When it comes to picking a Bitcoin ETF, it’s similar to picking a cryptocurrency exchange. You need to look at the ETF provider’s reputation and how much they’re going to charge you in fees if you decide to use their services. Generally speaking, the most important factors are the company’s assets under management and the management fee they’re charging for their Bitcoin ETF.
In this guide, we’re going to note 5 of the top Bitcoin ETFs and their management fees, before discussing the nuances related to buying a Bitcoin ETF. Let’s jump in.
Top 5 Bitcoin ETFs
Below we’re going to note 5 of the best spot Bitcoin ETFs on the market. They’re in no particular order, but their holdings and management fees will be noted. Let’s start with the new largest holder.
iShare Bitcoin Trust (IBIT)
IBIT is BlackRock’s spot Bitcoin ETF, and it has a 0.25% management fee, though it is 0.12% for the first year of the product being on the market. The IBIT ETF currently holds over 312k BTC worth over $18 billion.
Grayscale Bitcoin Trust (GBTC)
Grayscale’s GBTC product is an open-ended ETF with a 1.5% fee, which is the highest on the list. They used to be the largest BTC holder in the world, but have been selling a lot of BTC since the release of their spot ETF product, and now have just over 274k Bitcoins, leaving them behind BlackRock.
Bitwise Bitcoin Trust (BITB)
Bitwise’s BITB product has the lowest management fee on this list with 0.2%, but it’s currently waived to 0%. They held over 5,000 BTC when the spot Bitcoin ETF was approved, but now hold over 38k BTC in their fund.
VanEck Bitcoin Trust (HODL)
VanEck’s spot Bitcoin ETF trades under the ticker of HODL and they also have a 0.2% fee, but it’s waived for the first $1.5 billion in assets. They are quite transparent with their holdings which started at 1,600 BTC at launch and have grown to over 10,000 BTC.
ARK 21Shares Bitcoin ETF (ARKB)
Cathie Wood’s ARK Invest and 21 Shares offer their ARKB spot Bitcoin ETF. It has the second lowest management fee on this list at 0.21% and the fund holds over 47k Bitcoins under management.
What’s a Bitcoin ETF?
A Bitcoin ETF is an exchange-traded fund that invests in Bitcoin. The ETF sells shares of its product to investors and then builds a portfolio of assets, though in this case they’re only buying and selling Bitcoin.
Until the approval of spot Bitcoin ETFs on January 11, 2024, the only ETF products investors could buy related to Bitcoin were futures ETFs.
Spot vs Futures ETFs
A spot Bitcoin ETF tracks the spot price of Bitcoin, or ostensibly its current market price. Spot Bitcoin ETF products are focused on the day to day movement of Bitcoin’s price. In order for a provider to offer a spot Bitcoin ETF, they need to actually purchase and manage BTC for their ETF clients.
A futures Bitcoin ETF is a completely different product which has been around since well before January 11. A Bitcoin Futures ETF tracks the price of Bitcoin futures contracts, not the current spot price. A Bitcoin futures contract, like a regular futures contract, is an agreement to buy or sell BTC at a predefined price, later in time. When buying shares in a futures Bitcoin ETF, the ETF manager is investing in futures contracts, not Bitcoin itself.
Which is Better for Me?
Deciding on whether to invest in a spot or futures Bitcoin ETF comes down to what you’re betting on. When buying spot Bitcoin ETF shares, you’re essentially just betting on Bitcoin’s price going up over time. The manager buys and sells Bitcoin to maintain the ETF, and no matter what your shares are worth, a portion of BTC is held in the fund for you.
But when buying a futures Bitcoin ETF, the manager is just buying and selling futures contracts and not Bitcoin itself. You’re betting on a specific price that Bitcoin could reach, and that the person you’re betting with will be able to uphold their end of the contract. This leads to a counterparty risk that doesn’t exist with spot Bitcoin ETFs.
Factors to Consider When Picking a Bitcoin ETF
There are a few main factors to consider when picking a Bitcoin ETF to invest in. For many investors, the management fee will be an important factor, while others may find the provider’s assets under management or expense ratio to be important factors. Let’s quickly discuss each one.
Management Fee
The management fee is the fee the ETF provider charges you for managing the fund. For spot Bitcoin ETFs, these fees range from 0.2% to over 1% depending on the provider. A management fee may be included in an expense ratio shown by a provider.
Assets Under Management (AUM)
Assets under management is the number and overall value of assets the ETF provider manages across all of their products. Often, the more AUM that a provider has, the more reputable it is, as it means that many parties trust them with various types of assets.
Expense Ratio
An expense ratio isn’t the same thing as a management fee, but the management fee may be included in the expense ratio number that is shown by a provider. The expense ratio is determined by dividing an ETF’s operating expenses by its net assets.
The expense ratio is how much you pay an ETF provider per year, expressed as a percentage of your investments. So, if you have $50,000 invested in a Bitcoin ETF with an expense ratio of 1.5%, you’ll pay the fund $750 annually.
Closing Thoughts
Bitcoin ETFs are a great way for more traditional investors to get exposure to Bitcoin in a way that feels familiar to them. Though futures Bitcoin ETFs have been around for some time, the more recent approval of spot Bitcoin ETFs has given traditional investors the confidence to get into the digital asset sector through their favorite asset manager.
