Bitcoin action.

The ProShares Bitcoin Strategy ETF started trading in October 2021, so it has a short history. So far, bitcoin has underperformed bitcoin due to monthly forward rollovers (when a contract is transferred to another long-term contract) and an annual fee of 0.95%. It’s an imperfect solution, but over time, this ETF should roughly follow the daily moves of bitcoin – although it may not be the best option for investors who want to buy and hold for the long term.

3. Bitwise 10 Crypto Index Fund

The Bitwise 10 Crypto Index Fund is another OTC investment fund like Grayscale’s Bitcoin offering, but with a twist. The fund invests in the top 10 market cap-weighted cryptocurrencies and is rebalanced monthly. Looking at Bitcoin’s volume and lead, it makes up 60% of the core wallet as of this writing, with Ethereum making up another 28%, and crypto’s next eight by volume making up the balance.

Like other funds, the Bitwise 10 Crypto Index Fund can trade at a steep discount or premium on the underlying crypto assets it owns. It also has a whopping 2.5% spend ratio. However, if a basket of the largest cryptocurrencies – mostly Bitcoin – are what you’re after, then this is an interesting option worth looking into.

4. Bitwise Crypto Industry Innovators ETF

Another product from Bitwise is the Crypto Industry Innovators ETF. The ETF contains 30 stocks, most of which are involved in bitcoin trading and mining, blockchain technology development, and other cryptocurrency innovators. Since it invests in cryptocurrency stocks, this fund will not directly track the price of Bitcoin, but its performance will be subject to Bitcoin and the ups and downs of the crypto industry.

Bitwise Crypto Industry Innovators ETF launched in May 2021 and charges 0.85% annually. As of this writing, the fund’s top three stocks have been – Coinbase Global (NASDAQ: currency), the highest bitcoin holder small strategy (NASDAQ: MSTR), the operator of the banking and cryptocurrency trading platform Silvergate Capital (NYSE: IF) It makes up about a third of the wallet.

5. Valkyrie Bitcoin Strategy ETF

The Valkyrie Bitcoin Strategy ETF is another ETF that invests in Bitcoin futures. It only started in October 2021, so its history is short. It was launched by crypto asset manager Valkyrie, who sponsors several crypto investment vehicles.

As with other ETFs that use futures contracts, long-term tracking of the underlying asset can be problematic. In addition, the Valkyrie Bitcoin Strategy ETF has an annual expense ratio of 0.95%, which will reduce investment performance over time.

Choose the right Bitcoin investment product carefully

Besides the inherent volatility involved in investing in Bitcoin, Bitcoin ETFs and funds will not be an ideal alternative if you want exposure to the largest digital currency. However, there are benefits to choosing an ETF as it can be a solution to getting Bitcoin performance inside your IRA. Just remember to take a calculated approach while waiting for approval of the first ETF that holds Bitcoin directly in its underlying wallet.

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