How To Navigate Bitcoin Spot ETFs Securely
| KEY TAKEAWAYS: |
| — Spot Bitcoin Exchange-Traded Funds (ETFs) are a kind of financial instrument that give investors exposure to BTC without them having to buy it themselves. — ETF supporters see them as a beneficial tool for promoting crypto adoption and a way to onboard institutional and other large investors. — While spot ETFs can be an attractive way for some investors to gain exposure to an asset, they do not allow for self-custody and therefore do not offer the benefits of true ownership. |
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 impact on crypto isn’t completely beneficial. 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 crypto.
But what exactly is a spot Bitcoin ETF, and how is it different from other kinds of ETFs? Should you buy shares in an ETF or just buy crypto directly? Before explaining that, and how ETFs relate to self-custody, let’s break down everything you should know about Bitcoin ETFs.
What Are Bitcoin ETFs?
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.
Bitcoin Spot vs Futures ETFs
Bitcoin ETFs come in two categories: spot ETFs and 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.
In contrast, spot Bitcoin ETFs actually track the real-time value of Bitcoin – its “spot” price – by holding BTC. This gives investors more direct exposure to Bitcoin than a futures ETF might offer.
How Do Spot BTC ETFs Work?
As mentioned above, setting up a spot Bitcoin ETF involves buying and holding BTC. An authorized participant (AP) like 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 also has the ability to keep the price of the ETF in line with the price of Bitcoin by creating or redeeming shares.
The History of BTC ETFs
In the U.S., spot crypto ETFs were highly anticipated for years despite a negative outlook on them by crypto’s de facto governing body in the US, the Securities and Exchange Commission (SEC). As a matter of fact, the 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 Bitcoin Spot 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, putting a larger spotlight on the SEC’s ruling. Then finally, after months of speculation and anticipation, the SEC approved 11 Bitcoin spot ETFs in January 2024.
How Many Bitcoin ETFs Are There?
There are more than 30 spot Bitcoin ETFs currently open worldwide. Outside of the U.S., spot BTC ETFs are also available in Canada, Brazil, Germany, Australia, and Hong Kong.
How Many Bitcoin ETFs Are There in the US?
There are currently 11 spot Bitcoin ETFs trading in the US:
- Franklin Templeton Digital Holdings Trust (EZBC)
- Bitwise Bitcoin ETF (BITB)
- VanEck Bitcoin Trust (HODL)
- Ark 21Shares Bitcoin ETF (ARKB)
- iShares Bitcoin Trust (IBIT)
- Fidelity Wise Origin Bitcoin Fund (FBTC)
- WisdomTree Bitcoin Fund (BTCW)
- Invesco Galaxy Bitcoin ETF (BTCO)
- Valkyrie Bitcoin Fund (BRRR)
- Hashdex Bitcoin ETF (DEFI)
- Grayscale Bitcoin Trust (GBTC)
When Did Spot BTC ETFs Start Trading?
After receiving SEC approval on January 10th, 10 of the 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.
Top BTC ETFs in 2024
Grayscale Bitcoin Trust (GBTC)
Founded as a trust in 2013, the Grayscale Bitcoin Trust officially converted to an ETF following SEC approval, making it the largest fund with 100% of its assets in Bitcoin. That being said, it’s faced stiff competition from new funds which have undercut its 1.5% fee rate.
BlackRock’s iShares Bitcoin Trust ETF (IBIT)
The iShares Bitcoin Trust ETF is the offering from BlackRock and the second-largest fund with 100% of its assets in Bitcoin. Notably, BlackRock was able to attract major inflow into IBIT by waiving a portion of its trading fees for the first $5B invested in the fund.
Bitwise Bitcoin ETF (BITB)
While Bitwise lacks the name recognition of some of the other spot ETF providers, its Bitcoin ETF has attracted notable investment since its launch. The fund waived trading fees for its first $1B and maintains a low 0.2% trading fee to retain investors. What’s more, BITB is also listed on the New York Stock Exchange’s premier Arca platform for ETFs.
Why Are Spot BTC ETFs Important?
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. This is good for investors who are curious about crypto but intimidated by the process of buying and securing their crypto. Or for those who might prefer to gain exposure to crypto via a traditional, regulated financial instrument.
Challenges of Spot BTC ETFs
Ultimately, even though they can help bring people into the ecosystem, spot BTC ETFs do not represent real ownership of Bitcoin. 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.” Spot ETFs inherently negate this aspect of crypto for those buying into them.
Then there’s the additional factor of regulation. Even though the SEC came around to approve the ETFs, it could easily change its stance again, meaning the long-term regulatory status of crypto ETFs is far from settled.
Where Can I Buy BTC ETFs?
As the name suggests, ETFs are available on traditional regulated exchanges, including Nasdaq and the New York Stock Exchange. You can also buy and sell shares of spot BTC ETFs on just about any online brokerage platform that offers traditional assets like stocks and bonds.
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 crypto, 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, giving you full control over your assets and eliminating third-party risk.
Final Thoughts on Spot BTC ETFs
All in all, spot BTC 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 crypto 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.