Key takeaways

• Bitcoin ETFs expose novice and experienced investors to Bitcoin’s price movements without owning the cryptocurrency directly, offering simplicity and convenience.
• Spot ETFs directly track Bitcoin’s price, offering transparency and lower costs, while futures ETFs involve contracts, higher expenses and tracking errors.
• Bitcoin ETFs offer accessibility, liquidity, professional management, regulatory safeguards, diversification and potential growth as the crypto market matures.
• Bitcoin ETFs carry risks such as high expense ratios, market volatility and the possibility of large losses. Custodianship risks also exist if third-party custodians face financial trouble.

If the rise of Bitcoin captivates you and sparks an interest in investing to earn profits, but the complexity of the crypto ecosystem holds you back, Bitcoin exchange-traded funds (ETFs) could be an alternative solution. Bitcoin ETFs provide a simple way to obtain exposure to Bitcoin without physically owning it. 

These funds monitor Bitcoin’s (BTC) performance, combining the advantages of traditional stock market investments with the promise of digital assets. Whether you are an experienced investor or a crypto novice, Bitcoin ETFs are a financial product to explore.

This article will help you navigate the world of Bitcoin ETFs. You will learn what these funds are, how to make smart investing decisions and the steps to buy these ETFs.

What are Bitcoin ETFs

Bitcoin ETFs are investment funds that trade on stock exchanges and track the price of Bitcoin. These funds expose investors to Bitcoin’s price swings without directly owning or managing the cryptocurrency. Thanks to ETFs, Bitcoin investment becomes easily accessible as you can invest through established financial platforms.

You can invest in two types of Bitcoin ETFs — spot and futures. 

• Spot Bitcoin ETFs directly hold Bitcoin, offering direct exposure to the cryptocurrency’s price, while futures Bitcoin ETFs track futures contracts on Bitcoin, bringing in complexities and potential tracking errors. 
• Spot ETFs are more transparent and directly linked to Bitcoin’s value, while futures ETFs may involve additional costs and risks due to the nature of futures contracts.

How to choose Bitcoin ETFs

When assessing Bitcoin ETFs, begin by exploring both spot ETFs and futures ETFs. You need to consider the following factors:

• Fees and expenditure ratios: Lower fees maximize returns, particularly for long-term investments.
• Performance history: Examine previous returns to anticipate prospective future performance, though prior performance is no assurance.
• Fund manager’s reputation: Efficient managers with proven track records instill higher confidence.
• Strategy: Your choice of Bitcoin ETFs should be consistent with your investment objectives, whether you want direct exposure to Bitcoin or diversification.

Did you know? On Jan. 17, 2025, iShares Bitcoin Trust (IBIT) of BlackRock was a Bitcoin ETF with the largest market share of $57.6 billion. Fidelity Wise Origin Bitcoin Fund (FBTC) stood second with $21.2 billion.

What are the various ways to buy Bitcoin ETFs

Spot Bitcoin ETFs are now accessible on various online brokerage and robo-adviser platforms. You can include these ETFs in diverse retirement accounts, such as Bitcoin IRAs, solo 401(k) plans and traditional and Roth IRAs.

In 2025, various issuers are offering temporary fee waivers to attract investors. For instance, the VanEck Bitcoin ETF (HODL) will waive sponsor fees until March 31, 2025, or its Assets Under Management (AUM) reaches $1.5 billion. These fee waivers are a competitive tactic among platforms and may not be permanent.

