Bitcoin and cryptocurrency in general have been surging in popularity in recent years. Here we'll check out the best Bitcoin ETFs and cryptocurrency ETFs for 2024.
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Introduction – Why Bitcoin ETFs and Cryptocurrency ETFs?
There are thousands of different cryptocurrencies that have emerged – Bitcoin, Ethereum, Litecoin, Tether, etc. Instead of buying each of these directly and trying to keep track of their relative popularity and value, you can invest broadly across them with cryptocurrency ETFs, which also conveniently allows you to avoid the hefty fees of exchanges and wallets like Coinbase.
These ETFs provide more secure, reliable diversification across different cryptocurrencies and the different companies involved in the underlying blockchain technology. No wallets, no keys, no storage, no exchanges, etc., plus the tax-advantaged growth if you buy a Bitcoin ETF in a tax-advantaged account, where you can't directly buy Bitcoin.
For those wanting to solely focus on Bitcoin, by far the most popular cryptocurrency, Canada’s financial regulator, the Ontario Securities Commission (OSC), recently approved the world’s first three Bitcoin ETFs. The SEC has been more stringent so far in not approving a US-based Bitcoin ETF; they have rejected the proposals they've received thus far. The SEC cites worries of volatility, illiquidity, and potential for manipulation.
Cryptocurrency sits upon the underlying blockchain technology, a peer-to-peer network of participants establishing a decentralized ledger. Cryptocurrency is just digital money that takes the form of “coins” on that ledger. Decentralization is a central driving theme of cryptocurrencies, meaning the digital currency does not rely on physical banks and government control, for better or for worse.
Note, however, that blockchain is not cryptocurrency, and cryptocurrency is not blockchain. Similarly, cryptocurrency ETFs are not blockchain ETFs, and vice versa.
I think crypto is mostly just a speculative asset, but it may indeed offer a diversification benefit in terms of being uncorrelated to other assets. “Uncorrelated” means assets don't move the same way at the same time. This has been true so far for Bitcoin. Looking at 3-year rolling returns for the decade ending 2020, BTC has had a correlation of zero to U.S. stocks, foreign stocks, U.S. bonds, gold, silver, copper, palladium, and broad commodities! That's pretty wild.
In fact, I couldn't find any asset to which BTC has had any semblance of positive correlation; if you know of one, let me know. I guess this may make sense, as crypto buyers may just be speculating on its price movement in isolation and not actually investing in it because of the behavior of other assets. These correlations may also shift in the future.
Keep in mind though that BTC is so extremely volatile that if you're buying it for this diversification purpose (and not just because you think it'll go “to the moon!”), you only need a dash of it for the intended effect. Its risk parity weighting in a portfolio alongside stocks and intermediate treasury bonds is only 3%! I personally wouldn't hold more than about that amount.
Let's look at some Bitcoin ETFs and broader cryptocurrency ETFs.
The 8 Best Bitcoin ETFs
The various options for a Bitcoin ETF differ wildly in structure, availability, fees, and how they achieve exposure to the digital currency. As such, these are listed in no particular order.
BITO – ProShares Bitcoin Strategy ETF
BITO from ProShares launched in October 2021 and quickly amassed over $1 billion in AUM. I've added it to the top of this list because it's the first true U.S. Bitcoin ETF. And with a fee of 0.95%, it's cheaper than the other options below for U.S. investors. Pent-up demand for a Bitcoin fund by U.S. investors now has a place to go, and indeed it did, with record volume on its launch day.
Note that BITO does not directly buy Bitcoin. It buys Bitcoin futures. As such, we'd expect its price to differ from the spot price of BTC. The fund also reserves the right to purchase stakes in foreign ETFs and investment vehicles that hold Bitcoin directly.
BITO's approval may start the snowball to later result in a true spot-based U.S. Bitcoin ETF.
GBTC – Grayscale Bitcoin Investment Trust
GBTC was one of the first vehicles to offer Bitcoin exposure to investors, but note that this fund is an OTC ETN, not an ETF. ETN's mean potential counterparty risk. If the fund goes under, you lose your money.
According to Grayscale themselves, GBTC, which represents fractional bitcoin ownership, “enables investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins.”
GBTC is not physically backed. It allows accredited investors to buy into the fund through periodic private placements, with a 20% premium and a 2% fee. GBTC doesn't reliably track the price of Bitcoin itself, for better or for worse.
Grayscale actually announced on August 4, 2021 that it is getting the gears turning to convert GBTC to an ETF, though the SEC hasn't allowed the structure yet, so it will be interesting to see how that plays out.
