Bitcoin ETFs are exchange-traded funds that track the value of Bitcoin and trade on traditional market exchanges rather than cryptocurrency exchanges. They allow investors to invest in bitcoin without having to go through the hassle of using a cryptocurrency exchange while providing leverage to its price.
How it works
Similar to existing ETFs in traditional stock market, an ETF (exchange-traded fund) is an investment fund that tracks the price of an underlying asset or index.
A Bitcoin ETF would work the same way – the price of one share of the exchange-traded fund would fluctuate with the price of bitcoin. If bitcoin increases in value, so does the ETF, and vice versa. But instead of trading on a cryptocurrency exchange, the ETF would trade on a market exchange like the NYSE or TSX.
Advantages of Bitcoin ETF
Convenience: Investing in a bitcoin ETF will allow you to take exposure to Bitcoin without challenges of opening account with Crypto Exchanges or holding bitcoin wallet. You should be able to buy the ETFs with your current stock broker alongside normal stocks.
Taxation: There are much clearer tax implications and guidance for traditional financial products than digital assets
Disadvantages of Bitcoin ETF
- ETFs can only be bought and sold during market trading times, whereas crypto markets run 24/7.
- Buying ETFs requires you to complete know-your-customer (KYC) checks but bitcoin can be bought anonymously peer-to-peer.
- ETFs require you to trust third-party custodians
Are there any Bitcoin ETFs available?
Yes, in Feb 2021, World’s first Bitcoin ETF was approved in Canada and listed on Toronto Stock Exchange (TSX). Since then, 2 more Bitcoin ETFs have been approved in Canada:
- Purpose Bitcoin ETF (BTCC)
- the Evolve Bitcoin ETF (EBIT)
- CI Galaxy Bitcoin ETF (BTCX)
While Purpose ETF charges 1% management fees, the Bitcoin ETF by CI Galaxy is only charging 0.40% fees lowest management fee of any bitcoin ETF.
In Mar 2021, Brazil has also approved two Bitcoin ETFs – QR Asset Management (QBTC11) and Hashdex (HASH11). Both ETFs will be traded on the Brazil’s Stock Exchange, or B3. ETF HASH11 trading is expected to start this month, while QBTC11 ETF is expected to begin in Q2 2021.
In US, SEC has blocked several proposals for bitcoin ETFs. There are currently Bitcoin ETF applications from VanEck, Wisdom Tree, and others pending for SEC review and approvals. With the arrival of a bitcoin ETF in North America, many are optimistic the SEC will follow suit soon in the United States