Investors can purchase Bitcoin ETFs in several ways, each with unique benefits and levels of convenience:

• Online brokerage accounts/trading platforms: You can buy spot Bitcoin ETFs with several online brokerages such as Charles Schwab, Fidelity, Robinhood and Interactive Brokers. You can buy and sell ETFs by searching for them by name or ticker symbol.
• Robo-advisers: Robo-advisers are online applications that provide automated financial guidance and services. Platforms such as Wealthfront and Betterment offer automated, low-cost investment alternatives for purchasing Bitcoin ETFs. They manage portfolios according to your risk profile.
• Cryptocurrency exchanges: While cryptocurrency exchanges don’t yet offer Bitcoin ETFs, Coinbase serves as a custodian for many SEC-approved Bitcoin ETFs. 
• Financial advisers: They can integrate Bitcoin ETFs into client portfolios using existing brokerage accounts, adhering to the same compliance rules as other exchange-traded products. Advisers can assist clients in tailoring investment strategies to their specific goals and risk tolerance.
• Traditional banks: Banks like Goldman Sachs, Morgan Stanley and Bank of America buy shares of the spot Bitcoin ETFs on behalf of clients. In the quarter ending Sept. 30, 2024, Goldman Sachs disclosed holdings of spot Bitcoin ETF shares valued at $710 million.

How to buy Bitcoin ETFs in five steps

To buy Bitcoin ETFs, open a brokerage account, fund it, research available ETFs, place an order and monitor your investments. 

For illustration, this example uses a brokerage account to demonstrate how to buy Bitcoin ETFs. Key considerations include choosing the right platform, verifying your identity and evaluating ETFs based on expense ratios and risk tolerance.

Step 1: Open a brokerage account

• Choose a brokerage platform like Robinhood, BlackRock or another trusted provider. 
• Download their app or access their website. 
• Complete the Know Your Customer (KYC) process to verify your identity and create your account.

Step 2: Fund your account

• Link your bank account to the brokerage platform and transfer funds. 

Step 3: Research Bitcoin ETFs on offer

• Explore Bitcoin ETFs offered by different issuers. 
• Pay attention to factors like the ETF’s expense ratio, which reflects the management fee and risk tolerance. Lower expense ratios can improve your overall returns.
• Identify Bitcoin ETFs that are in line with your objectives. 

Step 4: Place an order

• Use your brokerage account to place an order for your chosen Bitcoin ETF. 
• Enter the ETF’s ticker symbol and specify the number of shares to purchase. 
• Choose the type of order (market, limit, or stop) based on your strategy. 
• Review your order details for accuracy before submitting. 
• Once executed, the ETF shares will appear in your portfolio.

Step 5: Monitor your investments

• Regularly review your Bitcoin ETF investments to track performance and respond to market changes. 
• Adjust your portfolio as needed to stay aligned with your investment goals.

An overview of Bitcoin ETFs’ global regulatory status

Regulators oversee Bitcoin ETFs, ensuring they comply with laws and protect investors. This oversight helps prevent fraud and manipulation, making Bitcoin investments safer and more reliable.

On Jan. 10, 2024, the US Securities and Exchange Commission (SEC) approved the spot Bitcoin ETFs of 11 issuers for their listing on the New York Stock Exchange (NYSE), National Association of Security Dealers Automated Quotations (Nasdaq), and the Chicago Board Options Exchange (CBOE). Bitcoin futures ETFs were already listed on the CBOE and other (Commodity Futures Trading Commission) CFTC-regulated exchanges since 2021.

The SEC approved the 19b-4 applications from ARK 21Shares, Invesco Galaxy, Valkyrie, BlackRock, Grayscale, Bitwise, VanEck, WisdomTree, Fidelity, Hashdex and Franklin Templeton.

In February 2021, Canada became the first country to approve Bitcoin ETFs. Spot Bitcoin ETFs are available in Canada, Germany, Australia, Switzerland, Brazil and Hong Kong. In the UK, only professional investors can invest in Bitcoin ETFs.

How do Bitcoin ETFs work

Bitcoin ETFs follow Bitcoin’s price movements, giving investors exposure to the performance of the underlying cryptocurrency without actually holding it. Bitcoin ETFs provide investors with a simple and familiar approach to participate in Bitcoin markets, combining the typical ETF structure with the potential rewards of the crypto ecosystem.

