Bitcoin spot ETFs are here. How do I buy Bitcoin ETFs?

On 11 January 2024, the world’s first spot Bitcoin exchange-traded funds (ETFs) started trading, a day after US regulators approved their applications.

This Learn Crypto article briefly looks at the importance of these new financial products.

Key points:

• ETFs are a way for people and institutions to invest in a particular asset without actually owning them. Bitcoin-based ETFs aren’t new.
• The first attempt at a Bitcoin ETF was in 2013. Several have been approved over the years but these are the first spot Bitcoin ETFs tied to actual holdings of bitcoin, as opposed to existing derivative ETFs that only base value on Bitcoin price.
• Spot ETFs are highly liquid and trade on regulated exchanges, directly tracking the price of Bitcoin. Individuals and companies can trade them just like they would stocks on a stock exchange.

What's a spot Bitcoin ETF?

Exchange-traded funds or ETFs are meant to simplify the way people can invest in a particular type of asset. These are useful for assets like gold and Bitcoin, which aren’t necessarily easy to own or trade for many types of investors.

Direct investment into an asset typically means owning and holding it. This usually means dealing with all the challenges and complexities of holding and securing that valuable asset.

Instead of sourcing the asset, purchasing it, and then storing it, investors can purchase ETFs.

These ETFs work as an investment fund, whose value goes up and down based on the performance of an underlying asset. They are commonly used for stocks, currencies, and precious metals.

In the case of Bitcoin ETFs, these funds follow the price performance of Bitcoin. If Bitcoin’s value goes up, so does the value of these funds. If Bitcoin’s value goes down, these funds’ value also goes down.

The “spot” in spot Bitcoin ETFs simply refers to there being actual bitcoin being held underlying the funds. Bitcoin ETFs already exist, but these were based on derivatives, that is, the previous ETFs only derived their value from Bitcoin, but never backed the funds with actual bitcoin.

Why are spot Bitcoin ETFs a big deal?

If direct gold investors need to think of purchasing legitimate gold, and then worrying about storage and security, direct Bitcoin investors would also need to source, purchase, and store the bitcoin.

Owning Bitcoin itself can also be a technological hurdle for people unfamiliar with crypto, as direct owners would need to know how to operate cryptocurrency wallets and understand how security works for digital currencies.

So, instead of buying and selling actual Bitcoin in a process involving several steps and challenges, one could simply trade Bitcoin ETFs on a regulated exchange.

An ETF is attractive because it allows people to invest in Bitcoin by buying an ETF from a regulated asset manager. This also opens up Bitcoin to institutional fund managers who run big investment funds or even to people planning for retirement, who can now include Bitcoin (ETFs) in employment plans.

While there are other ways of investing into Bitcoin without owning them, you’d have to resort to buying Bitcoin on crypto exchanges or brokers – there are many of these you can find online. However, few crypto exchanges are as strictly-regulated as traditional exchanges where ETFs are traded.

From a consumer protection angle, investing in an ETF can provide more confidence and assurance for the investor as regulations imply safer practices and risk management policies – something they couldn’t guarantee when using most crypto exchanges.

From an adoption perspective, the approval of Bitcoin ETFs secures and embeds the crypto industry within the financial world. It helps to tighten clear legislation of cryptocurrency, and in general, paints a positive picture of the technology:

1. Easy access for traditional finance (TradFi) investors: Bitcoin ETFs provide a way for traditional investors who may not be familiar with cryptocurrency exchanges or the process of holding digital assets to gain exposure to the price movements of Bitcoin. This accessibility can attract a broader range of investors, including institutional investors and retail investors.
2. Regulatory oversight: Their approval requires adherence to certain standards and regulations set by financial authorities. This regulatory oversight can enhance investor confidence, as it provides a level of legitimacy and security to the investment.
3. Market liquidity: The creation of a Bitcoin ETF will likely increase liquidity in the cryptocurrency markets. ETFs, being traded on traditional stock exchanges, could bring in a new wave of investors who prefer the familiarity and regulatory environment of traditional markets, aka institutional money.
4. Tax efficiency: The creation and redemption process of ETFs can be more tax-efficient than direct ownership of cryptocurrencies. Authorized Participants (APs) can create or redeem ETF shares in-kind, which can help manage capital gains distributions and tax liabilities more effectively.

How do I buy Bitcoin ETFs?

Unfortunately, the big news surrounding these new spot Bitcoin ETFs only impact US investors, so if you’re not a US citizen, it’s unlikely that you’ll be able to buy any of these new funds.

If you are a US investor, then you should be able to quite easily invest in Bitcoin if you have a brokerage account with a broker – if they give you access to the exchanges listing the ETFs, you should be able to purchase them. Some traditional brokers like Merrill Lynch have already said they wouldn't offer these products but many modern ones like Robinhood and eToro almost certainly give you access.

As of 12 January 2024, 11 firms are approved by the US Securities and Exchange Commission (SEC) to trade spot Bitcoin ETFs. These are Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity and Franklin Templeton.

Three exchanges will list these ETFs: Nasdaq, CBOE BZX , and NYSE Arca.

Current data shows that:

• Fidelity offers Blackrock's iShares Bitcoin Trust spot Bitcoin ETF as well as its own Fidelity Wise Bitcoin Origin Fund;
• Ameritrade, E-Trade, Charles Schwab, Fidelity, Interactive Brokers, and Robinhood offer Grayscale's Grayscale Bitcoin Trust; and
  
• Charles Schwab, Chase, E-Trade, Fidelity, Robinhood, SoFi, TD Ameritrade, and Webull offer ARK Invest’s 21Shares Bitcoin ETF.
  

You simply need to choose which ETF you want to buy, and which broker to use. Remember, these are new products and there will be 11 of them competing for your investment with all kinds of fee reductions or waivers.

Others will have certain investor stipulations for access to these ETFs, which refer to the type of investor you are. Speak to your broker if you're unsure and always look carefully at the terms and conditions of each before deciding.

Should I buy Bitcoin ETFs?

Bitcoin has always been available to everyone everywhere, without restrictions.

Anyone can open a Bitcoin wallet, buy, and hold Bitcoin themselves, without having to pay additional stock market fees. Also, investing into a Bitcoin ETF means you’d need to trust a third party (custodial service), which defeats the trustless nature of cryptocurrency. In almost all cases, self-custody (non-custodial) is the best way to go.

If you want to learn more about buying and owning your own Bitcoin, without needing to trust anyone else, take a look at our quick guide on How to Buy Crypto. Prefer more interactive content? Take our Learn Academy courses on "Buying crypto" and "Keeping your crypto secure".

A final word on investments. We at Learn Crypto maintain that you should always do your own research and come to your own conclusions. Decentralised technology and cryptocurrency are certain to have a successful future but success isn’t necessarily related to market performance.