Spot Bitcoin ETFs: A Comprehensive Guide

The arrival of the first-ever spot Bitcoin ETFs in the United States was a development that many in the crypto community had waited years for. Much as expected, the ETF approvals brought attention and liquidity back to crypto after a long bear market period.

While the ETFs have undoubtedly helped bring more people into the Bitcoin ecosystem, their positive impacts on crypto come with some caveats. Specifically, ETFs involve a custodial approach that prevents individuals from owning the assets they are financially exposed to, which goes against the founding philosophies and goals of Bitcoin.

But what exactly is a spot Bitcoin ETF, and how is it different from other kinds of Bitcoin ETFs? Should you buy shares in an ETF or just buy cryptocurrency directly? Before explaining that and how ETFs relate to self-custody, let’s break down everything you should know about Bitcoin ETFs. 

What Is a Bitcoin ETF?

An exchange-traded fund (ETF) is a type of financial instrument that exposes investors to a group of assets. It’s basically an investment pool that tracks the performance of a group of assets, such as stocks or bonds. These can be appealing because they expose investors to certain groups of assets without them having to trade those assets individually. 

When it comes to Bitcoin ETFs, these essentially allow investors to bet on Bitcoin’s price without having to buy it directly.

What Are Spot Bitcoin ETFs?

Spot Bitcoin ETFs are ones that specifically track the real-time value of Bitcoin, aka its “spot” price. To do this, these funds hold a certain amount of BTC, which they use to back up the shares of the ETF. This gives investors more direct exposure to Bitcoin than the other major type of Bitcoin ETF – the Bitcoin Futures ETF.

The difference between Spot Bitcoin ETFs and Bitcoin Futures ETFs

Bitcoin ETFs come in two categories: spot Bitcoin ETFs and Bitcoin futures ETFs.

A Bitcoin futures ETF tracks the price of futures contracts, which is an agreement to buy or sell BTC at a predefined price at a later date. Notably, the value of the futures contract is determined by whether futures contract holders are betting on the price of Bitcoin to rise or fall rather than by the actual price of Bitcoin. This means that the price of a futures contract is dependent on the sentiments of futures contract holders and can be higher or lower than the actual price of Bitcoin.

How Spot Bitcoin ETFs Work

As mentioned above, setting up a spot Bitcoin ETF involves buying and holding BTC. A fund provider, such as an asset management fund, buys and holds a certain amount of Bitcoin. Based on the amount of BTC in the fund and market demand, the fund manager then issues shares in that fund, which investors can purchase just like stocks.  

Because the fund directly holds BTC, the value of the ETF is directly linked to Bitcoin’s price. In other words, the ETF value should rise and fall in tandem with the price of Bitcoin. The issuing fund can also keep the price of the ETF in line with the price of Bitcoin by creating or redeeming shares.

Top 12 Spot Bitcoin ETFs 

Spot Bitcoin ETFs List

1. Grayscale Bitcoin Mini Trust

2. Franklin Templeton Digital Holdings TrustBitcoin ETF (EZBC)

3. Bitwise Bitcoin ETF (BITB)

4. VanEck Bitcoin Trust (HODL)

5. Ark 21Shares Bitcoin ETF (ARKB)

6. iShares Bitcoin Trust (IBIT)

7. Fidelity Wise Origin Bitcoin Fund (FBTC)

8. WisdomTree Bitcoin Fund (BTCW)

9. Invesco Galaxy Bitcoin ETF (BTCO)

10. Valkyrie Bitcoin Fund (BRRR)

11. Franklin Hashdex Bitcoin ETF (DEFI)

12. Grayscale Bitcoin Trust (GBTC)

Spot Bitcoin ETFs Comparison by Fee

Understanding the Pros and Cons of Bitcoin ETFs

Advantages of Bitcoin ETFs

Convenience

ETF proponents see them as a useful tool to onboard people into the Bitcoin ecosystem, as they can offer a more straightforward exposure to crypto. To explain, Bitcoin ETFs function a lot like stocks and bonds in the sense that you can buy them on conventional stock exchanges and brokerage platforms. 

This is usually easier for the average person than buying cryptocurrency themselves. This is good for investors who are curious about crypto but intimidated by the process of buying and securing their cryptocurrencies. Or for those who might prefer to gain exposure to crypto via a traditional, regulated financial instrument. 

Regulatory Clarity and Increased Adoption

The most talked about potential benefit of spot crypto ETFs is that they can help aid cryptocurrency adoption. For one thing, giving investors a way into crypto that is familiar to them helps attract people who may have been discouraged by the complexities of buying and holding cryptocurrency as a newcomer. 

What’s more, the approval of Spot Bitcoin ETFs and Spot Ether ETFs in the US was widely seen as an institutional stamp of approval. Indeed, many prospective crypto buyers may well have been scared off by the lack of clarity around cryptocurrency regulation. The SEC approving the crypto ETFs meant that there were now clear rules and regulations around them for individual and institutional investors. Not to mention that many also viewed the presence of large, well-established financial institutions forming their own ETFs as a sign of a maturing crypto market. 

All of this helps make crypto a more attractive investment class to more people, thus increasing cryptocurrency adoption in the long run.

Impact of Spot Bitcoin ETFs on the Price of Bitcoin

As mentioned above, spot crypto ETFs have to hold the underlying cryptocurrency asset. This means that increased demand for spot crypto ETFs can lead to increased demand for the underlying digital asset, which could lead to higher crypto prices and less volatile prices. Then there is the idea that spot crypto ETFs offer validation of crypto as an asset class, which could also increase demand for crypto and thus drive price action.

