- Spot Bitcoin ETFs provide ordinary investors with a legitimate means of entering the Bitcoin market. Everything you want to know about Spot Bitcoin ETFs is covered in this article.
- Traditional investors can now simply invest in Bitcoin without having direct exposure to the cryptocurrency asset thanks to the US government’s approval of 11 spot Bitcoin ETFs.
However, what are Bitcoin ETFs that are spot and how do they operate? You can get the answers to these and many other questions about this issue by carefully reading this page.
Spot Bitcoin ETFs: What Are They?
The well-known cryptocurrency Bitcoin has remained the biggest cryptocurrency by market capitalization over time. Consequently, a sizable number of investors own the asset.
As was previously said, spot Bitcoin ETFs facilitate Bitcoin investing. However, how?
Let us first define ETFs. Exchange-traded funds, also known as ETFs, are investment funds that, in general, keep an eye on or follow the price of various financial assets, including stocks, bonds, cryptocurrencies, certain commodities (such as Gold or oil), and more.
Since Bitcoin is a financial asset, spot Bitcoin ETFs operate similarly. These are exchange-traded funds that attempt to closely mirror the current value of the currency. They make Bitcoin investments. As a result, the number of bitcoins possessed is represented by each share of the ETF.
How Bitcoin ETFs Operate?
An equivalent quantity of actual Bitcoin supports each share of spot Bitcoin ETFs. Because of this, the share price of a spot Bitcoin ETF is dependent on the current or real-time value of Bitcoin.
Their prices are also influenced by changes in the value of bitcoin. Put another way, spot Bitcoin ETFs gain value in tandem with an increase in the value of Bitcoin, and vice versa.
The price of bitcoin is erratic and highly unpredictable. Spot, as used here, refers to the current price or value of bitcoin. Because of this, the value of spot Bitcoin ETFs is based on the present worth of bitcoin.
But spot Bitcoin ETFs aren’t just about following the cryptocurrency’s price. They give investors access to the current price of Bitcoin without requiring them to purchase or retain the asset themselves.
Notably, cryptocurrency exchanges do not trade spot Bitcoin ETFs. Rather, conventional stock markets such as the New York Stock Exchange (NYSE) are where they are exchanged. This facilitates participation for traditional investors.
Spot Bitcoin ETFs purchase a certain quantity of bitcoins from other holders or via reputable cryptocurrency exchanges to support their shares with Bitcoin.
The private keys of the currencies are stored in a cold, offline digital wallet with multiple protection layers because of the required level of security, which reduces the possibility of hacking. Because it is not accessible online, this type of wallet—also known as a cold wallet—is regarded as the safest choice.
The shares that are issued by the exchange-traded funds (ETFs) are then equal to the quantity of bitcoins that are kept in the wallet. These shares are then traded openly on conventional stock markets, with their pricing determined by the value of the cryptocurrency at the time of trading.
Without utilizing a cryptocurrency exchange, investors can purchase assets backed by Bitcoin with spot Bitcoin ETFs and monitor their current value.
Compare the price of Bitcoin ETFs to the price of Bitcoin
A share in a spot Bitcoin exchange-traded fund (ETF) should be priced at the same as the same amount of bitcoin because it is an asset-backed by Bitcoin itself.
However, tracking errors can happen occasionally. Because of this, the price of a spot Bitcoin ETF could differ from the price of Bitcoin.
Authorized participants, or APs, are financial institutions that strive to fix this issue. By issuing and redeeming sizable blocks of the funds’ shares in response to market requests, they assist in fixing the problem and nudging the ETFs back into compliance.
By keeping the value of the EFTs as near to the value of Bitcoin as possible, this measure promotes market transparency.
Which ETFs for Bitcoin Were Accepted?
The first 11 spot Bitcoin exchange-traded funds (ETFs) were approved by the US Securities and Exchange Commission (US SEC) in January 2024.
