The recent approval of the first-ever batch of spot Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) has generated excitement within the global crypto community. The SEC has given the green light to 11 applications, including those from BlackRock, ARK Invest, Fidelity, VanEck, and Invesco.
This significant development is expected to have a transformative impact on Bitcoin, as it will enable institutional and retail investors to invest in the largest cryptocurrency without actually holding it. Instead of purchasing Bitcoin on a crypto exchange like Binance or Coinbase, investors can now buy the Bitcoin ETF to gain exposure to BTC.
Bitcoin ETFs simplify the investment process for investors as they eliminate the need for maintaining a crypto wallet or arranging cold storage. Investors, including registered investment advisers (RIAs), retirement funds, and other institutions, now have access to Bitcoin. Individuals who were previously restricted from investing in this asset class or had reservations about digital assets can now hold BTC.
It’s important to note that the term “spot” in spot Bitcoin ETF refers to the direct holding of assets, rather than derivative contracts. Each investor will own a portion of Bitcoin. Alternatively, investors can also opt for Bitcoin futures ETFs, which involve agreeing to buy or sell BTC at a specific price on a predetermined date, regardless of the market price. Bitcoin ETFs can be bought and sold as frequently as desired during trading hours.
On January 10, the SEC approved spot Bitcoin ETFs from major fund managers. The approved ETFs include the Grayscale Bitcoin Trust (GBTC), BlackRock’s iShares Bitcoin Trust (IBIT), the Bitwise Bitcoin ETF (BITB), Fidelity’s Wise Origin Bitcoin Trust (FBTC), the ARK 21Shares Bitcoin ETF (ARKB), the Invesco Galaxy Bitcoin ETF (BTCO), VanEck’s Bitcoin Trust (HODL), Franklin Templeton’s Franklin Bitcoin ETF (EZBC), the WisdomTree Bitcoin Fund (BTCW), the Hashdex Bitcoin ETF DEFI, and the Valkyrie Bitcoin Fund (BRRR).
These approved spot Bitcoin ETFs will be listed on various stock exchanges in the U.S., including the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (CBOE), and the Nasdaq.
In October 2021, the SEC also approved Bitcoin futures ETFs, which track agreements to buy or sell BTC at a predetermined price. The first Bitcoin-linked ETF to receive approval from the SEC was the Proshares Bitcoin Strategy ETF (BITO), listed on the New York Stock Exchange.
While traditional ETFs typically offer diversified baskets of assets, Bitcoin ETFs are linked to a single cryptocurrency, Bitcoin. As a result, they may experience similar volatile price swings as BTC.
There are multiple ways to buy Bitcoin ETFs. Online brokerage accounts provide a search tool that enables users to find and trade the desired fund. Brokerages such as Charles Schwab, Fidelity, Robinhood, and Interactive Brokers now offer these funds following the approval of spot ETFs in the U.S.
Cryptocurrency exchanges are also planning to roll out ETFs, with Kraken’s ETF trading services expected in 2024. Coinbase, a prominent crypto exchange, is acting as the custodian for eight of the ETFs approved by the SEC.
Financial advisers in the U.S. have shown interest in crypto equity ETFs, according to a Bitwise survey. The survey revealed that 19% of advisers can buy crypto in client accounts, and 98% of advisers with crypto allocations plan to maintain or increase their exposure in 2024.
Robo-advisors like Wealthfront and Betterment can facilitate the purchase of Bitcoin ETFs by providing accessible and cost-effective automated investing platforms. These platforms cater to both novice and experienced investors by offering low minimum balance requirements and automated portfolio management tailored to the investor’s goals and risk tolerance.
Traditional banks also offer the option to purchase Bitcoin ETFs through brokerage accounts. However, availability and direct access to Bitcoin ETFs may vary depending on the bank’s offers and the client’s region. It’s important to note that the regulatory landscape for cryptocurrencies is still evolving, which may cause some delay before traditional banks begin offering Bitcoin ETFs as an investment option.
Investors can also buy Bitcoin ETFs directly from the ETF issuers by visiting their portals. However, purchasing an ETF may require an account with a broker. For example, when visiting the Hashdex website, customers are prompted to select one of the brokers that work with the issuer.
To buy BTC ETFs via brokerage services, investors need to follow these steps:
Step 1: Open a brokerage account by downloading the app or accessing the web portal of a brokerage service like BlackRock or Robinhood. Complete the necessary Know Your Customer checks and log in.
Step 2: Fund the account by linking a bank account and making a wire transfer, depositing a check, or transferring funds from another broker.
Step 3: Conduct research on available Bitcoin ETFs, considering factors such as the issuer and expense ratio associated with the ETF. The expense ratio is the fee charged by the issuer for managing the ETF, which can impact overall returns.
Step 4: Select preferred Bitcoin ETFs that align with investment preferences and goals. Evaluate various funds to identify the ones that best meet criteria.
Step 5: Place an order using funds in the account. Enter the selected Bitcoin ETF’s ticker symbol in the provided field on the trading or order placement interface of the brokerage account. Specify the number of shares to purchase. Depending on the trading strategy, choose a market, limit, or stop order.
Review the order details for accuracy and submit the order. The brokerage will execute the order according to the specified terms, and the Bitcoin ETF shares will be added to the investor’s portfolio.
Step 6: Regularly monitor investments to respond to market changes and ensure investments are on track.
The approval of 11 spot Bitcoin ETFs by the SEC presents an opportunity for institutional and retail investors to invest in a more regulated environment. Competition among ETFs has led to fee reductions, and the inflow of funds into the crypto ecosystem is expected to be substantial. As other countries follow suit, Bitcoin may become further integrated into the global financial mainstream.
While regulators have thus far only approved Bitcoin ETFs, there is anticipation that ETFs for other major cryptocurrencies could eventually receive approval. Although the timeline for this approval remains uncertain, the crypto community remains optimistic, viewing the current approvals as a positive sign for the future of broader cryptocurrency ETFs.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research and analysis before making any investment decisions, as every investment and trading move carries risks.