Approval of the first-ever batch of spot Bitcoin (BTC) exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) has raised the spirits of the crypto community globally. The agency has given the green light to 11 applications, including from BlackRock, ARK Invest, Fidelity, VanEck and Invesco.
The watershed moment is expected to be a game-changer for Bitcoin, enabling institutional and retail investors to invest in the largest cryptocurrency by market share without directly holding it. Rather than buying Bitcoin on a crypto exchange, such as Binance or Coinbase, investors can buy the Bitcoin ETF to get exposure to BTC.
Holding Bitcoin ETFs vs. Bitcoin
With ETFs, investors can buy a product that tracks the price of an associated commodity or security through the same mechanism already in place for index funds. BTC ETFs simplify things for investors as they can manage their holdings without maintaining a crypto wallet or arranging cold storage.
Bitcoin ETFs provide registered investment advisers (RIAs), retirement funds and other institutions with access to Bitcoin. Entities and regular people restricted from accessing this asset class or who had reservations about investing in digital assets can now hold BTC.
The term “spot” in spot Bitcoin ETF refers to the actual holding of assets, not some derivative contract. Each investor will own a piece of Bitcoin. Investors could also buy Bitcoin futures ETFs, which means agreeing to buy or sell BTC at a specific price on a predetermined date, regardless of the market price. Investors can buy and sell Bitcoin ETFs as often as they like during trading hours.
Approved Bitcoin ETFs
The SEC approved spot Bitcoin ETFs on Jan. 10 from major fund managers. The approved ETFs are 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).
The approved spot Bitcoin ETFs will be listed across several 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 gave the go-ahead to Bitcoin futures ETFs that track agreements to buy or sell BTC at a pre-specified price. The first Bitcoin-linked ETF that received approval from the SEC was the Proshares Bitcoin Strategy ETF (BITO), which is listed on the New York Stock Exchange.
The advantage of the usual ETFs is that they roll out a diversified basket of assets. However, A Bitcoin ETF is linked to just one cryptocurrency, i.e., Bitcoin, so it is likely to experience the same volatile swings as BTC.
What are the various ways to buy Bitcoin ETFs?
There are several ways to buy Bitcoin ETFs:
Online brokerage accounts
The brokerages usually have a search tool that allows users to search for the fund by its name or ticker symbol and trade it. After the approval of spot ETFs in the U.S., one can buy these funds with brokerages such as Charles Schwab, Fidelity, Robinhood and Interactive Brokers, among others.
Cryptocurrency exchanges
While crypto exchanges are still grappling with a fast-changing regulatory ecosystem, they have plans to roll out ETFs. Kraken’s ETF trading services are expected in 2024. Coinbase, another crypto bigwig, is acting custodian for eight of the ETFs approved by the SEC.
Financial advisers
According to the Bitwise 2024 benchmark survey, financial advisers in the U.S. generally expressed interest in crypto equity ETFs. The results showed that 19% of advisers can buy crypto in client accounts. The survey also highlighted that 98% of advisers who currently have an allocation to crypto in client accounts plan to maintain or increase that exposure in 2024.
Robo-advisors
Robo-advisors like Wealthfront and Betterment can facilitate the purchase of Bitcoin ETFs by providing an easily accessible, low-cost, automated investing platform. By permitting investments in cryptocurrency-related ETFs with comparatively low minimum balance requirements, they serve novice and experienced investors.
Typically, robo-advisors offer automated portfolio management customized to the investor’s objectives and risk tolerance. This includes asset allocation, investment selection and portfolio rebalancing.
Traditional banks
Typically, an individual who wants to purchase Bitcoin ETFs through a traditional bank would open a brokerage account with the bank’s investment division. After funding and activating their account, traders can look for the preferred Bitcoin ETF.
The person can purchase shares of the ETF after determining what it is, in the same way as they would any other stock or ETF offered through the bank’s brokerage services. However, availability and direct access to Bitcoin ETFs may differ based on the client’s region and the bank’s particular offers.
Furthermore, the regulatory landscape for cryptocurrencies is still evolving, which may lead to some delay before traditional banks begin offering Bitcoin ETFs as an investment option to their customers.
Directly from ETF issuers
Investors can go directly to the ETF issuer portals and buy the product. However, one may require an account with a broker to purchase an ETF. For instance, when visiting the Hashdex website, customers are asked to select one of the brokers the issuer works with.
How to buy Bitcoin ETFs
Here is the process to buy BTC ETFs via brokerage services:
Step 1: Open a brokerage account
Download a brokerage services app such as BlackRock or Robinhood or open their web portals, complete the Know Your Customer checks and log in.
Step 2: Fund the account
The trader must fund their brokerage account using their linked bank account, checking or savings. They could make a wire transfer, deposit a check or transfer funds from another broker.
Step 3: Conduct research on available Bitcoin ETFs
Investors considering a Bitcoin ETF should be mindful of key aspects such as the issuer and the expense ratio associated with the ETF. The expense ratio is the fee charged by the issuer for managing the ETF, which can impact the overall returns of the investment.
Step 4: Select preferred Bitcoin ETFs
Investors can delve into a range of Bitcoin ETFs, selecting those that align with their investment preferences and goals. This process involves evaluating various funds to identify the ones that best meet their criteria.
Step 5: Place an order
In this step, one can place an order using funds in the account and buy the selected ETFs. This includes entering the selected Bitcoin ETF’s ticker symbol in the specific field provided on the trading or order placement interface of a brokerage account and specifying the number of shares one wishes to purchase. Depending on their trading strategy, the investor may choose a market, limit or stop order.
After reviewing the order details to ensure accuracy, the investor can submit the order. The brokerage will then execute the order according to the specified terms, and the Bitcoin ETF shares will be added to the investor’s portfolio.
Step 6: Monitor your investments regularly
Regularly reviewing investments helps investors respond to market changes and nudge their investments in the right direction.
The door gets opened
The SEC’s approval of 11 spot Bitcoin ETFs is an opportunity for institutional and retail investors to invest in a more regulated environment. Several ETFs have slashed their fee for managing the products amid competition. BTC ETFs are expected to bring a massive inflow of funds into the crypto ecosystem. Subsequently, as other countries follow, Bitcoin may become integrated with the global financial mainstream.
Although regulators have only given the green light to Bitcoin ETFs, there’s anticipation that ETFs for other major cryptocurrencies could eventually receive approval. While it remains uncertain when this might happen, the crypto community is optimistic, viewing the current approvals as a positive sign for the future of broader cryptocurrency ETFs.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.