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What Are Bitcoin ETFs and How To Trade Them?

Since the inception of Bitcoin (BTCUSD), the first-ever Cryptocurrency, in 2008, the Crypto landscape has witnessed numerous milestones. One of the most notable among them is the approval of Spot Bitcoin ETFs on January 10, 2024, which has been dubbed a 'game-changer' for the Crypto industry, and here's why:

Bitcoin ETF Trading illustrated.

ETFs Meaning

An Exchange Traded Fund (ETF) is an investment type that tracks multiple assets, markets, or individual securities, providing traders access to a wide range of financial markets.

By investing or trading ETFs, you can access the prices of underlying instruments without owning them. Examples include stock, forex, indices, commodities, and bond ETFs.

Additionally, ETFs are similar to stocks in that they are both listed and traded on stock exchanges.

To learn more about ETF trading, check out our article on “Understanding ETFs: What Is an ETF?

TL;DR

  • Spot Bitcoin ETFs were approved by the SEC on January 10, 2024, a milestone in the Cryptocurrency world.
  • Bitcoin ETFs track Bitcoin prices and allow investors exposure to Bitcoin without owning the Cryptocurrency.
  • Bitcoin ETFs can offer accessibility and credibility, attracting both novice and traditional investors.
  • Drawbacks of Bitcoin ETFs include volatility, management fees, and potential tracking errors.
  • Bitcoin ETFs can be traded on exchanges or through CFDs.

Explaining Bitcoin ETFs: What Are Bitcoin ETFs?

Bitcoin Exchange Traded Funds (ETFs), or BTC ETFs, are pooled investment portfolios that track Bitcoin prices, enabling regular investors to gain exposure to Bitcoin value without having to own it as an underlying asset.

Moreover, Bitcoin ETFs are regulated and listed on major exchanges, including the New York Stock Exchange (NYSE), the Nasdaq, and the Chicago Board Options Exchange (CBOE).

What Does Trading Bitcoin ETFs Mean?

Bitcoin ETFs’ prices may fluctuate in accordance with the price of Bitcoin and traders can choose whether to buy or sell these ETFs based on their goals.

What Is the US Securities and Exchange Commission (SEC)?

The US Securities and Exchange Commission is the first federal government agency in the US. It is responsible for the regulation of the securities market, including the protection of traders and investors’ capital.

The SEC is divided into Corporate Finance, Investment Management, Enforcement, Trading and Markets, and Economic and Risk Analysis to regulate the securities market and protect investors.

Accordingly, the SEC’s decisions hold crucial importance to the financial markets, the economy, and investors.

When Did the SEC Approve Spot Bitcoin ETFs?

For many years, financial institutions like Blackrock and Grayscale Investments attempted to get approval for Spot Bitcoin ETFs since 2013, an issue that was consistently rejected by the US SEC on the grounds of regulatory compliance concerns and potential market manipulation.

Nonetheless, in August of 2023, a court order ruled against the SEC’s rejection of Grayscale Investments which led to the SEC reconsidering its approach, hence leading to the approval it granted on January 10, 2024.

However, in spite of the approval, the SEC made it clear that it did not endorse not approve of Bitcoin.

Bitcoin Spot ETF Timeline.

The Importance of a Spot Bitcoin ETF

Bitcoin ETFs have been hailed as a “game-changer” for various reasons, including:

  • Making Bitcoin more accessible, even for less experienced Crypto traders.
  • Enhancing the credibility of Bitcoin by subjecting it to regulation, akin to traditional stocks.
  • Including Bitcoin in mainstream portfolios and investment funds, and allowing it to be held in brokerage accounts.
  • Transitioning Bitcoin from a “novelty” to a more mature market asset, potentially attracting traditional investors.

The Drawbacks of Bitcoin ETFs

Despite the mentioned advantages, it is essential to be aware of potential drawbacks associated with Spot Bitcoin ETFs:

  • Bitcoin, like other Cryptocurrencies, is a volatile asset, potentially leading to increased losses.
  • Bitcoin ETFs involve the payment of management fees and operational costs.
  • While Bitcoin ETFs mirror Bitcoin prices, occasional tracking errors may occur.

Bitcoin Futures ETF vs. Bitcoin Spot ETF

Before the approval of a Spot Bitcoin ETF, a Bitcoin Futures ETF existed, with the main difference between a spot Bitcoin ETF and a Bitcoin Futures ETF boiling down to what they invest in and how they determine their value.

Spot ETFs are based on the immediate price of the underlying asset, whereas Futures ETFs are based on the future price of the underlying asset.

Accordingly, a Spot Bitcoin ETF, directly goes into Bitcoin, and its current price swings, whereas a Futures ETF invests in contracts that are based on Bitcoin's potential price at a predetermined date in the future.

How To Trade Bitcoin ETFs

You can trade Bitcoin ETFs directly through exchanges or you can trade them using Plus500’s Contracts for Difference (CFDs). CFDs are derivative contracts that allow exposure to the underlying asset without granting traders ownership of it.

Bitcoin ETF CFDs offer exposure to the underlying Bitcoin ETF without ownership and without incurring management fees. However, it's important to note that CFDs are leveraged, potentially magnifying gains while also amplifying losses.

You can learn more about CFD trading in our “What Is CFD Trading” video and article.

Conclusion

In conclusion, Bitcoin ETFs are pivotal in the Cryptocurrency market as they allow investors to engage with Bitcoin without owning it directly and signify growing recognition by regulatory authorities.

Additionally, Bitcoin ETFs enhance accessibility for traders, contribute to Bitcoin's credibility, and may foster mainstream adoption.

However, investors must remain cautious of Bitcoin's volatility, potential tracking errors in ETFs, and associated management fees.

Helpful Resources:

  • How to Trade Cryptocurrencies with Plus500” (Video)
  • Why Trade Cryptocurrency CFDs” (Article).
  • How Bitcoin Works” (Article).
  • The History of Bitcoin” (Article).
  • Plus500’s Trading Academy (Videos, FAQs, and eBook).
  • Plus500’s News and Market Insights (News Articles).
  • FAQs

    What Is BTC ETF?

    A Bitcoin ETF is a pooled investment vehicle that tracks Bitcoin prices and allows investors and trades to potentially benefit from Bitcoin price swings without owning it.

    When were BTC ETFs Approved?

    The US Securities and Exchange Commission (SEC) approved Bitcoin ETFs on Wednesday, January 10, 2024.

    What are the pros and cons of Bitcoin ETFs?

    Some of the advantages of Bitcoin ETFs are that they mainstream Bitcoin, and make it more accessible, and more credible, hence facilitating Bitcoin trading. On the flip side, they also accompany extra costs like management fees and volatility.

    What exchanges offer Bitcoin ETFs?

    As of January 2024, the CBOE, the Nasdaq, and the NYSE offer Bitcoin ETF trading.

    How can I trade Bitcoin ETFs?

    You can trade Bitcoin ETFs directly through an exchange or ETF CFDs.

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