The latest spot Bitcoin ETFs, together with their fund managers or sponsors, are listed below in alphabetical order:
- The fund managers of the ARK 21Shares Bitcoin ETF (ARKB) are 21Shares and Ark Invest.
- Bitwise Investment Advisers, LLC is the manager of the Bitwise Bitcoin ETF (BITB).
- The ETF Fidelity Wise Origin Bitcoin Trust (FBTC) is sponsored by FD Funds Management LLC.
- The Franklin Bitcoin ETF (EZBC) is managed by Franklin Holdings LLC.
- Grayscale Investment LLC is the fund manager for the Grayscale Bitcoin Trust (GBTC).
- The Hashdex Bitcoin ETF is sponsored by Tidal Investment (DEFI).
- The Invesco Galaxy Bitcoin ETF (BTCO) is sponsored by Invesco Capital Management LLC.
- iShares Delaware Trust Sponsor LLC is the sponsor of the ETF, iShares Bitcoin Trust (IBIT).
- The Valkyrie Bitcoin Fund (BRRR) was previously sponsored by Valkyrie Digital Assets LLC. The newest sponsor is Coinshares Co.
- VanEck Digital Assets, LLC is the fund manager of the VanEck Bitcoin Trust (HODL).
- WisdomTree Bitcoin Fund (BTCW): Its marketing agent is Foreside Fund Services.
How Do I Purchase an Exchange-Traded Fund for Bitcoin?
Bitcoin exchange-traded funds (ETFs) are accessible on many online brokerage platforms and can be traded on conventional stock exchanges.
Step 1: Carefully consider each of the approved spot Bitcoin ETFs and search for factors that will bolster your decision. Two instances of these attributes are high trade volumes and assets under management, or AUM. It’s critical to ascertain whether the exchange-traded fund managers have a strong history.
Examine your investing objectives thoroughly before selecting which ETFs to purchase and where to purchase them. Remember to take into account the minimum deposit requirements of the platforms, the accessible assets on each one, any trading fees, management fees, brokerage commission, and other expenses.
Step 2: Making a decision based on thorough study on different ETFs is the next step. Choose an ETF according to your investing objectives and financial constraints.
Step 3: Create an online brokerage account. Select an exchange-traded fund platform that allows you to trade Bitcoin on the spot, then create an account.
Step 4: Fund the account. After creating an online brokerage account, you must fund it. You have two options for funding your brokerage account: a bank account or another brokerage platform. Depending on how much the ETF shares and commissions cost, your account should be financed.
Step 5: Purchase the ETF in the same manner as stock: On the site, look up the ticker symbol of the bitcoin exchange-traded funds that you choose. Next, indicate how many shares you wish to purchase. Lastly, make sure your order is confirmed.
Step 6: Keep an eye on your investment: Purchasing bitcoin ETFs is not sufficient. It’s crucial to return frequently. You can better understand how the price changes of the underlying asset impact your personal investment by keeping an eye on your investments.
Is Investing in Bitcoin or Bitcoin ETFs a Better Option?
Which is preferable, investing in bitcoin directly or in bitcoin exchange-traded funds (ETFs)?
Your investment objectives should guide your choice between investing in bitcoin and Bitcoin ETFs.
You should try investing in bitcoin if you plan to hold bitcoins yourself. Of course, it should come after thorough investigation.
However, you may want to think about investing in spot Bitcoin ETFs if all you want is an asset that exposes you to the current price of bitcoin without requiring you to own any of it yourself. Once more, you ought to conduct extensive study before choosing a choice.
Let’s now discuss some benefits and drawbacks of investing in spot Bitcoin ETFs.
Benefits of Putting Money Into Exchange-Traded Funds for Spot Bitcoin
- Simplicity: Without taking on risks or having to go through the difficult process of physically holding the asset, investing in spot Bitcoin ETFs is an easier method to get exposure to the price of Bitcoin.
- Legitimacy: Since the SEC has approved spot Bitcoin ETFs, purchasing them corresponds to investing in a respectable asset.
