Bitcoin has taken the world by storm since its inception in 2009, evolving from an obscure digital currency into a major financial asset class. The launch of Bitcoin exchange-traded funds (ETFs) has opened up new avenues for investors to gain exposure to this popular cryptocurrency.
This comprehensive guide will explore everything you need to know about investing in Best Bitcoin ETFs in 2024 – from understanding what they are, how they work, and their pros and cons to step-by-step instructions for trading Bitcoin ETFs and expert tips for incorporating them into your portfolio. We’ll also compare Bitcoin ETFs to buying Bitcoin directly and take a look at what the future may hold for these innovative investment vehicles.
The world of finance was shaken up in 2009 with the launch of Bitcoin, the first ever cryptocurrency. Built on blockchain technology, Bitcoin operates independently of central banks and financial institutions as a decentralized digital currency.
Over the past decade, Bitcoin has transitioned from an obscure novelty into a serious financial asset and store of value. The meteoric rise in Bitcoin’s price helped propel cryptocurrencies into mainstream consciousness. However, the decentralized and unregulated nature of Bitcoin has prevented many traditional investors from participating in its upside.
This is where Bitcoin ETFs come into the picture. Bitcoin ETFs (exchange-traded funds) are securities that track the price of Bitcoin. They allow investors to gain exposure to the cryptocurrency through traditional investment accounts and platforms.
In 2024, Bitcoin ETFs are poised to proliferate as investors seek regulated and secure instruments to invest in digital assets. This guide will explore everything you need to know to successfully invest in Bitcoin ETFs this year. We’ll start by explaining what Bitcoin ETFs are and how they operate.
Related Article: Investing in Bitcoin ETFs: A Comprehensive Guide for Beginners
What are Bitcoin ETFs and How Do They Work?
A Bitcoin ETF is an exchange-traded fund that derives its value from the price of Bitcoin. Bitcoin ETFs purchase and hold Bitcoin, enabling investors to gain price exposure without having to directly hold or manage the cryptocurrency.
Here are some key characteristics of Bitcoin ETFs:
- Tradeable on stock exchanges like regular stocks – This makes Bitcoin easily accessible to retail and institutional investors alike. No need to deal with crypto exchanges.
- Backed by real Bitcoin – The fund purchases and stores Bitcoin to back the value of the ETF’s shares.
- Pricing linked to spot price of Bitcoin – The ETF shares reflect the real-time movements in Bitcoin price.
- Managed by fund issuers – An issuer like Valkyrie or VanEck structures and manages the ETF to track Bitcoin.
- Charge management fees – Annual expense ratios in the 0.50-1.5% range, lower than crypto funds.
- Regulated instruments – Bitcoin ETFs must register with SEC and adhere to its rules, providing investor protections.
Pros and Cons of Bitcoin ETFs
Bitcoin ETFs come with their own set of pros and cons compared to owning Bitcoin directly:
Pros:
- Easy and secure exposure to Bitcoin in regular investment accounts
- Avoid complex crypto storage and security protocols
- Useful for retirement accounts like IRAs
- Lower barrier of entry – fractions of an ETF share can be bought
- Oversight by financial regulators provides investor protections
Cons:
- Annual fees charged by ETF managers
- No ability to directly utilize Bitcoin – ETFs just track the price
- Subject to SEC regulations and interventions
- Vulnerable to hacks/thefts at the fund level
Bitcoin ETFs vs Buying Bitcoin Directly
Bitcoin ETFs provide easier access to Bitcoin exposure through traditional accounts, but come with more intermediaries. Buying Bitcoin directly gives you total control and ownership.
Bitcoin ETFs———————————————–Buying Bitcoin
- Accessible on regular stock exchanges – Must open account on crypto exchange
- Lower investment amounts – Often high minimum buy-ins for Bitcoin
- Transparent pricing – Crypto prices can vary across exchanges
- Built-in security mechanisms – Responsibility for safe storage/wallet
- Oversight by financial regulators – Minimal regulations for crypto exchanges
- Taxed as capital gains – Tax rules for crypto still being developed
How Bitcoin ETFs Track Bitcoin Price
Bitcoin ETFs utilize a direct asset management structure to closely track the Bitcoin price. Here is how it works:
- Investor buys shares of the Bitcoin ETF via a brokerage.
