What is an ETF
An ETF, or Exchange-Traded Fund, is a type of investment fund that is traded on a stock exchange, like individual stocks. ETFs are designed to track the performance of a particular financial asset, which can include stocks, bonds, currencies, debts, futures contracts, and commodities such as gold bars or Bitcoin.
ETFs are similar to mutual funds, but they are traded on an exchange, which means that their prices can fluctuate throughout the day. This allows investors to buy and sell ETFs at any time during trading hours, rather than at the end of the day like mutual funds.
ETFs allow conventional traders to gain exposure to Bitcoin without directly holding the underlying asset, and are often used by institutional investors and individuals who want to invest in Bitcoin but do not want to hold the actual cryptocurrency.
What are the types of Bitcoin ETFs?
Bitcoin ETFs can be Spot Bitcoin ETFs or Derivatives-Based Bitcoin ETFs, usually Bitcoin Futures ETFs.
Spot Bitcoin ETFs are designed to track the current market price of Bitcoin, rather than the price of a futures contract. This means that the ETF's net asset value is directly tied to the value of the underlying Bitcoin, and the ETF's price should closely track the spot price of Bitcoin.
A Bitcoin Futures ETF is designed to provide investors with exposure to the price of Bitcoin, but it does not hold actual Bitcoin. Instead, it holds futures contracts that are tied to the price of Bitcoin. These futures contracts are traded on a futures exchange, such as the Chicago Mercantile Exchange (CME), and are settled in cash.
Derivatives-based Bitcoin ETFs can also be options-based, swap-based, or forward-based. Derivatives-based Bitcoin ETFs that are not futures-based normally use a combination of options and swaps or forwards to gain exposure to the price of Bitcoin.
How do Bitcoin ETFs work?
There are certain differences in how Spot and Derivatives-based Bitcoin ETFs function.
Spot Bitcoin ETFs are backed by actual BTC stored in a digital vault, often secured using cold storage, and managed by registered custodians. ETFs issue shares representing the amount of Bitcoin they hold, which later become available on traditional stock exchanges.
While spot Bitcoin ETFs are backed by real BTC, derivatives-based ETFs are not. Instead, the ETF provider manages a portfolio of derivatives, allowing for indirect exposure to the price of Bitcoin, most commonly via futures markets.
Where can I trade a Bitcoin ETF?
Bitcoin ETFs are traded across the globe, with the most popular ones being traded on stock exchanges in the US and Canada:
Grayscale Bitcoin Trust (GBTC): A popular Bitcoin ETF that is traded on the OTCQX market in the United States. Assets under management (AUM): $10.5B, Trading Volume: $1.5B
ProShares Bitcoin Strategy ETF (BITO): A Bitcoin ETF that is traded on the New York Stock Exchange (NYSE) in the United States. AUM: $1.5B, Trading Volume: $500M
Valkyrie Bitcoin Strategy ETF (BTF): A Bitcoin ETF that is traded on the NASDAQ stock exchange in the United States. AUM: $1.2B, Trading Volume: $300M
VanEck Bitcoin Strategy ETF (XBTF): A Bitcoin ETF that is traded on the Cboe BZX Exchange in the United States. AUM: $500M, Trading Volume: $200M
CI Galaxy Bitcoin ETF (BTCX.U): A Bitcoin ETF that is traded on the Toronto Stock Exchange (TSX) in Canada. AUM: $400M, Trading Volume: $150M
3iQ CoinShares Bitcoin ETF (BTCQ.U): A Bitcoin ETF that is traded on the Toronto Stock Exchange (TSX) in Canada. AUM: $300M, Trading Volume: $100M
WisdomTree Bitcoin ETF (BTCW): A Bitcoin ETF that is traded on the SIX Swiss Exchange in Switzerland. AUM: $200M, Trading Volume: $50M
