What Is a Bitcoin Exchange Traded Fund?

On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) approved the first 11 Bitcoin spot Exchange Traded Funds (ETFs) to be listed and traded on U.S. stock exchanges. This historic moment allowed investors to buy Bitcoin through traditional stock markets instead of crypto exchanges. 

Bitcoin ETFs resulted from the growing demand for an easier, safer, and more regulated way to invest in Bitcoin without directly buying and storing it. Companies like BlackRock, Fidelity, Ark Invest, and Grayscale created these Bitcoin ETFs for those who wanted to invest their hedge funds, pension funds, etc., into them rather than actual Bitcoin.

If you don’t have a single clue of what we are talking about, do not fret. This article will give you every detail you need to know about Bitcoin Exchange-Traded Funds, how it works, the companies that offer it, its pros and cons, and how it compares to actual Bitcoin. But first,

What are Exchange-Traded Funds?

From the name Exchange-Traded, ETFs are continuously bought and sold as stock, and you can invest in them with a broker account. Funds mean that you are putting your money into different securities or products of the same kind. You can also say that ETFs are an investment fund that pools together various investment products from a specific sector (like fruits, technology, or real estate).  

ETFs track an index, which is the average market value of all the products within the fund.  ETFs are traded on stock exchanges, just like individual stocks.  So, instead of buying shares in each company within a sector, you buy shares of an ETF, which provides diversified exposure to that sector. Hope you understand.

Types of Exchange-Traded Funds?

Here’s a breakdown of some of the most common types:

1. Equity ETFs:

• Equity ETFs track stock indexes or specific stock market sectors and provide diversified exposure to a basket of stocks. 
• Example: The SPDR S&P 500 ETF Trust (SPY) tracks the S&P 500 index.

2. Bond ETFs:

• Bond ETFs are investments in fixed-income assets, like U.S. government and corporation bonds. Buying Bond ETFs gives you a bird’s eye view of the bond market.  A prime example is the iShares 20+ Year Treasury Bond ETF (TLT), which keeps track of the long-term U.S. Treasury bonds. 

3. Sector ETFs:

• Sector ETFs buy shares in specific industry sectors of certain areas of the economy, such as oil, tech, healthcare, etc. A case in point is the Vanguard Information Technology ETF (VGT), which picks businesses from the tech sector.

4. Crypto ETFs:

• Crypto ETFs track the price of cryptocurrencies or related companies. An example is the Bitcoin ETF.

What is a Bitcoin Exchange-Traded Fund?

A Bitcoin ETF or Bitcoin Spot ETF lets you invest in Bitcoin without owning it directly. The ETF buys and stores Bitcoin in a secure digital wallet managed by crypto exchanges or the self. It then issues shares that reflect Bitcoin’s market price, which you can trade on regular stock exchanges. These ETFs use secure storage methods to protect against hacking. Market makers help keep trading smooth by constantly buying and selling shares. 

This way, you can invest in Bitcoin without the need for a wallet or worrying about safety. One notable product in the future of cryptocurrency could be a Bitcoin ETF, as its price correlates closely enough with the actual market price of Bitcoin.

How does it work?

This is how Bitcoin ETFs work.

• The ETF buys real Bitcoin from exchanges or holders in a secure digital vault like Coinbase or cold wallets.
• ETF shares, representing a portion of the Bitcoin they hold, are created and listed on stock exchanges like the New York Stock Exchange (NYSE) or Nasdaq.
• Following Bitcoin’s market price, you buy ETF shares through a regular brokerage account.
• Market makers keep the ETF liquid by continuously buying and selling shares.
• The ETF may rebalance based on your money’s inflows and outflows to keep its price in sync with Bitcoin.

