In a significant move, the U.S. Securities and Exchange Commission approved 11 Bitcoin ETFs last week, sparking increased participation from institutional and retail investors. On the first day of trading, these new US spot Bitcoin ETFs saw a substantial volume of $4.6 billion, as per LSEG data.
Understanding Spot Bitcoin ETFs: Spot Bitcoin ETFs, starting trading on U.S. exchanges on January 11, 2024, directly track Bitcoin's price by holding the cryptocurrency itself. This differs from futures-based Bitcoin ETFs that have been trading since 2021.
Choosing the Best Spot Bitcoin ETF: Selecting the right spot Bitcoin ETF involves considering factors like expenses, assets under management, and liquidity. Notably, expense ratios play a crucial role in decision-making. Newcomers are making efforts to reduce fees and offer waivers, with examples like Fidelity Wise Origin Bitcoin Fund revising its fee down to 0.25% with a waiver until July 2024. The competition among ETF issuers is expected to continue.
Issuer's Branding Matters: Established names like Fidelity and iShares by BlackRock should not be overlooked. They may offer competitive rates in the long run due to their history of competitiveness in traditional ETFs. Considering the minimal fee difference, investors planning long-term Bitcoin ETF holdings may find these options appealing.
Funds with Higher Fees: Hashdex Bitcoin ETF and Grayscale Bitcoin Trust, with a significant history, are transitioning to spot Bitcoin ETFs. Their existing assets under management allow them to maintain higher fees compared to new competitors. Grayscale Bitcoin Trust became the most traded ETF on its debut, with substantial trading volumes.
Spot Bitcoin ETFs vs. Futures-Based ETFs: Spot Bitcoin ETFs are likely to provide tighter tracking of Bitcoin's price with potentially lower volatility compared to futures-based funds. In 2023, the largest Bitcoin futures ETF gained 137%, while Bitcoin's price rose 160%.
Is a Spot Bitcoin ETF a Good Investment? The suitability of a spot Bitcoin ETF as an investment depends on an individual's financial situation, risk tolerance, and investment goals. While its volatile nature may make it unsuitable for risk-averse investors with short-term goals, those with a high risk tolerance and a long-term horizon may find it fitting for their portfolio. Financial advisors generally recommend limiting high-risk investments to no more than 5% of the portfolio, regardless of the investor's risk tolerance.
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