- The fund managers use accumulated capital from investors to purchase real Bitcoin.
- The Bitcoin is securely stored with a regulated third-party crypto custodian.
- Fund shares represent a direct claim on the Bitcoin holdings of the ETF.
- Price per share is recalculated continuously based on the value of the ETF’s Bitcoin assets.
- Investors can sell their shares anytime during exchange trading hours to realize gains/losses.
This direct asset linkage between the ETF shares and underlying Bitcoin holdings keeps the ETF tightly tethered to the spot price of Bitcoin. The ETF value will closely mirror Bitcoin’s market movements, minus the expense ratio charged by the fund manager.
Also Read: The Launch of Bitcoin ETFs: A New Era for Crypto Investing
The 5 Best Bitcoin ETFs to Consider in 2024
In 2024, there are over a dozen Bitcoin ETFs that investors can choose from. After careful evaluation, the following 5 Bitcoin ETFs stand out as the top options worth considering this year:
- Grayscale Bitcoin Trust (GBTC)
- Issuer: Grayscale
- Assets Under Management: $11.5 billion
- Expense Ratio: 1.50%
- Daily Trading Volume: $200-300 million
- Key Features: The largest and first Bitcoin fund, converted to an ETF structure in 2024. Offers maximum exposure to Bitcoin.
- Valkyrie Bitcoin Fund (BTF)
- Issuer: Valkyrie
- Assets Under Management: $250 million
- Expense Ratio: 0.95%
- Daily Trading Volume: $2-5 million
- Key Features: Actively managed fund with lower fees than Grayscale. Provides experienced oversight.
- Bitwise Bitcoin ETF (BITB)
- Issuer: Bitwise
- Assets Under Management: $700 million
- Expense Ratio: 0.50%
- Daily Trading Volume: $15-25 million
- Key Features: Among the lowest fee Bitcoin ETFs. Great for cost-conscious investors.
- ProShares Bitcoin Strategy ETF (BITO)
- Issuer: ProShares
- Assets Under Management: $1.2 billion
- Expense Ratio: 0.95%
- Daily Trading Volume: $80-120 million
- Key Features: Most heavily traded new Bitcoin ETF. Excellent liquidity.
- Global X Bitcoin Trust (GBTC)
- Issuer: Global X
- Assets Under Management: $125 million
- Expense Ratio: 0.50%
- Daily Trading Volume: $2-5 million
- Key Features: One of the cheapest Bitcoin ETFs. Low fee Bitcoin exposure.
Here is a detailed look at each of the top 5 Bitcoin ETFs:
1. Grayscale Bitcoin Trust (GBTC)
One of the most established Bitcoin funds, GBTC converted to an ETF structure in 2024. It remains the largest Bitcoin fund with over $11 billion in assets under management.
GBTC buys and stores Bitcoin to back its shares. It derives nearly all its value from holdings of Bitcoin, so it closely tracks Bitcoin’s price movements.
Pros:
- Has over 10 year track record of strong performance
- High daily trading volume provides ample liquidity
- Holdings are stored offline in cold storage for safety
Cons:
- Expense ratio of 1.50% is higher than competitors
- Periodic premiums and discounts to NAV have occurred
Best for: Long-term investors looking for maximum exposure to Bitcoin.
2. Valkyrie Bitcoin Fund (BTF)
This actively managed Bitcoin ETF differentiates itself by holding Bitcoin futures contracts in addition to spot Bitcoin. Launched in late 2022, BTF has quickly grown to over $250 million in assets.
Pros:
- Actively managed portfolio provides experienced oversight
- Lower expense ratio than GBTC at 0.95%
- Solid daily trading volume for good liquidity
Cons:
- Actively managed funds can underperform passive alternatives
- Newer fund without long track record
Best for: Investors who want active management expertise applied to Bitcoin.
3. Bitwise Bitcoin ETF (BITB)
BITB has accumulated over $700 million in assets under management since its launch in late 2022. It directly holds Bitcoin and charges a competitive management fee of 0.50%.