- Price increase for bitcoin: The price of bitcoin is not directly impacted by Spot Bitcoin ETFs. However, the price of bitcoin may eventually climb if these ETFs increase their demand for the cryptocurrency.
The Drawbacks of Purchasing Spot Bitcoin ETFs
- Market volatility: Because spot Bitcoin ETFs are dependent on the price of bitcoin, their fluctuations in value are as erratic as those of bitcoin. Uninformed investors may find this to be a tough pill to swallow.
- Regulations: The price of spot Bitcoin ETFs will be impacted by any regulatory actions taken against bitcoin that may have an impact on its price. This is so because bitcoin is the backing for spot Bitcoin ETFs.
- Absence of bitcoin ownership: You are not able to keep track of the bitcoins your spot Bitcoin ETF shares represent as an investor. They do, however, provide exposure to the bitcoin price.
- Trading restrictions: Bitcoin can be treaded or converted into Ethereum and other cryptocurrencies. On the other hand, a bitcoin exchange-traded fund (ETF) merely follows the price of bitcoin. It’s not a virtual money. Consequently, it cannot be swapped for or traded for cryptocurrencies.
Frequently Asked Questions Concerning ETFs for Bitcoin
We shall address some commonly asked issues concerning bitcoin exchange-traded funds (ETFs) under this section.
Do Bitcoin ETFs require Bitcoin purchases?
Indeed, bitcoin is purchased by spot ETFs. After all, bitcoin itself backs the funds. Spot Bitcoin ETFs make direct bitcoin investments. As the underlying asset, they purchase and retain bitcoin.
Their purpose is to replicate the value of bitcoin within the cryptocurrency ecosystem. By doing this, investors can track the price movement of the underlying asset without actually possessing the coin.
Your fund shares, if you invest in a spot Bitcoin ETF, are equivalent to bitcoins. You are unable to seize control of the coins that are displayed, though. So that you as an investor don’t have to, spot Bitcoin ETFs purchase and hold bitcoin on your behalf.
Are Dividends Paid by Bitcoin ETFs?
No, dividends are not paid by Spot Bitcoin ETFs. The rise or fall in the price of bitcoin determines the value of spot Bitcoin ETFs.
Is the Price of Bitcoin Affected by Spot Bitcoin ETFs?
Not straight forward. The price of bitcoin cannot be directly impacted by spot Bitcoin ETFs. They are able to do so indirectly, though.
How?
Demand growth: As more and more investors purchase bitcoin ETFs in order to track the cryptocurrency’s price, the funds’ demand will rise. Over time, the price of bitcoin rises due to the growing demand for ETFs, which in turn drives up demand for bitcoin.
Market acceptance: Bitcoin’s legitimacy as an investment may have been reinforced by the recent approval of new spot Bitcoin ETFs. The demand for and price of bitcoin may rise as a result of this market validation.
Where Is the Best Place to Purchase a Bitcoin ETF?
Look for funds with large asset under management (AUM) and strong trading volumes when deciding which spot Bitcoin ETF to purchase. Verify the legitimacy of the person who is behind it as well. The greatest ETF to purchase is any that possesses all of these qualities.
Conclusion
Financial organizations referred to as Authorized Participants (AP) attempt to correct tracking errors and bring ETFs back to par with the underlying asset’s price.
Eleven new spot Bitcoin ETFs were approved by the U.S. SEC in January 2024 and are available for trading on stock exchanges and online brokerage platforms. This article featured a list of the names of these ETFs, their ticker symbols, and the fund managers that created them.
Research, decision-making, opening an online brokerage account, paying the account, buying the EFT, and investment monitoring are the stages required in purchasing a spot Bitcoin ETF.
A Bitcoin ETF with a track record of strong trading volumes, a large amount of AUM (assets under management), and a fund manager with a solid track record is the ideal option to purchase.
Ultimately, thorough research and assessment of your investing goals and budget should be major factors in any decision you make about your investments.
Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
