Are Bitcoin ETFs Worth the Hype?

Amidst the excitement over the new bitcoin funds, it's important to remember that ETFs tracking the OG-crypto's price have been around since 2021. But they have a key difference: they invest in bitcoin futures, rather than in the coin directly.

By purchasing these funds, you’re essentially betting on the price of bitcoin futures i.e. contracts that let investors buy or sell the crypto for a set price at a later date. While bitcoin futures track the price of bitcoin closely, they don't do so perfectly.

But here's the bigger problem: because futures contracts have expiry dates, the ETF manager has to constantly reinvest in newer contracts that are typically more expensive than the spot price of bitcoin. All that “rolling” over adds up over time, detracting from the fund’s performance.

📉 Case in point: The world's biggest bitcoin futures ETF (ticker: BITO) has underperformed the spot price of bitcoin by more than 25% over the past 12 months (graph below). That’s huge.

On the flip side, the new ETFs investing directly in bitcoin are inherently less costly by design. What's more, a price war has already broken out among the new ETF providers: BlackRock, Fidelity, and others recently updated their paperwork to announce fees of less than 0.5%, with several promising to waive charges altogether in the early months of trading.

Taken together, it's never been easier and cheaper to invest in bitcoin. But whether that leads to the big price gains that crypto buffs are hoping for remains to be seen.