Don't Miss Out on Crypto Opportunities: Key Bitcoin ETFs to Watch

On Wednesday, Bitcoin prices surged past $59,000, reaching levels unseen since late 2021. The upward momentum of this leading cryptocurrency continues to intensify, with Bitcoin investments clearly attracting fervent interest at present. For those who are unable to directly engage in Bitcoin trading through digital wallets, what opportunities exist for them to partake in the ongoing Bitcoin boom?

Chart: Bitcoin Prices Continue Their Ascent

In the past, directly purchasing Bitcoin allowed investors to gain complete control and ownership of the actual cryptocurrency asset. However, this method also came with some notable drawbacks:

• There are significant security risks involved, such as the potential for private key theft or loss from personal wallets, and the risk of hacking attacks on exchanges.

• Managing Bitcoin requires a certain level of technical knowledge that might pose challenges for investors who are unfamiliar with digital currency operations.

These two points often serve as areas of concern for those trading in Bitcoin. As an alternative, Bitcoin ETFs come into play.

In essence, a Bitcoin ETF (Exchange-Traded Fund) is a financial instrument that enables investors to participate in the Bitcoin market through traditional securities exchanges without having to directly purchase and hold Bitcoins. Buying a Bitcoin ETF effectively means owning a share of the underlying digital currency.

This investment tool offers convenience to investors who wish to invest in Bitcoin but are concerned about the operational complexities and security issues associated with cryptocurrency exchanges. Bitcoin ETFs typically have lower costs than direct ownership (with management fees usually under 0.3%), provide easier transactional operations through stock accounts, offer enhanced security, and can potentially be held in retirement accounts to reduce tax burdens.

The first-ever batch of 11 Bitcoin spot ETFs approved by the U.S. Securities and Exchange Commission (SEC) has seen a roaring performance since their listings. These spot ETFs notably feature lower commission rates and are worth watching. Moreover, markets like Canada have had related spot ETFs available for trading much earlier, while numerous Bitcoin futures ETFs entered the market at earlier times.

Chart: The 11 Bitcoin Spot ETFs Showing Robust Performance

1. Among the Spot Bitcoin ETFs, let's take a look at the two top-performing ones by trading volume since the beginning of the year:

Advantages: IBIT boasts strong regulatory compliance, enabling investors to buy and sell its shares during regular trading hours with relatively high liquidity.

Disadvantages: Being a financial product related to Bitcoin, IBIT's performance may be subject to tracking error, meaning that the net asset value of the fund might not perfectly align with the real-time spot market price of Bitcoin.

Advantages: Similar to IBIT, GBTC serves as a suitable choice for institutional and individual investors seeking a compliant pathway to invest in Bitcoin and who prioritize high liquidity.

Disadvantages: In comparison to other investment products, GBTC has relatively higher management fees, which can potentially erode investment returns.

2. What other spot ETFs are there?

Advantages: For traditional investors, this ETF offers a more familiar and regulatory-compliant investment channel; shares can be bought and sold at any time during trading hours, providing relatively high liquidity.

Disadvantages: Due to its reliance on futures contracts, it may incur rolling costs (roll-over fees) and basis risk (the difference between the futures price and the spot price), and it does not perfectly reflect the performance of the Bitcoin spot market.

Advantages: Like BITO, it also boasts regulatory compliance, making it suitable for investors who wish to engage with Bitcoin without assuming the direct risks associated with holding Bitcoins.

Disadvantages: It similarly faces issues such as rollover costs from futures contract expirations and basis risk between the futures and spot markets.

A digital currency spot ETF, such as a Bitcoin spot ETF, can be thought of as a basket that physically holds the actual cryptocurrency – Bitcoins in this case. The value of such an ETF directly mirrors fluctuations in the market price of Bitcoin.

On the other hand, a digital currency futures ETF is more akin to a basket holding "contracts committing to purchase or sell digital currencies at a future date." These contracts stipulate buying or selling Bitcoin at specific prices at predetermined points in time. Consequently, its value is affected not only by the Bitcoin price but also by additional elements like the time value inherent in the futures contract and rolling costs associated with contract expiration.

Thus, while a spot ETF directly reflects current market prices, a futures ETF may exhibit some degree of deviation from those prices and typically incurs contango-related expenses when contracts are rolled over from one month to another. For investors who wish to avoid contango losses, investing in a spot ETF could potentially offer better cost-effectiveness.