Contribute to the Overall Liquidity of the Bitcoin Market

Spot ETFs add major liquidity to crypto markets simply by offering investors more options on how to gain exposure to a given digital asset. Investors can access spot crypto ETFs through conventional brokerage firms, making it easier for investors to participate in the market and creating larger trading volumes and more efficient, more liquid markets.

Disadvantages of Bitcoin ETFs

Management fees

While some may find buying ETFs more convenient than buying cryptocurrency directly, that convenience has a cost in the form of management fees. Indeed, the fees that ETF providers charge will be much more than the one-time transaction fees you would incur buying Bitcoin yourself.

Price Divergence

Cryptocurrencies like Bitcoin have a reasonable reputation as volatile digital assets and, as crypto-based assets ETFs are no different. While spot Bitcoin ETFs offer exposure to cryptocurrency, investors should be aware of the risk of market fluctuations.

As discussed previously, market sentiments and demand play a major role in the price of ETF shares. That means that even for spot ETFs designed to track Bitcoin’s real-time price, there can often be a difference between the value of an ETF and the value of an ETF’s underlying digital asset.

Limits to Cryptocurrency Trading

ETFs are sold on conventional stock exchanges and brokerage platforms which means that they are only available during the business hours of the exchange. This can be a problem if you ever need to make a trade outside of these times. In contrast, if you practice self-custody, you can transact with your crypto whenever you want. 

Lack of True Crypto Ownership

The biggest challenge with spot Bitcoin ETFs and Bitcoin futures ETFs is that they do not represent real ownership of Bitcoin. While this is not completely negative, as it can still bring people into the ecosystem, it’s ultimately at odds with the philosophy that created Bitcoin in the first place. 

As Ledger CTO Charles Guillemet laid out in his BTC Prague 2024 Keynote, ‘Don’t Buy Into an ETF,’ “The purpose of Bitcoin is permissionless money: you don’t have to ask anyone permission to own your value and to use it.” ETFs inherently negate this aspect of crypto for those buying into them.

Alternatives to Bitcoin ETFs

Ethereum Spot ETFs

Like spot Bitcoin ETFs, spot Ethereum ETFs track the real-time value of Ether without having to buy it. The first spot Ethereum ETFs were approved in the US in May 2024, just a few months following the approval of spot Bitcoin ETFs. However, it’s worth noting that the spot Ethereum ETFs have not attracted nearly as much attention or investment as their Bitcoin counterparts.

Curious about diversifying your investments? Check out our article on crypto ETFs to learn more about the various types of crypto ETFs, company stocks related to blockchain, and crypto index funds.

Final Thoughts on Spot BTC ETFs

All in all, spot Bitcoin ETFs and Bitcoin futures ETFs have had many positive effects on the broader ecosystem. Most notably, they’ve opened up crypto to users who might not otherwise consider it. At the same time, buying into an ETF is not true ownership and opens you up to the problems that crypto was built to solve.

The permissionless nature of crypto is what makes it revolutionary, but that can only happen through secure self-custody. And with Ledger, self-custody doesn’t have to be a burden. Ledger’s lineup of secure devices makes managing your digital assets easy and secure. You can even buy your cryptocurrency directly through our buy providers, all while enjoying the battle-tested security of your Ledger device thanks to Ledger Live.

If you’re considering exploring what crypto has to offer, there’s no need to wait. Explore the Ledger ecosystem today to start your journey to secure self-custody.

FAQs about Bitcoin ETFs

Have Bitcoin ETFs Been Approved?

The approval of spot Bitcoin ETFs in the US was highly anticipated. Notably, the United States SEC rejected about 20 applications for Bitcoin spot ETFs between 2018 and 2023.

This all began to change in June 2023, when BlackRock applied with the SEC to launch a spot Bitcoin ETF. Coming from the world’s largest asset manager, this application was much higher profile than the ones preceding it, shedding a mainstream spotlight on spot Bitcoin ETFs. 12 other notable financial institutions followed suit shortly after that and the SEC finally approved 11 spot Bitcoin ETFs in January 2024.

When Did Spot Bitcoin ETFs Start Trading?

After receiving SEC approval on January 10th, 10 of the first 11 spot Bitcoin ETFs immediately began trading the following day. They saw a combined trading volume of around $4.6B on their first day, with the offerings from Grayscale, BlackRock, and Fidelity attracting a significant amount of that trade activity.

Which Bitcoin ETF is Best?

While the 12 spot Bitcoin ETFs function similarly, they have some differences that may impact your decision on which to buy. When looking at the best Bitcoin ETFs, consider things such as the size of their Bitcoin fund or total asset holdings, their track record of inflows and outflows, and what fees they charge. But also your goals, and risk tolerances.

Where to Buy Bitcoin ETFs?

As the name suggests, ETFs are available on traditional regulated exchanges, including the Nasdaq and the New York Stock Exchange. You can also buy and sell shares of spot Bitcoin ETFs on just about any online brokerage platform that offers traditional assets like stocks and bonds.

How to Buy Bitcoin ETFs?

You buy Bitcoin ETFs with fiat currency, just as you would a stock or bond. Before you buy into a spot Bitcoin ETF however, it’s important to consider the drawbacks that come with them. Remember, buying shares in a crypto ETF does not give you true ownership of that cryptocurrency, which means you lose out on the very benefits that crypto was made for. The only way to access those benefits is through self-custody, which gives you full control over your digital assets and eliminates third-party risk. 

How to Buy Bitcoin?

To buy Bitcoin using fiat currency, you’ll want to use an on-ramp. While you can find these on centralized and decentralized exchanges, you’ll find that Ledger offers seamless on-ramping within the Ledger Live ecosystem, via partners like MoonPay and Coinify. Here, you can easily buy (and sell) cryptocurrencies using your regular credit card, in conjunction with your Ledger device.