1What is a Bitcoin ETF?

Bitcoin exchange-traded funds (ETFs) allow buyers to invest in Bitcoin without purchasing the actual asset. This investment method simplifies the purchasing process and users do not need to register with an exchange or use a crypto wallet to participate.

In traditional investing, an ETF is a form of investment that tracks the price of an asset or group of assets. ETFs represent a simple way to invest in multiple assets simultaneously without actually holding said assets.

Taking Bitcoin as an example, the Bitcoin ETF is an asset that only tracks the price of Bitcoin. By investing in Bitcoin ETFs, users can still profit from Bitcoin gains without having to go through the process of purchasing Bitcoins, such as registering on an exchange and passing various verification methods.

That said, the Bitcoin ETF itself is very limited. The first so-called Bitcoin ETF is the ProShares Bitcoin Strategy ETF (BITO), which was launched in October 2021. However, this ETF does not invest directly in the asset, but instead invests in Bitcoin futures exchange-traded funds as an alternative investment, which makes the ETF offered by ProShares even more "fake."

2What is a Bitcoin Futures ETF?

Bitcoin futures ETFs offer users the ability to bet on the price of Bitcoin, allowing them to agree to buy or sell Bitcoin on a specific date at a specific price.

A Bitcoin futures ETF is an agreement to buy or sell Bitcoin at a specific price on a predetermined date. For example, when purchasing Bitcoin through the ProShares Bitcoin Strategy ETF, an investor can enter into a contract with ProShares to purchase $10,000 of Bitcoin on June 15, regardless of the actual value of Bitcoin on that day.

Since BTC is volatile, why would people choose to buy Bitcoin one day in the future? Because they have reason to believe that the price of Bitcoin will be lower by then, and the entire process is completed by the platform rather than the user. Additionally, traders can also short the asset and create a sell contract.

Of course, one can buy any amount of Bitcoin at any time without ProShares, but futures ETFs ensure that users can invest in the digital asset without inconveniencing themselves through an exchange. This method also has lower fees than most cryptocurrency exchanges. However, futures ETFs do not involve investing in Bitcoin at spot prices, which is why some enthusiasts may argue that this does not provide "real" cryptocurrency adoption.

Additionally, companies offering Bitcoin futures ETFs may charge an annual fee to keep contracts and accounts open. Also, these ETFs may sometimes not accurately track the price of Bitcoin. These issues make many people want to choose another ETF to invest in.

3How do Bitcoin ETFs work?

The Bitcoin Spot ETF provides the same simplified investing capabilities as the Bitcoin Futures ETF, but it only allows users to invest in the spot price of Bitcoin rather than its future value.

The Bitcoin Spot ETF offers all the benefits of a futures ETF, such as not having to go through an exchange to invest in Bitcoin, paying fewer fees than on crypto exchanges, and an overall simplification of the process. But spot ETFs will invest in Bitcoin at the spot price.

Yes, spot ETFs invest in Bitcoin at the spot price, meaning buyers will hold the Bitcoin for the duration of the contract. Enthusiasts consider spot ETFs a more legitimate way to invest because they involve holding Bitcoin.

However, because the cryptocurrency industry has not yet matured, there is currently no true Bitcoin spot ETF. Cryptocurrency industry experts often campaign for companies to create Bitcoin spot ETFs because they believe the market will take Bitcoin seriously after a spot ETF is established.

4 Bitcoin Spot ETF Races

A Bitcoin spot ETF does not yet exist, and cryptocurrency companies have made various proposals to the U.S. Securities and Exchange Commission (SEC) over the years. However, some companies have legalized Bitcoin futures ETFs.

Cryptocurrency companies have been trying to legalize Bitcoin spot ETFs in the United States for years, but the U.S. Securities and Exchange Commission (SEC) still hasn’t backed down, despite two recent SEC chairs who are said to be “bullish on cryptocurrencies.”

For example, Jay Clayton, who served as chairman of the U.S. Securities and Exchange Commission (SEC) from May 4, 2017 to December 23, 2020, is a fan who believes that Bitcoin maintains its value. However, there are no proposals that convince Clayton that the time has come to launch a Bitcoin ETF. Clayton’s successor, Gary Gensler, approved ProShares’ BITO.

Other ETF proposals including Valkyrie and Van Eck were also approved. That said, Grayscale may be the first company to implement a Bitcoin spot ETF.

Grayscale holds the world’s only SEC-approved publicly traded Grayscale Bitcoin Trust (GBTC), which proposed a Bitcoin spot ETF to the SEC in 2016. The organization quickly withdrew its application in 2017 as negotiations stalled.

As of March 2022, Grayscale remains committed to converting GBTC into the world’s first Bitcoin spot ETF, and has even threatened to sue the SEC if its latest attempt fails. On the contrary, the SEC said that market manipulation is the biggest obstacle to its approval of the Bitcoin spot ETF.

Is the 5BTC spot ETF better than the futures ETF?

Bitcoin spot ETFs and futures ETFs each have pros and cons. While a Bitcoin spot ETF is certainly more "legitimate" than a futures ETF because it involves actually purchasing Bitcoin, it's hard to say which one is better.

After all, a Bitcoin futures ETF may not buy at Bitcoin's spot price, but it simplifies the buying process and allows investors to bet on the market, whether they choose to short or otherwise. For the same reason, some Bitcoin futures ETFs have difficulty tracking the price of Bitcoin accurately, and many ETFs also charge annual fees for entering into contracts with the company.

Instead, according to many Bitcoin enthusiasts, a Bitcoin spot ETF would bring “legitimacy” to the asset by allowing users to invest in Bitcoin without actually holding it — and do so on a per-bit basis. Invest based on the actual price of the currency.

6What Bitcoin ETFs are there now?

There are currently several companies offering Bitcoin ETFs, all listed on their respective exchanges.

Although the only existing Bitcoin ETFs are futures ETFs, people still have a variety of Bitcoin ETFs to choose from. This article previously mentioned the ProShares BITO Bitcoin Futures ETF, which currently holds approximately $1 billion invested. BITO is listed on the Chicago Mercantile Exchange (CME).

Another Bitcoin ETF is the Valkyrie Bitcoin Strategy ETF. Valkyrie also offers a Bitcoin futures ETF, listed on Nasdaq under the trading symbol BTF. There is also the VanEck Bitcoin Strategy ETF, which provides users with Bitcoin futures ETF exposure. The VanEck Bitcoin Strategy ETF is listed on the Chicago Board Options Exchange (CBOE) under the ticker symbol XBTF.

There are various other Bitcoin futures ETFs on the market, but the ones mentioned above are currently the most popular. Of course, which ETF is best depends on the user, as they are listed on different exchanges and can have different prices.