Bitcoin Exchange-Traded Funds: Types, Benefits, and Spot ETFs Anniversary

On January 10, 2024, the US Securities and Exchange Commission (SEC) approved the first spot Bitcoin exchange-traded funds (ETFs), marking a significant milestone for cryptocurrency markets and expanding investor opportunities. 

Over the past year, Bitcoin ETFs have gained adoption and attracted increasing interest from institutional investors.

Bitcoin ETFs track Bitcoin’s price on traditional stock exchanges, offering a regulated and accessible way to invest in the cryptocurrency. These funds simplify ownership by eliminating the need for private keys or cryptocurrency exchanges, which often deter new investors.

Despite their growing popularity, recent market volatility has impacted Bitcoin ETFs. For example, BlackRock’s iShares Bitcoin Trust (IBIT) recorded a single-day outflow of $332.6 million on January 2, 2025, exceeding the previous record of $188.7 million on December 24, 2024. 

By bridging traditional finance and digital assets, Bitcoin ETFs attract institutional capital, enhance market liquidity, and drive broader acceptance of cryptocurrencies as an asset class.

This article explores Bitcoin ETFs, detailing their types, reviewing their first year, explaining how they work, discussing their benefits and risks, and providing guidance on investing in them.

What Is a Bitcoin ETF?

“A Bitcoin Exchange-Traded Fund (ETF) is an investment fund traded on traditional stock exchanges, designed to provide exposure to Bitcoin’s price movements through spot holdings, futures contracts, or other Bitcoin-related assets.”These ETFs allow investors to gain Bitcoin exposure without directly owning or managing the cryptocurrency, simplifying the investment process.

The structure of a Bitcoin ETF is similar to other ETFs. These funds hold actual Bitcoin or use Bitcoin-related derivatives to replicate the cryptocurrency’s price movements. 

Investors can buy and sell ETF shares through brokerage accounts like stocks or other financial instruments.

Bitcoin ETF vs Owning Bitcoin

Types of Bitcoin ETFs

Bitcoin ETFs provide different ways to gain exposure to Bitcoin, with the main types being spot ETFs, futures ETFs, and other variants.

Futures Bitcoin ETFs

Futures Bitcoin ETFs use Bitcoin futures contracts instead of holding the cryptocurrency. These contracts allow the fund to indirectly track Bitcoin’s price movements by agreeing to buy or sell Bitcoin at a set price on a future date. 

ProShares Bitcoin Strategy ETF (BITO), approved in October 2021, remains a leading example. Due to the nature of futures markets, futures ETFs often come with higher volatility.

Spot Bitcoin ETFs

Spot Bitcoin ETFs hold actual Bitcoin in their reserves, directly tracking its market price. This makes them the closest option to owning Bitcoin without dealing with wallets or private keys. A key example is BlackRock’s IBIT.

Other Variants

Some ETFs, such as synthetic or blended options, offer alternative approaches to Bitcoin exposure. 

• Synthetic ETFs rely on financial derivatives, like swaps, where two parties agree to exchange cash flows or returns based on the performance of a specified underlying asset or index over a set period. 
• Blended ETFs, on the other hand, combine physical Bitcoin holdings with futures contracts. These variants are designed for investors with specific strategies or risk preferences.

Each type of Bitcoin ETF offers unique features, allowing investors to choose based on their goals and comfort with risk.

Spot Bitcoin ETFs: A Year in Review

Spot Bitcoin ETFs have transformed Bitcoin investment, providing a regulated and accessible option for exposure. Over the past year, these funds have increased adoption, attracted institutional interest, and influenced market trends.

Performance Insights

Spot Bitcoin ETFs track Bitcoin’s price closely, giving investors a regulated and straightforward way to gain exposure. As of January 2025, IBIT has mirrored Bitcoin’s price movements, reflecting its volatility with minimal tracking error.

Spot Bitcoin ETFs have reshaped the cryptocurrency market since their launch in January 2024. Over the past year, they have proven effective in delivering Bitcoin exposure and bridging traditional finance with digital assets. 

Key highlights include:

• Spot Bitcoin ETFs offer a simple way for investors to follow Bitcoin’s price.
• They strongly correlate their Net Asset Value (NAV) with Bitcoin’s spot price.

• Due to management fees, operational costs, and portfolio adjustments, small discrepancies have occurred.
• These differences remain minor, showing the efficiency of the ETF structure.
• Trading volumes have grown steadily, reflecting increased investor interest.
• Higher liquidity has reduced the difference between the buying price (bid) and the selling price (ask), making transactions faster and cheaper for traders.
• Spot ETFs have become a gateway for traditional investors to access Bitcoin.
• Their performance highlights their role in bringing Bitcoin closer to mainstream finance.