These ETFs are listed on stock exchanges, making their purchase more convenient for investors familiar with traditional stock markets. This reduces the complexity of trading cryptocurrencies, such as creating wallets, completing KYC processes and saving seed phrases.

Bitcoin ETFs reflect the underlying volatility of the Bitcoin market. Because Bitcoin’s price fluctuates significantly, ETFs may trade at a premium or discount to their purchase price. Various factors, such as demand, investor mood and market liquidity play roles in determining the price.  

Did you know? The SEC’s first rejection of spot Bitcoin ETFs came in 2017 when it declined an application filed by Cameron and Tyler Winklevoss for a Bitcoin ETF product.

Why invest in Bitcoin ETFs

On Jan. 11, 2025, after one year of the SEC approval, the spot Bitcoin ETFs had collectively passed $100 billion in assets under management (AUM), suggesting investor interest. There are several reasons for you to invest in Bitcoin ETFs:

• Accessibility: Bitcoin ETFs are traded on regular stock markets, so you don’t need extra effort to sign up on an exchange or get a crypto wallet. You can simply access your Bitcoin ETFs using traditional brokerage accounts.
• Liquidity: ETFs are highly liquid, so you can easily convert them to cash without losing value. You will find acquiring or selling shares easier than trading Bitcoin directly.
• Professional management: Financial management and budgeting are key components of the success of any fund. Managed by finance professionals, Bitcoin ETFs have a better chance of earning substantial profits than funds managed by financial novices.
• Investor safeguards: As ETFs are regulated financial instruments, they must comply with disclosure requirements and provide particular investor safeguards, assuring investors of openness and accountability.
• Portfolio diversification: Bitcoin ETFs diversify your portfolio by increasing exposure to cryptocurrency markets without dealing directly with digital assets.
• Growth potential: With the regulatory environment worldwide gradually becoming conducive for the growth of the crypto sector, Bitcoin has reason to grow further. Bitcoin ETFs provide investors with the opportunity to capitalize on this opportunity.

Risks of investing in Bitcoin ETFs

While Bitcoin ETFs offer several benefits, they have their share of risks as well:

• Change in investor mindset: ETFs, particularly those targeting specific sectors or markets, might change your mindset from that of a long-term investor to that of an active trader. 
• High expense ratios: Crypto-focused ETFs tend to have high expense ratios. The management fees can be significantly higher than traditional ETFs.
• Potential for large losses: While ETFs provide indirect exposure, they don’t eliminate the inherent risks, such as extreme volatility of the underlying assets, potentially leading to large losses.

Did you know? Europe’s inaugural spot Bitcoin ETF, the Jacobi FT Wilshire Bitcoin ETF (BCOIN), went live on Euronext Amsterdam in August 2023. It is a green-friendly digital asset fund.

What happens if the Bitcoin custodian goes bankrupt

Issuers of Bitcoin ETFs store the underlying Bitcoin with third-party custodians such as Coinbase. It is similar to how spot gold ETFs often keep their physical gold holdings in the vault of a third-party custodian.

For now, Coinbase is the custodian of 10 (out of 12) spot Bitcoin ETFs. The Fidelity Wise Origin Bitcoin Fund (FBTC) utilizes Fidelity’s own custodial services, while the VanEck Bitcoin Trust (HODL) employs Gemini as its custodian.

Coinbase’s dominance in Bitcoin ETF custodianship has created concerns about risk. If Coinbase runs into severe financial trouble in the future, there will be doubts about whether the Bitcoin holdings will be safe. 

Custodial funds are typically held in legally segregated accounts and insured. This should safeguard the underlying Bitcoin from any potential financial collapse of a custodian. In a bankruptcy scenario, claims filed are addressed according to creditor priority.

Although unlikely, these scenarios highlight the need to consider custodianship risk when investing in Bitcoin ETFs. Always stay informed about the financial health of the custodian.