ETF Meaning:
An exchange-traded fund (ETF) is a type of investment fund that is traded on a stock exchange, allowing investors to gain exposure to a broad range of assets, including Bitcoin, without holding the underlying assets.
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.
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 derivative asset such as 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
Non-Bitcoin Crypto ETFs
While Bitcoin ETFs are the most well-known, several other crypto ETFs provide exposure to alternative digital assets and diversified baskets of cryptocurrencies. These include:
- Grayscale Ethereum Trust (ETHE): Offers exposure to Ethereum (ETH) and trades on OTC markets in the United States.
- ProShares Ether Strategy ETF (EETH): A futures-based Ethereum ETF available on the NYSE.
- CI Galaxy Ethereum ETF (ETHX.U): An Ethereum ETF listed on the Toronto Stock Exchange (TSX).
- 21Shares Crypto Basket Index ETP (HODL): A European-listed ETF that offers diversified exposure to multiple cryptocurrencies, including Bitcoin, Ethereum, Solana, and Cardano.
- Bitwise Crypto Industry Innovators ETF (BITQ): Tracks companies involved in the crypto ecosystem, including exchanges and mining firms.
- Amplify Transformational Data Sharing ETF (BLOK): Invests in blockchain-related companies rather than cryptocurrencies themselves.
These ETFs enable investors to gain exposure to the broader cryptocurrency market without directly managing or storing digital assets. Additionally:
- Grayscale Dogecoin Trust: Launched by Grayscale Investments, this fund provides accredited investors with exclusive exposure to Dogecoin (DOGE), a cryptocurrency that has evolved from a meme coin into a viable payment method.
- ProShares XRP ETF: Asset manager ProShares has filed for an XRP ETF with the U.S. Securities and Exchange Commission (SEC). If approved, this ETF would offer investors exposure to XRP, which recently had its SEC lawsuit dropped.