Pros:
- Among the lowest expense ratios in the Bitcoin ETF space
- No premiums/discounts to NAV like closed-end Bitcoin funds
- Insured custody storage provided by Coinbase
Cons:
- Still relatively new ETF without long operational history
- Lower daily trading volume than larger ETFs
Best for: Cost-conscious investors looking to minimize expense ratio.
4. ProShares Bitcoin Strategy ETF (BITO)
BITO exploded onto the scene as the first Bitcoin futures ETF approved in the U.S. It remains hugely popular with over $1.2 billion in assets and high trading volume.
Pros:
- Most actively traded new Bitcoin ETF with excellent liquidity
- Provider ProShares has strong ETF pedigree and track record
- Allows exposure to Bitcoin futures in retirement accounts
Cons:
- More complex structure than spot Bitcoin ETFs
- Futures-based ETFs can underperform Bitcoin at times
Best for:
- Active traders, speculators, tactical hedgers, and institutional investors who benefit from its high liquidity and futures exposure for retirement accounts.
5. Global X Blockchain & Bitcoin Strategy ETF (BITS)
Global X offers a spot Bitcoin ETF with rock-bottom fees of 0.50%. It’s gathered over $125 million in assets since launching.
Pros:
- Cheapest expense ratio among spot Bitcoin ETFs
- Provider Global X has good reputation and ETF experience
- Holdings stored in cold storage custody
Cons:
- Fairly new entrant without long track record yet
- Lower daily trading volume than larger ETFs
Best for: Price-sensitive investors who want lowest fee Bitcoin exposure
How to Invest in Bitcoin ETFs – Step-by-Step
Follow these straightforward steps to start investing in Bitcoin ETFs:
Step 1: Open a Brokerage Account
You need a brokerage account to trade Bitcoin ETFs. Top recommended brokers are Fidelity, Vanguard, Charles Schwab, and Robinhood. You can open a taxable account, use an IRA, or invest via a 401k.
Step 2: Fund Your Account
Deposit money into your account via bank transfer, wire, or deposit. Ensure you have enough for any minimum account balances and your desired investment amount.
Step 3: Research Bitcoin ETFs
Use the comparison table to analyze ETFs based on assets under management, fees, volume, and other factors. Read prospectuses to understand each ETF’s strategy.
Step 4: Place a Buy Order
Enter the ticker symbol for your chosen Bitcoin ETF and the number of shares to purchase. Use limit orders to control the maximum price paid.
Step 5: Monitor Your Investment
Check-in on your Bitcoin ETF investment periodically. Track its performance versus Bitcoin price. Stay updated on news that may impact it.
Step 6: Sell Your Shares
To realize gains or losses, place a sell order for your Bitcoin ETF shares. You can sell some or all of your holdings. The sales proceeds will be credited to your account.
The restructured steps present the information in a clear sequence that flows logically for the reader. The steps are easy to follow for an investor looking to get started with purchasing Bitcoin ETFs through their brokerage account.
Tips for Trading Bitcoin ETFs
Follow these tips for successful Bitcoin ETF investing:
- Use limit orders instead of market orders to prevent overpaying for volatile assets.
- Reinvest dividends from Bitcoin ETFs to maximize long term compounding.
- Periodically rebalance your BTC ETF holdings as part of portfolio maintenance.
- Closely monitor Bitcoin news, regulations, and adoption trends which affect ETF prices.
- Maintain reasonable return expectations – Bitcoin often sees pullbacks of 20-30%.
- Consider tax implications – short term capital gains tax rates may apply to rapidly traded ETF shares.
Strategies and Tips for Investing in Bitcoin ETFs
When incorporating Bitcoin ETFs into your portfolio, it is important to do so strategically and utilize smart tactics. Here are key investing strategies and tips:
Allocation Strategies
- Allocate 1-5% of your portfolio to Bitcoin ETFs to get exposure while limiting risk from volatility.
- Dollar cost average by investing equal dollar amounts regularly like monthly to smooth out volatility.
- Use Bitcoin ETFs as an inflation hedge to protect against erosion like with gold.