BITW – The Bitwise 10 Private Index Fund
Launched in 2017, The Bitwise 10 Private Index Fund is the first cryptocurrency index fund. it holds the 10 largest cryptocurrencies.
According to Bitwise:
“The fund’s assets are held in 100% cold storage with a regulated, insured custodian, and are audited annually. The underlying index—the Bitwise 10 Large Cap Crypto Index—has a public, formal methodology that includes eligibility rules meant to screen out critical risks around custody, liquidity, regulatory, and other concerns. Investors are able to buy and sell shares of the Bitwise 10 Crypto Index Fund through traditional brokerage accounts by typing the ticker symbol ‘BITW' into their brokerage window. Accredited investors may access the fund as a private placement directly through Bitwise.”
The fund has a fee of 2.5%.
BTCE – BTCetc Physical Bitcoin ETC
BTCE is a true open-funded, physically-backed Bitcoin ETF (yes, ETF!) in Germany, thanks to different regulatory requirements than the U.S. Unfortunately, if you're reading this, it's likely that you can't buy it. BTCE has a fee of 2% and over $1 billion in assets.
CXBTF – Bitcoin Tracker One
CXBTF trades on the OTC markets. You might have a hard time finding it. It launched on the Nasdaq Stockholm in 2015. The fund was initially offered only in Swedish krona, and then 3 years later in August 2018, became available in U.S. dollars. Note that like GBTC, CXBTF is an ETN.
BTCC – Purpose Bitcoin ETF
BTCC launched in Canada in early March, 2021. The fund picked up nearly $500 million in assets in its first week, which is pretty staggering, especially since it's a Canadian ETF. BTCC has a fee of 1%.
EBIT – Evolve Bitcoin ETF
EBIT launched on the Toronto Stock Exchange 1 day after BTCC, naturally giving it a slight disadvantage. To combat this, it lowered its fee in its first week from 1% to 0.75% to directly compete with BTCC. Still, EBIT's AUM sits at about 1/10 of that of BTCC.
These ETFs are likely more desirable to U.S. investors than the ETNs and overseas ETFs listed above. Still though, these Canadian ETFs may not be readily available to you, depending on who your broker is. GBTC may still be the best option for U.S. investors, but an ETF format should be preferable so that its price stays close to its NAV (i.e. creation/redemption).
BTCX – CI Galaxy Bitcoin ETF
BTCX was the third Bitcoin ETF to launch in Canada on the Toronto Stock Exchange, offering exposure to bitcoin held in cold storage just like its two predecessors. BTCX knows it's at a disadvantage being late to the game though, so it has made its fee a category-low 0.40%.
Short-term traders may still prefer the greater liquidity of BTCC and EBIT, but a long-term holder can save significantly on fees by using BTCX. BCTX.U trades in U.S. dollars.
All three of these ETFs track the Bloomberg Galaxy Bitcoin Index (the “BTC”), which measures the performance of a single bitcoin traded in U.S. dollars.
Outlook for a U.S.-Listed Bitcoin ETF
Analysts speculate that a U.S.-listed Bitcoin ETF may be approved by the end of 2021. There have been quite a few applications, most recently from WisdomTree. Filings have also been attempted by ProShares, VanEck, Direxion, First Trust, and GraniteShares.
U.S. cryptocurrency fans are hopeful because of President Joe Biden’s nomination of Gary Gensler as SEC chairman, as Gensler once taught a class at MIT called “Blockchain and Money.”
For now, we'll have to wait and see, or find a broker offering one of the foreign-listed products above. You might enjoy a blockchain ETF in the meantime.
Update – October 25, 2021: U.S. investors can rejoice now. The SEC has approved the first U.S. Bitcoin ETF – it's the ProShares Bitcoin Strategy ETF. Its ticker is BITO. We'll likely see other Bitcoin ETFs following close behind, but ProShares has a huge advantage from being the first to market. That said, this ETF does not directly buy Bitcoin; it buys Bitcoin futures. For U.S. investors, BITO is conveniently available at M1 Finance, the broker I'm usually suggesting around here.
Or you can just buy crypto directly with BlockFi.
Coinbase, the largest American cryptocurrency exchange platform, also went public on April 14, 2021. That may ironically be the best proxy for U.S. investors who don't want to buy physical bitcoins. Update: However, COIN does not appear to be correlated very much at all with actual BTC, which we should probably expect; Coinbase is a company.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. All examples above are hypothetical, do not reflect any specific investments, are for informational purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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