What is a Bitcoin ETF?
Exchange-traded funds (ETFs) are bundled funds traded on exchanges and designed to track or replicate the performance of an underlying asset or benchmark index. In the case of Bitcoin ETFs, Bitcoin (the hugely popular cryptocurrency) is the underlying asset being tracked. In January 2024, the SEC granted its approval to “List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units.” In other words, the SEC has given the OK for traders to buy and sell spot Bitcoin ETFs.
What is a Spot Bitcoin ETF?
Funds that use futures or other derivatives to indirectly track and attempt to replicate the price of bitcoin have been available for years. This new landmark SEC approval for spot Bitcoin ETFs allows the funds to buy and hold (or, take direct custody of) the actual underlying Bitcoin asset.
To sum it up: Spot Bitcoin ETFs directly own Bitcoins, other derivative-based Bitcoin ETFs do not.
psychology_altWhat is an underlying asset?
The term “underlying asset” is used to describe a financial instrument or asset that provides the basis for the price of an associated derivative (i.e., a CFD or a forex options contract).
What bitcoin ETFs are there?
In the U.S., 11 bitcoin ETFs were approved for trading by the SEC:
- ARK 21Shares Bitcoin ETF (NYSE: ARKB)
- Bitwise Bitcoin ETF (NYSE: BITB)
- Fidelity Wise Origin Bitcoin Fund (NYSE: FBTC)
- Franklin Bitcoin ETF (NYSE: EZBC)
- Grayscale Bitcoin Trust (OTC: GBTC)
- Hashdex Bitcoin ETF (NYSE: DEFI)
- Invesco Galaxy Bitcoin ETF (NYSE: BTCO)
- iShares Bitcoin Trust (NYSE: IBIT)
- Valkyrie Bitcoin Fund (NYSE: BRRR)
- VanEck Bitcoin Trust (NYSE: HODL)
- WisdomTree Bitcoin Fund (NYSE: BTCW)
Are bitcoin ETFs legal?
Yes, Bitcoin ETFs in the U.S. are legal. So long as your broker offers access to U.S. regional stock exchanges and accepts clients in your country of residence, you will be able to legally trade bitcoin ETFs. If you reside in Iran, for example, you will not be able to trade bitcoin ETFs legally with a U.S. broker, as the U.S.-based broker will not be able to accept clients from your country of residence. To check brokers that accept clients from your country, use our International Forex Brokers Search Tool.
How to buy a spot bitcoin ETF
Just like every other ETF that is traded on the spot, you can buy a bitcoin ETF on the spot using a market order or limit order from within your U.S. brokerage account. International investors can buy bitcoin ETFs from a broker that offers access to major U.S. stock exchanges like the New York Stock Exchange (NYSE).
Here’s a step-by-step guide to buying a Bitcoin ETF:
- Log in to your brokerage account (or open a new account with a broker that offers one of the top trading platforms).
- Choose the Bitcoin ETF you want to trade.
- Determine the number of shares you want to to trade based on your budget and overall trading strategy.
- Create an order for the appropriate Bitcoin ETF symbol. For example, if you were trading the Fidelity Bitcoin ETF, the symbol would be FBTC.
- Submit your order. Submit a market order if you want it to fill at the next available price during market hours. Submit a limit order to have your trade executed at a specified price (or better).
- Monitor your order status to confirm your order has been filled and track your position over time in alignment with your investment methodology and objectives.
lightbulbRemember:
Be mindful of any spreads and fees before placing any trades. Always read the fine print. If you want to find some true low-cost forex brokers, check out my guide to the best Zero Spread Brokers.
Bitcoin ETF pros
Check out some of the advantages that come with purchasing Bitcoin ETFs (compared to buying the underlying Bitcoin).
- Convenience. You won’t need to transfer money to a crypto exchange, which creates additional tax reporting obligations (the complexity of crypto tax obligations can be offputting to investors who might be otherwise be interested in trading Bitcoin).
- Lack of custodial responsibility. You won't have to maintain your own hot or cold cryptocurrency wallet or worry about safeguarding private crypto keys.
- Passive investing. Investing in ETFs allows you to to set recurring investments for passive investing. You can include a Bitcoin ETF as part of a custom portfolio that automatically rebalances your target allocations.
Bitcoin ETF cons
There are some disadvantages associated with Bitcoin ETFs to keep in mind when deciding whether to buy or sell this investment product.
