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Are There Bitcoin ETFs?

By Inyoung Hwang · December 08, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Are There Bitcoin ETFs?

There are three new bitcoin ETFs in the U.S. as of Q4 2021, but all three are tied to bitcoin futures contracts, not the spot price of actual bitcoin. This is a point of contention between U.S. regulators and some financial firms, which have pushed for bitcoin spot ETFs for years.

After all, bitcoin and crypto-related funds have been trading in Canada and Europe since 2015, including some exchange-traded products tied to physical bitcoin (similar to a spot ETF here). But the Securities and Exchange Commission (SEC) has expressed concerns about the crypto market’s transparency, liquidity, and vulnerability to fraud, and thus far has denied applications for spot funds in the U.S.

Now, with the advent of bitcoin ETFs tied to the futures market, it may be only a matter of time before a wider range of crypto-related investments also become available. Keep reading for a closer look at the bitcoin funds that exist, as well as the possibility for other crypto ETFs down the road.

What Are Bitcoin ETFs?

The desire to create an exchange-traded fund tied to bitcoin is a natural next step for both ETF providers and for Bitcoin itself, by far the largest and most well-established type of crypto, with a total market cap of about $962 billion, as of December 7, 2021.

ETFs are investment funds that can be traded on public markets like shares of a stock. The ETF industry has grown rapidly in the last 20-plus years, giving investors access to a wide variety of industries and assets, allowing for greater diversification and exposure to different asset classes. Similarly, bitcoin ETFs could allow investors to gain fast, easy exposure to the digital-currency market with less hassle than trading actual crypto directly.

Investors would no longer need to open a separate account with a crypto exchange. They wouldn’t have to store coins in a secure, “hot” or “cold” cryptocurrency wallet. They also wouldn’t have to worry about losing or forgetting the digital keys that allow access to virtual coins — a fate that some crypto owners have suffered in recent years.

Bitcoin ETFs would allow investors to gain fast, easy exposure to the digital-currency market.

Bitcoin ETFs would wrap the virtual currency into tradable shares that mirror its price moves, also giving investors the opportunity to take short positions, which crypto exchanges don’t allow. As of December 7, 2021, bitcoin was worth $51,929 versus $19,177 a year ago, with a record high of close to $69,000 this year.

Thus, many investors and market analysts have speculated that a “physical” U.S. bitcoin ETF could transform both the cryptocurrency ecosystem and the stock market, possibly granting greater legitimacy to digital coins and, most important, ushering in a new wave of crypto demand.

So what has been the hurdle in getting these investments to market in the U.S.?

Bitcoin ETFs: A Long Road to Approval

The history of U.S. bitcoin ETFs has been beset by numerous setbacks over the last decade. Many financial companies have attempted to obtain SEC approval to launch bitcoin-based funds, since Bitcoin itself first emerged in 2009. But for years the regulatory agency took a firm stand against bitcoin ETFs, stating that because cryptocurrencies and the exchanges they trade on are largely unregulated, it would make such products potentially susceptible to fraud and manipulation — and leave retail investors vulnerable to excessive risk.

Crypto as currency, security, or commodity?

The approval of crypto-related funds was further hampered by a debate over how cryptocurrencies should be categorized — a question that would determine how the market was regulated. Although most crypto are referred to as currencies, in fact cryptocurrencies aren’t widely used as legal tender to pay for goods or services (although that seems to be changing).

In a statement by SEC Chair Gary Gensler in September 2021, he indicated that many types of crypto should be considered securities, raising concerns in the industry about the level of oversight that could follow, given that securities are regulated by the SEC.

Recommended: Is Crypto a Commodity or a Security?

Bitcoin and Ethereum, however, are among those considered to be commodities. Given that commodity markets are generally not as closely regulated as securities — which are subject to rules on price transparency, as well as higher standards for reporting, and market abuse oversight — some companies saw this as an opportunity.