Market Adoption

Spot Bitcoin ETFs have accelerated Bitcoin’s adoption by attracting institutional and retail investors. 

Institutional funds like Fidelity’s Wise Origin Bitcoin ETF reflect growing confidence in Bitcoin as a portfolio asset. Retail investors have embraced spot ETFs through platforms like Charles Schwab, benefiting from their accessibility. 

These funds have also inspired hybrid ETFs that combine Bitcoin with traditional assets, offering diversification options. 

Globally, spot Bitcoin ETFs have set a standard for regulated cryptocurrency investments, with countries like Canada and Australia leading the way in fostering market participation.

Challenges Faced

Spot Bitcoin ETFs have faced several challenges since their launch, stemming from regulatory scrutiny, market volatility, and operational complexities. Despite their success, these hurdles highlight the evolving nature of the cryptocurrency market and its intersection with traditional finance.

Regulatory Delays

• Approvals for spot Bitcoin ETFs were long delayed due to market manipulation and investor protection concerns.
• Even after approval, regulatory uncertainty continues to impact the global expansion of these funds.

Market Volatility

• Bitcoin’s price swings have created significant inflows and outflows in spot ETFs, testing their stability.
• As pointed out, IBIT recorded a record single-day outflow of $332.6 million in January 2025, reflecting the challenges of managing volatile assets.

Operational Costs

• Management fees and portfolio adjustments have added to the cost of maintaining spot ETFs.
• These costs can influence tracking precision and affect long-term investor confidence.

Future Outlook

Spot Bitcoin ETFs are expected to play an even larger role in cryptocurrency adoption beyond 2025. Analysts predict continued growth in institutional participation, driven by increasing regulatory clarity and broader acceptance of Bitcoin as an asset class.

Expanding global approvals, particularly in Europe and Asia, could further boost adoption. However, challenges like market volatility and evolving regulations will remain key factors to watch.

How Bitcoin ETFs Work

Bitcoin ETFs’ structure relies on collaboration between financial institutions, authorized participants, and stock exchanges to ensure smooth operations and price alignment. This is how it works:

• Creation: The ETF issuer acquires a significant amount of Bitcoin and creates shares representing ownership of the fund’s holdings.
• Authorized participants (APs): Large financial institutions, or APs, manage the creation and redemption of ETF shares to match supply with demand. This process keeps the ETF’s market price aligned with its NAV.
• Trading: ETF shares are listed on traditional stock exchanges, where investors can buy and sell them through brokerage accounts, just like stocks.
• Price alignment: If the ETF’s market price deviates from its NAV, APs use arbitrage strategies to realign it by buying undervalued shares or selling overvalued ones.

Benefits of Bitcoin ETFs

Bitcoin ETFs simplify access to Bitcoin by offering trading on traditional stock exchanges without needing private keys or crypto exchanges. They reduce risks associated with wallet security and operate under strict regulatory oversight, enhancing trust and transparency. These features make Bitcoin ETFs appealing to both retail and institutional investors.

Risks of Bitcoin ETFs

Bitcoin ETFs carry risks that investors should evaluate carefully. Market volatility can cause significant price swings, making these funds a high-risk investment. Management fees and operational costs reduce overall returns, particularly over the long term. 

Futures-based ETFs add another layer of complexity, with tracking errors arising from the rollover of futures contracts, which can lead to performance deviations from Bitcoin’s spot price. These risks highlight the importance of understanding the ETF structure before investing.

Bitcoin ETFs Pros and Cons

How To Invest in Bitcoin ETFs 

Investing in Bitcoin ETFs involves a clear process. Some of the best Bitcoin ETFs include BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin ETF. 

However, individuals should conduct their own research and not consider this as financial advice.

Investing in Bitcoin ETFs 2025

Individuals should start by opening a brokerage account with a reputable financial institution. Research is essential, focusing on performance, fees, ETF type (spot or futures), liquidity, tracking error, and security of holdings. 

Users can place an order through the brokerage platform, just like trading stocks. Regular monitoring ensures alignment with financial goals.

Conclusion

Bitcoin ETFs provide a regulated and accessible way to invest in Bitcoin, attracting institutional and retail investors. 

They simplify trading, offer security, and eliminate the need for private keys. While market volatility, fees, and tracking errors pose risks, their benefits, including ease of access and liquidity, make them appealing. 

Bitcoin ETFs are set to drive further adoption and integration of Bitcoin into traditional finance in 2025 and beyond. Understanding their features and risks is crucial for informed investing.

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