Read More: Everything You Need To Know About Soulbound Tokens

Ten Companies That Will Offer Bitcoin ETFs in 2025

These are some companies that trade with Bitcoin ETFs as of 2025;

1. BlackRock: Offers iShares Bitcoin Trust ETF (IBIT).
2. Fidelity Investments: Offers Fidelity Advantage Bitcoin ETF (FBTC).
3. Grayscale Investments: Offers Grayscale Bitcoin Trust (GBTC).
4. Invesco: Offers Invesco Galaxy Bitcoin ETF (BTCO).
5. VanEck: Offers VanEck Bitcoin Trust (HODL).
6. Franklin Templeton: Offers Franklin Bitcoin ETF (EZBC). 
7. WisdomTree: Offers WisdomTree Bitcoin Fund (BTCW).
8. Bitwise Asset Management: Offers Bitwise Bitcoin ETF.
9. ProShares: Offers ProShares Bitcoin Strategy ETF (BITO).
10. Hashdex: Offers the Hashdex Bitcoin ETF (DEFI).

Also Read: How to Recover from a Crypto Scam or Hack

Bitcoin vs Bitcoin ETFs

Holding Bitcoins and Bitcoin ETFs are not the same thing. These are the differences;

Feature	Bitcoin	Bitcoin ETFs
Ownership	You own actual Bitcoin	You own a share that represents Bitcoins.
Storage	Requires a crypto wallet (hot or cold).	No wallet is needed; it is stored by a custodian.
Security Risks	Risk of hacking and losing private keys.	It has lower risk and is regulated and insured storage.
Regulation	Decentralised, not controlled by governments.	Regulated by financial authorities (e.g., SEC in the U.S.).
Trading Platform	Traded on crypto exchanges (Binance, Coinbase, etc.).	Traded on stock exchanges (NYSE, Nasdaq, etc.).
Volatility	Highly volatile due to direct exposure.	Slightly less volatile due to fund management.
Liquidity	It can be slow, depending on exchange and network congestion.	High liquidity; easy to buy/sell on stock markets.
Fees	Transaction fees (network fees, exchange fees).	Management fees, but no direct network fees.
Tax Treatment	Subject to crypto tax rules (varies by country).	Treated like stocks, with capital gains tax rules.
Accessibility	Requires a crypto exchange and wallet setup.	It can be bought with a regular brokerage account.

Read More: What Are Decentralized Identities (DIDs), and Why Are They Important in Web3?

Pros and Cons of Bitcoin ETFs

Pros

1. Accessibility: Bitcoin ETFs are more accessible to the public than Bitcoins because you do not need to have the technical know-how to buy them.
2. Simple Process: You do not need Bitcoin wallets or seed phrase management with Bitcoin ETFs.
3. Ease of Trade: It is easier to trade ETFs because you can do it on many platforms.
4. Regulation and Investor Protection: ETFs are regulated to protect your investment from a crypto or platform crash.

Cons

1. Trading limitations: Unlike Bitcoin, you can’t trade your ETFs around the clock, especially when the markets are closed.
2. Trading halts: ETF markets experience trading halts during high volatility, and you can’t take advantage of big price swings.
3. Management fees: These management fees are low, but they make ETFs expensive to hold.
4. Tracking errors: ETFs don’t accurately follow the price of Bitcoin by 100%.
5. Lack of Bitcoin custody: Holding Bitcoin ETFs is not the same thing as holding Bitcoin. Because of this, you don’t get full custody of your shares, and you will be affected if your ETF broker goes back on his promises or goes bust.
6. Cash only: Unlike Bitcoin, you only get Bitcoin ETFs with cash. 

Note: Bitcoin ETF approval affects the price of Bitcoin by increasing the buying pressure and pulling in investments from big investors. However, going into Bitcoin ETFs without proper risk management and research is not financial advice. 

Conclusion

With Bitcoin ETFs, investing in Bitcoin is now easier and safer without needing a crypto wallet or handling private keys. You can buy and sell them like regular stocks, but it has its fees and some trading limits. 

Whether you choose Bitcoin or ETFs depends on what works best for you. While ETFs help people invest in Bitcoin, still research before investing money. As more big investors get involved, Bitcoin ETFs could play a big role in the future of crypto investing.