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You can now buy bitcoin-related ETFs in the stock market. But before you do, it’s important to know the differences between them.
Here the best bitcoin ETFs available today and ones that are coming down the pike.
Best Bitcoin ETFs
#1. Grayscale Bitcoin Trust (GBTC to BTC)
- Performance over 1-Year: -48%
- AUM: $13 billion
- Fee: 2.00%
It holds over $13 billion in assets under management and owns approximately 3.44% of all bitcoin in circulation.
Over the years, Grayscale has made it clear that it plans to convert GBTC into a bitcoin spot ETF once regulation permits.
The difference between Grayscale’s pending product and a bitcoin futures ETF is that Grayscale actually owns the underlying asset (bitcoin) while the issuer of the futures product owns a derivative of bitcoin (futures contracts).
The recent approval of the futures-based product suggests a spot product is in the cards. It’s not a matter of ‘if’ but ‘when.’
“At Grayscale, we believe that if regulators are comfortable with ETFs that hold futures of a given asset, they should also be comfortable with ETFs that offer exposure to the spot price of that same asset,” said Dave LaValle, Global Head of ETFs at Grayscale.
He’s got a point. But for now, you can buy shares of the trust with the ticker symbol “GBTC” and front-run the conversion to an exchange-traded fund– even if it doesn’t happen until 2023 or later.
In fact, GBTC is trading at a severe discount to NAV, meaning the price of one share of GBTC is cheaper than the underlying asset it represents.
The discount will likely narrow as the conversion approaches.
#2. ProShares Bitcoin Strategy ETF (BITO)
- Performance over 1-Year: -69%
- AUM: $640 million
- Fee: 0.95%
The ProShares Bitcoin Strategy ETF (BITO) is the first “bitcoin-linked” ETF that offers you an opportunity to gain exposure to bitcoin in the public market.
It seeks to provide capital returns through managed exposure to bitcoin futures contracts, which are obligations to buy or sell bitcoin at a later date at an agreed-upon price.
BITO does not invest directly in bitcoin, and the price and performance of bitcoin futures will differ from the spot price of bitcoin.
These differences come in two types of tracking errors: contango and backwardation.
Contango is when the futures price is higher than the spot price, and backwardation is when the futures price is lower than the spot price.
However, “roll returns,” in conjunction with contango or backwardation, is responsible for the inevitable mispricing of BITO relative to spot BTC.
To keep the fund alive and aligned with its objective, ProShares must sell contracts approaching expiration and buy another contract further out in months.
If bitcoin futures are in contango at the time of this sale, ProShares will be selling lower-priced futures and buying higher-priced ones.
Over time, this will eat away at BITO’s returns and contribute to the divergence between the ETF and BTC price.
You’ll see these mispricings over the long-term. The ProShares Bitcoin Strategy ETF will be able to track the price in the short-term with greater precision.
#3. Valkyrie Bitcoin Strategy ETF (BTF)
- Performance over 1-Year: -66%
- AUM: $17 million
- Fee: 0.95%
The Valkyrie Bitcoin Strategy ETF began trading a few days after the launch of the previously mentioned ProShares Bitcoin Strategy ETF (BITO).
It will use CME bitcoin futures contracts the same way ProShares does to track the price of bitcoin.
The same pros and cons are included – with perhaps a few more cons.
ProShares has a commanding head start on Valkyrie’s product, and the latter will have to undercut ProShares’ fees to compete for capital.
The expense ratios on these bitcoin futures ETFs will likely fall as new products come into the market.
Best Bitcoin ETFs: A Warning
We recommend buying the underlying asset instead of any of these bitcoin-related ETFs.
Each of these have their trade-offs and are limited to varying degrees, but none of them are redeemable for the underlying asset.
Best Bitcoin ETFs: Coming Soon
Several bitcoin ETFs are still pending approval from the SEC, but they’ll likely hit the market before the new year.
“They will all have their work cut out for them in attempting to slow down BITO, which with its early big boy volume is like a snowball rolling downhill,” according to Bloomberg’s Eric Balchunas.
BITO’s head start allowed it to soak up $1 billion in assets in just two days and break all types of ETF records.
On average, investors will choose the fund with the optimal combination of liquidity and fees, a mix that BITO will lead for some time.
However, a fee war amongst providers will likely play out, and investors will be able to make a trade-off in liquidity for lower-cost products.
Here are some of the pending bitcoin ETFs we expect to see soon:
- VanEck Bitcoin Strategy ETF
- Galaxy Bitcoin Strategy ETF
- AdvisorShares Managed Bitcoin ETF
- Bitwise Bitcoin Strategy ETF
- BlockFi Bitcoin Strategy ETF
- ARK Bitcoin Strategy
If you don’t want to buy bitcoin directly, or a futures ETF, or wait for a spot ETF, then you can buy shares of MicroStrategy (MSTR).
MicroStrategy’s CEO Michael Saylor has converted his company’s balance sheet entirely into bitcoin, purchasing billions worth of BTC since August 2020.
MicroStrategy’s stock roughly tracks the price of bitcoin. It holds around 130,000 BTC on its balance sheet, which accounts for a significant portion of the company’s market value.
Balance-sheet-BTC is the primary value driver of the companies in this ETF, so they’re a derivative of spot BTC in their own way.
Public market investors will have to make trade-offs until a bitcoin spot ETF is approved by the SEC.
Bottom Line: Best Bitcoin ETFs
Owning the underlying asset will be superior to all of these investment vehicles if you’re willing to go into the cryptomarket and buy it.
However, these products allow a wave of institutional and mainstream capital to seamlessly flow into the Bitcoin space. These are exciting times.
This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected the best bitcoin ETFs. This article was updated on July 17th, 2022 to reflect changes in the funds’ performance, assets under management, and other relevant information.