- Expense ratios and fees. Trading costs associated with Bitcoin ETFs have the potential to negatively impact performance. Fees should always be assessed and projected so that you fully understand how they may impact the performance of your portfolio.
- Potential for tracking errors. Like any fund or ETF that aims to replicate the performance of an underlying asset or benchmark index, the performance of the fund over time can deviate from the performance of the underlying asset. Commonly known as tracking errors, these deviations can be the result of various external factors.
- Lack of ownership of the underlying asset. When you purchase an asset like company stock, you become the owner of those actual company shares. The purchase of shares in an ETF, on the other hand, does not convey any underlying ownership rights in Bitcoin.
- Regulatory structure. Some Bitcoin ETFs may not provide protection under the Investment Company Act of 1940.
Bitcoin ETF fees
Fees associated with Bitcoin ETFs can depend on a number of factors, such as whether the fund is actively or passively managed. These costs will be reflected in the ETF’s expense ratio. The expense ratio consists of the ETF’s net management fee and gross management fee.
Management fees may include the fund’s operating expenses, 12B-1 and distributions fees, and the miscellaneous costs that result from the individual ETF’s annual fund operating expenses for shareholders.
While some Bitcoin ETF providers may waive a portion of their fees for a predetermined promotional period to incentivize early investors, it’s important to read the fine print of each prospectus before investing so that you understand if and when those fees kick-in after the promotional period has expired.
The fees associated with each Bitcoin ETF will depend entirely on the specific ETF provider and their most recent investment prospectus. For more information, here are some helpful links with more information for each of the eleven approved Bitcoin ETF providers:
Other ways to purchase bitcoin
Several forex brokers offer you the ability to buy the underlying Bitcoin asset directly, usually through third-parties that they have partnered with or from their own in-house solution (which includes the custody of the underlying asset). Learn more about buying and trading Bitcoin by checking out my Bitcoin Guide.
Buying it directly from a broker
Here's a list of the best brokers that let you buy the underlying Bitcoin asset:
Buying it directly from a broker as a CFD
Traders can also purchase bitcoin as a CFD (not available to residents of the U.K. or U.S.), which can be more suitable for active traders. It’s worth noting that holding crypto CFDs overnight can subject you to carry costs, due to the use of leverage. Here’s a list of brokers that offer crypto CFDs (like Bitcoin):
ForexBrokers.com 2024 Overall Rankings
Now that you've seen our picks for the top seven brokers for trading Bitcoin ETFs, check out the ForexBrokers.com Overall Rankings. We've evaluated over 60 forex brokers, using a testing methodology that's based on 100+ data-driven variables and thousands of data points. Check out our full-length, in-depth forex broker reviews.
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At ForexBrokers.com, our online broker reviews are based on our collected quantitative data as well as the observations and qualified opinions of our expert researchers. Each year we publish tens of thousands of words of research on the top forex brokers and monitor dozens of international regulator agencies (read more about how we calculate Trust Score here).
Our research team thoroughly tests the most important cryptocurrency features and services offered by online brokers. We conduct extensive research into each broker’s overall crypto offering to determine the number of available crypto assets, and whether the broker offers the physical (underlying) assets or crypto CFDs (or both) – among other important data-driven variables.
We also test any crypto-specific trading tools or resources, and we research any and all trading costs, spreads, and crypto-specific fees (such as when converting crypto to crypto).
We test cryptocurrency services across a variety of platforms and devices; all websites and web-based platforms are tested using the latest version of the Google Chrome browser. Our Desktop PCs run Windows 11, and we use MacBook Pro laptops running macOS 12.5 to test copy trading on the go.
We also test cryptocurrency services on mobile devices; for Apple, we use the iPhone XS running iOS 15, and for Android we use the Samsung Galaxy S9+ and Samsung Galaxy S20 Ultra devices running Android OS 12.
All content on ForexBrokers.com is handwritten by a writer, fact-checked by a member of our research team, and edited and published by an editor. Generative AI tools are not a part of our content creation or product testing processes. Our ratings, rankings, and opinions are entirely our own, and the result of our extensive research and decades of collective experience covering the forex industry. Read our Generative AI policy to learn more.
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Joey Shadeck is the Content Strategist and Research Analyst for ForexBrokers.com. He holds dual degrees in Finance and Marketing from Oakland University, and has been an active trader and investor for close to ten years. An industry veteran, Joey obtains and verifies data, conducts research, and analyzes and validates our content.
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