Buy Bitcoin ETFs in just 4 steps
Bitcoin exchange traded funds (ETFs) are similar to other ETFs and you'll need to follow these steps if you want to buy one of them:
- Choose a broker.
- Open your account – including your ID.
- Fund your account by transferring money from your bank account to your broker account.
- Search for the Bitcoin ETF you want to buy, select it and invest.
Why buy a Bitcoin ETF?
A Bitcoin ETF allows investors to gain exposure to this volatile asset through a basket approach.
It's like any other thematic-based ETF. If you believe a certain sector, theme or market could be the major winner moving forward but are unsure of the individual winners, taking a basket approach allows you to gain exposure while offsetting individual business risk.
An ETF approach to Bitcoin also allows investors a different way to gain exposure.
While there are many Bitcoin ETFs in circulation, many of which are inaccessible, the available ones offer investors different solutions. Some track movement in price while others follow businesses that are exposed to crypto assets. And while you should know what you own, a Bitcoin ETF could be a way of gaining access to the fastest-growing trend in financial markets.
3 types of Bitcoin ETFs
Bitcoin ETFs all broadly follow the same theme, but they can be broken down into 3 main categories:
- Physically backed. This is probably the simplest form of ETF for investors to get their heads around. In this instance, the ETF you invest in will buy Bitcoin on your behalf and store it for you, most often in an offline wallet.
- Futures contracts. If you choose to buy a futures-backed ETF, you don't actually own Bitcoin. Instead, the ETF provider is trading contracts that reflect Bitcoin's price on your behalf. Should the price of Bitcoin increase, so will the next contract, lifting the price of what the ETF holds. The inverse is also true should the price of Bitcoin fall.
- Picks and shovels. In this instance, you're looking at companies that are mining Bitcoin. You are investing in the underlying tech instead of the outcome. Basically, you're making money selling the picks and shovels instead of buying Bitcoin itself.
Cryptocurrency ETFs vs cryptocurrency: Benefits and risks
- Simplicity. Learning how to buy and store cryptocurrency can be a confusing and daunting process. ETFs make it easy to gain exposure to digital currencies without going through the hassle of owning any coins.
- Create a diverse portfolio. The compartmentalised nature of the cryptocurrency industry means that acquiring and holding a large collection of currencies all at once is complicated and time-consuming. You may have to open several wallets and maintain accounts on multiple cryptocurrency exchanges. While US choices track only Bitcoin at the moment, in theory, cryptocurrency ETFs allow you to track multiple digital coins and tokens at once, saving you a lot of time and effort.
- Avoid the risk of hacking. Cryptocurrency exchanges and wallets are susceptible to hacking attacks and theft. Buying units in a cryptocurrency ETF protects you against these risks as you don't actually own any digital coins.
- Lower fees. ETFs generally have lower fees than traditional managed funds, making it possible to build a diversified portfolio at reduced expenses.
- Regulation. Futures markets used by current Bitcoin ETFs are federally regulated while Bitcoin has more limited regulation. Some will consider this a benefit, others a drawback.
- Limited choice. There's currently limited choice available for anyone wanting to invest in cryptocurrency-related ETFs in the US. However, now that the SEC has approved its first cryptocurrency ETF, this will likely soon change.
- Volatility. Cryptocurrencies are famous for their volatility. They can also experience substantial price fluctuations in a short period. If the market moves against you, the value of your cryptocurrency ETF units could take a sharp dive.
- Tracking vs owning. With futures-based cryptocurrency ETFs, you're also looking at a value that tracks the coin indirectly. It won't match the asset and you could gain or lose as the asset moves in price. It's a great unknown at this point.
- Lack of risk diversification. Traditional ETFs often include an extensive range of securities to help achieve diversification. They sometimes include government bonds and debt to mitigate market risk. However, most versions of cryptocurrency ETFs only provide access to a limited range of digital currencies. When you consider the correlation between the performance of Bitcoin and the value of altcoins, this only increases the level of risk.