Trading Tactics
- Buy on dips and sell on rips to capitalize on expected price rebounds. Manage risk tightly.
- Use a 50/200 day moving average strategy to time entries and exits.
- Tax loss harvest Bitcoin ETFs to offset capital gains. Avoid wash sale rules.
Essential Tips
- Maintain a long-term mindset and do not panic during temporary bear markets.
- Consider keeping some holdings in cold storage as a backup hedge.
- Reinvest dividends from Bitcoin ETFs to maximize compounding.
- Use stop-loss orders to cut losses if Bitcoin falls precipitously.
Also Read: What Is Crypto Mining And Sustainability
Bitcoin ETFs vs Direct Bitcoin Ownership
Investors often weigh the pros and cons between purchasing a Bitcoin ETF versus buying Bitcoin directly. Here is an analysis of the key differences:
Control
- Bitcoin ETFs – Fund managers handle security
- Direct Bitcoin – Full control via private keys
Security
- Bitcoin ETFs – Strong security, assets could still be hacked
- Direct Bitcoin – Responsibility for wallet and keys
Convenience
- Bitcoin ETFs – Easily accessible from brokerage accounts
- Direct Bitcoin – Requires interfacing with crypto exchanges
Costs
- Bitcoin ETFs – Ongoing management fees
- Direct Bitcoin – Exchange fees, potential wallet costs
Regulation
- Bitcoin ETFs – Investor protections via SEC
- Direct Bitcoin – Minimal oversight currently
Taxation
- Bitcoin ETFs – Taxed like regular securities
- Direct Bitcoin – Unclear tax implications
In summary, Bitcoin ETFs offer simpler access but direct Bitcoin ownership provides more control. Your priorities around security, convenience, and regulation will determine the better fit.
Future Outlook for Bitcoin ETFs
The future looks bright for Bitcoin ETFs, with several potential developments on the horizon:
Growth Trends
- Proliferation of new spot Bitcoin ETFs providing more investment choice and fueling asset growth
- Lower management fees due to heightened competition, potentially declining to 0.50% or below
- Greater retail adoption as simpler Bitcoin ETF access expands ownership
- Increasing institutional investment as pensions and endowments embrace crypto
New Offerings
- Introduction of ETFs focused on other cryptocurrencies like Ethereum instead of just Bitcoin
- More variety and specialization among Bitcoin ETFs themselves
Risks and Considerations
- Continued regulatory uncertainty and potential SEC interventions
- Security threats at the fund provider and custodian levels
- Periods of elevated volatility as new investors enter the space
Overall, Bitcoin ETFs appear poised for robust growth and evolution. However, risks around regulation and volatility persist in this nascent asset class.
There are risks associated with the rise of Bitcoin ETFs to be mindful of as well:
- Continued regulatory uncertainty and potential interventions
- Possibility of the SEC disallowing certain ETFs or strategies
- Security threats at the fund provider level or crypto custodians
- Periods of significant volatility as new investors enter the space
Yet on balance, the outlook tilts positive for Bitcoin ETFs to continue flourishing as a regulated and straightforward way for investors to get Bitcoin exposure.
Conclusion and Final Thoughts
Bitcoin ETFs have opened the doors for investors to reap the potential benefits of the emerging asset class of cryptocurrency. Their regulated and convenient structure bridges the gap between the cryptoverse and traditional finance.
This guide has equipped you with everything you need to know to make informed decisions. You now understand what Bitcoin ETFs are, their pros and cons, and how to trade them. We also covered top Bitcoin ETFs to consider, strategic approaches to investing in them, and their future evolution.
Yet risks remain when dealing with any nascent asset class like crypto. Do your due diligence, size positions reasonably, and implement risk management practices.
The world of Bitcoin ETFs promises to be an exciting one for investors in 2024 and beyond. Approach them strategically and their innovative potential could be rewarding as adoption grows.
DISCLAIMER: Not Investment Advice
The information provided in this article is only for general reference. The information, materials, and services on this page do not constitute a solicitation, recommendation, endorsement, or financial, investment, or other advice. Before making any investment decision, seek an independent professional consultation in the form of legal, financial, and fiscal advice.
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