Bitcoin futures open a door

The launch of bitcoin futures in 2017 — derivatives that have been used for commodities ETFs — rekindled hope for the approval of a bitcoin ETF. But the SEC’s stance regarding bitcoin ETFs only began to shift in 2021, when Gensler indicated an openness to funds tied to futures contracts, rather than the spot price of the crypto.

Because futures contracts are overseen by the Commodity Futures Trading Commission, and fall under the Investment Company Act of 1940, the SEC considered this structure to potentially offer investors more protection. The SEC approved the first bitcoin ETF in October 2021.

What Are the First 3 U.S. Bitcoin ETFs?

On October 19, 2021, the ProShares Bitcoin Strategy ETF (BITO) became the first ETF to offer investors exposure to Bitcoin futures, with two more launched shortly after its debut. A few days after the ProShares’ ETF went public, the Valkyrie Bitcoin Strategy ETF (BTF) launched, followed by the VanEck Bitcoin
Strategy ETF
(XBTF) on Nov. 15, 2021.

These funds do not invest directly in actual bitcoin, but shorter-term, cash-settled contracts that are traded on the Chicago Mercantile Exchange or CME.

With the successful launch of these three bitcoin funds, analysts now predict that an ETF tied to Ethereum and ether futures (ether is the native token of the Ethereum network) could become available in 2022.

3 Other Types of Crypto Investments

Some investment firms offer other types of cryptocurrency-based investments.

1. Investment trusts

Investment trusts are over-the-counter (OTC) products that accredited investors, ones that clear hurdles like net worth, can buy into through contractual agreements.

These are not publicly traded shares like a stock, and are thus less regulated and often much more costly. Still, inflows into the Grayscale Bitcoin Trust (GBTC) — the largest bitcoin-related investment product on the market — have been substantial since its inception in 2013: total assets under management about $31.5 billion, as of December 7, 2021, with most of the money coming from institutional investors.

The Ethereum Classic Investment Trust (ETCG), also from Grayscale Investments, has $457.6 billion in AUM.

2. Foreign market bitcoin ETPs

Even though some countries abroad, like the U.K., have faced similar restrictions to the U.S. in launching bitcoin ETPs, there are dozens of exchange-traded products in Canada and Europe that are available to investors.

The first and largest bitcoin exchange-traded product in existence is Sweden’s Bitcoin Tracker XBT , with an inception date of 2015 and total assets of $1.1 billion as of October 31, 2021, the most recent date available.

More recently in December 2021, Fidelity became the largest asset manager to launch a spot ETF in Canada: the Fidelity Advantage Bitcoin ETF (FBTC). It’s listed on the Toronto Stock Exchange.

3. Crypto-related technology funds

Investors can also consider a growing number of funds that invest in blockchain technology, crypto mining, and other related industries.

The Takeaway

The cryptocurrency universe emerged in 2009 as a sort of rebellion against the mainstream financial system dominated by governments and central banks. Since then, it’s attracted throngs of investors — both retail and institutional — and even prompted explorations of CBDC, virtual currencies issued by central banks themselves.

Within a few years, financial companies began exploring ways to create ETFs that would give investors exposure to the complex and volatile cryptocurrency market, without the need to hold actual crypto themselves. Despite several funds and exchange-traded products being launched in Canada and Europe, the SEC refused to approve similar products here in the U.S., citing the unregulated nature of cryptocurrencies and exchanges, which could expose investors to manipulation and fraud.

With the successful launch of bitcoin futures, though, fund companies began exploring an ETF structure that would be tied to this new derivative, and in October 2021 SEC Chair Gensler approved the first U.S. bitcoin ETF, tied to bitcoin futures. If you’re curious to know more about the crypto market yourself, you can get started easily by opening an account with SoFi Invest®. Investors can trade bitcoin and many other cryptocurrencies, as well as ETFs, stocks, and fractional shares all on SoFi’s Active Investing platform. SoFi members who want help building a diversified investment portfolio can also schedule a complimentary meeting with a SoFi financial professional.

Get started on SoFi Invest® today.

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