What is an ETF?
An Exchange-Traded Fund is a financial product that allows investors to buy and sell shares in a fund that holds various assets, such as stocks, bonds or commodities. ETFs provide exposure to a basket of underlying assets. Allowing investors to diversify without needing to directly purchase and manage each asset themselves. The flexibility to trade ETFs on public exchanges makes them accessible to both institutional and retail investors. Traditional ETFs have grown significantly in popularity since their inception in the 1990’s due to their simplicity, low fees and accessibility.
The emergence and growth of Bitcoin ETFs
Bitcoin ETFs allow investors to gain exposure to Bitcoin without having to directly buy or store the cryptocurrency. This type of ETF first gained attention in 2021 with the approval of Bitcoin future ETFs, which track the price of Bitcoin future contracts rather than holding actual Bitcoin. Future-based ETFs are built on derivative contracts, meaning they don’t require the ETF issuer to hold any Bitcoin directly.
A significant breakthrough came in 2024, when the US Government approved several Bitcoin spot ETFs, which hold physical Bitcoin rather than future contracts. This development followed a legal battle in which Grayscale, one of the main crypto asset management companies, challenged the SEC’s rejection of their spot ETF proposal. The approval of spot Bitcoin ETFs marks a turning point, as these funds directly track the price of Bitcoin, giving investors a more transparent and reliable exposure to the asset.
The graph above shows the investment flow (blue) plus the assets under management (AUM) (black) from Blackrock’ iShares Bitcoin Trust from their entry into the market in January 2024 to April 2024, emphasizing how the approval of the Bitcoin spot ETFs has driven substantial investment into the product.
This graph gives a comparison between 2 of the largest crypto asset management companies and the growth of their Bitcoin spot ETFs. Grayscale launched as the largest, while Blackrock has rapidly caught up to gain the largest Bitcoin ETF.
Who invests in Bitcoin ETFs?
Bitcoin ETFs appeal to a wide range of investors. Institutional investors, who often have strict regulatory and custodial requirements, find Bitcoin ETFs an attractive way to gain exposure to the market without having to navigate the complexities of buying, storing and securing Bitcoin. For retail investors, they are also attracted by the simplicity. Instead of having to deal with wallets, private keys and exchanges, they can buy shares in an ETF through their brokerage accounts.
These ETFs are especially appealing to anyone that wants the exposure of Bitcoin’s potential growth, but are wary of the high volatility, risks of fraud and hacking etc., as well as the regulatory uncertainties which are associated with directly holding the cryptocurrency. Investors that are looking to diversify their portfolios are another group turning to Bitcoin ETFs.
The graph shows an increasing participation of institutional investors in Grayscale’s Bitcoin product. Although it is not at as high a level as the initial launch period, money continues to be invested each day.
Major Bitcoin ETF providers and investments
Several companies lead the Bitcoin ETF market, both in terms of assets under management (AUM) and brand recognition. Grayscale, known for its Grayscale Bitcoin Trust (GBTC), has been one of the most prominent, allowing investors to buy shares that are directly tied to Bitcoin. However, the new wave of Bitcoin spot ETFs launched in 2024 introduces new competitors, including some of the largest financial companies, such as Blackrock, Fidelity and Valkyrie, all of whom have SEC approved Bitcoin ETFs.
Currently, Canada, Brazil and several European nations offer Bitcoin ETFs. Canada has been at the forefront, launching their first one in 2021 and continuing to provide various cryptocurrency-related ETFs. Brazil also hosts numerous options, holding over USD 285 million in AUM since 2024. In Europe, countries like German and Switzerland allowed investors to trade Bitcoin ETFs.
You can see from this graph above the consistent daily volume of investment via Fidelity’s spot Bitcoin ETF. Whilst the table below highlights the various countries activity with regards to inflows of investment, and assets under management held in cryptocurrency related ETFs.
How much is invested in Bitcoin ETFs?
By mid-2024, the total assets under management in Bitcoin ETFs were growing quickly. Blackrock’s spot Bitcoin ETF alone has drawn significant investment, expected to reach over USD 1 billion by the end of the year. Canada’s Bitcoin ETFs collectively hold several billion in AUM, while Brazil’s market also continues to expand similarly. Globally, Bitcoin ETFs are predicted to attract hundreds of billions of dollars in the coming years, as they provide a regulated and accessible avenue for both institutional and retail investors.
Key insight for investors
Bitcoin ETFs have evolved rapidly, from futures-based products to newly launched spot ETFs in 2024, reflecting a growing acceptance of cryptocurrency in mainstream finance. These ETFs provide an accessible, regulated and familiar method for investors to gain exposure to Bitcoin without having to deal with the risks and technicalities of buying and storing it.
With institutional players like Blackrock and Fidelity entering the market, and countries like the US, Canada and Brazil leading the way, Bitcoin ETFs are becoming a significant part of the financial landscape. This development is expected to drive increased investment, providing a new way for individuals and institutions to diversify their portfolios with cryptocurrency exposure.
For the individual investor investing directly into crypto, there is potential to benefit significantly from these developments which can be maximized by the following strategies:
- Monitor Bitcoin ETF inflows: Pay attention to the growth in assets under management for the major ETFs. A strong influx of institutional money through these vehicles is likely to increase the price of the relevant cryptocurrency. As ETFs grow, other cryptocurrencies could see correlated price increases.
- Anticipate market sentiment shifts: Institutional participation through ETFs generally signals more long-term stability for Bitcoin, which could reduce volatility and bring more trust into the crypto space. This could make Bitcoin (and other cryptocurrencies) more attractive to mainstream investors, potentially leading to sustained price growth.
- Diversify across other cryptocurrencies: As ETFs introduce new capital into the market, altcoins and Ethereum-based projects might also benefit. Savvy investors might want to invest in Etherum and other leading altcoins to capitalize on the broader market growth.
Use ETFs as a hedge: If you’re a crypto investor holding volatile assets, using Bitcoin ETFs can be a strategic hedge against downturns. The regulatory protection surrounding ETFs could provide an element of stability in turbulent markets while still benefiting from crypto’s growth potential.