- Crypto-specific risks still apply. Just because you don't have to deal with any of the risks of owning digital currency doesn't mean these risks cease to exist. Issues such as hacking will still need to be managed by the ETF provider.
- Fees apply. On top of an annual management fee, you'll need to consider brokerage fees that apply when you buy or sell ETF units.
- International taxes. If you buy ETF units located in another country, such as XBT Provider's funds, be aware that foreign tax may apply.
Compare online ETF brokers
To invest in Bitcoin ETFs, you need a brokerage account. Review platform features and fees to find the account that best fits your needs.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
What Bitcoin ETFs are listed in Australia?
There are plenty of Bitcoin ETFs circulating on global exchanges. While most of these are in Europe, a number of cryptocurrency or Bitcoin ETFs are now available to Australian and US share investors. Here is a list of the current leading providers:
How do ETFs affect the price of Bitcoin?
Bitcoin ETFs should positively affect Bitcoin price. Bitcoin will get more attention from mainstream investors, including financial advisers who wouldn't otherwise want to get exposure to cryptocurrency. Having Bitcoin ETFs approved by the SEC could also boost investor confidence in this alternative asset.
Latest update in the Bitcoin ETF space
Bitcoin has had a resurgence in recent times as the price rose by 11.5% in October 2023. This impressive rebound represents a year-to-date increase of 109%, a significant turnaround from the market slump experienced in 2022.
One key driver behind this renewed optimism is the anticipation of the US's first spot Bitcoin ETF. Asset management giants, BlackRock and Fidelity Investments, are leading the charge in this endeavour, further fuelling investors' confidence.
Eric Balchunas, a Bloomberg Intelligence ETF analyst, made a notable announcement on X (formerly known as Twitter) that BlackRock's iShares Bitcoin Trust has been officially listed on the Depository Trust and Clearing Corp with the ticker symbol IBTC.
"This is pretty much checking every box that you need to check before you launch an ETF," Balchunas said on X.
There are currently 8 ETF applications awaiting approvals from the US regulatory body.
Why hasn't the SEC approved Bitcoin spot ETF applications?
The SEC has refrained from approving Bitcoin spot ETF applications for several key reasons.
First, the SEC is concerned about potential market manipulation in the highly volatile Bitcoin market, which operates 24/7 and can be more susceptible to sudden price fluctuations. Ensuring the ETF market is resilient to such manipulation is a top priority for the SEC.
Second, the custody and security of Bitcoin assets have raised significant concerns. Protecting digital assets is critical to safeguarding investor interests and the SEC insists on stringent security measures to ensure the safekeeping of assets held by Bitcoin spot ETFs.
However, the evolving cryptocurrency landscape may lead to changes in the SEC's stance as these concerns are addressed, potentially paving the way for future approvals.
Who are Bitcoin ETFs suited to?
Bitcoin ETFs are suited to a number of investors ranging from those who are already stock traders to those who are bullish on the future price of the asset class.
Buying one of the current Bitcoin ETFs means you will be investing in future contracts or in a company's exposure to Bitcoin's assets, but you will not hold the "physical" asset itself. As such, investors who are bullish on the price of the underlying asset but do not want the hassle of owning a cryptocurrency wallet could favour a Bitcoin ETF instead.
An ETF structure might also appeal to investors who own other stocks but want to gain exposure to Bitcoin assets.
Rather than signing up for 2 different accounts and having to track 2 different asset classes, investors can simply own an ETF.
Limitations of Bitcoin ETFs
While an ETF gives you the opportunity to get into the market, as it currently stands you won't own the actual underlying assets. Instead, most trade using a model based on business exposure to Bitcoin or based on contracts for difference (CFDs), meaning you are trading on the future price of Bitcoin without owning it.
If you want to own Bitcoin, an ETF approach may not be best suited to your needs.
Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.
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