In 2013, Bitcoin was trading for just $1,000.¹ By the end of 2017, it had skyrocketed to nearly $20,000, drawing in everyone from enthusiasts to skeptical onlookers.² Now, Bitcoin has reached an astounding $100,000, solidifying its reputation as a volatile but high-performing asset.³ This meteoric rise has left many wondering if they’ve missed their chance to invest.

Enter exchange-traded funds (ETFs). These financial instruments, which have revolutionized the mutual fund market since their debut in the early 1990s, now offer a gateway to Bitcoin through spot Bitcoin ETFs.⁴ By combining the accessibility of ETFs with cryptocurrency investments, investors have a new way to get into the world of Bitcoin without directly buying the asset.

Investing in crypto, bit by Bitcoin

Bitcoin and other cryptocurriences are decentralized: no central authority (e.g., a government or bank) controls them. They’re traded 24/7, rather than on an exchange with set hours. Thus, historically, crypto has been hard to pin down and regulate. 

Many consumers and financial firms sought a more uniform way to enter the crypto space. This led to the SEC’s approval of futures-based Bitcoin ETFs, which track the expected future price of Bitcoin (usually 30 days ahead), rather than its current market value.⁵ 

The introduction of spot Bitcoin ETFs in 2024 marks a new chapter. Unlike futures-based ETFs, these funds give investors access to the cryptocurrency’s actual price movements. Aside from holding crypto directly themselves, this is as close to the market as retail investors can get.

Read more: Cryptocurrency: Who's investing?

Spotting the latest group of Bitcoin ETFs 

Spot Bitcoin ETFs simplify the process of investing in the volatile cryptocurrency market. Here are some key features:

Direct exposure: These ETFs invest directly in Bitcoin, tracking the cryptocurrency’s price movements more closely than their futures-based counterparts.⁶ 

Simplicity: Investors who want to invest in crypto but who are hesitant about managing digital wallets or navigating cryptocurrency exchanges might consider spot Bitcoin ETFs. Investors can buy and sell the Bitcoin ETF shares just like any other stock or ETF, making it easier to integrate into traditional portfolios.

Read more: Exploring ETFs: your ultimate guide

Security: Storing Bitcoin safely can be complex, since losing access to a digital wallet or account credentials may prevent someone from accessing their crypto investment.⁷ Spot Bitcoin ETFs address this by holding Bitcoin with custodians, removing an individual’s burden of managing crypto keys.

Tax efficiency: Unlike direct Bitcoin transactions, which can trigger taxable events upon sale, ETFs generally defer these events until shares are sold, which could provide more favorable tax treatment.⁸ This is dependent on individual circumstances, and investors should consult with their tax professional for advice.

Understanding the risks

As with all assets, crypto investing comes with risk. Anyone interested in testing the crypto waters should consider the risks.

Volatility: Bitcoin is notoriously volatile, and Bitcoin ETFs are no exception. The value of the ETF will rise and fall in line with Bitcoin’s price, which means it can be subject to sharp price swings based on market sentiment, regulatory changes, or broader economic events. Each of these events could create potentially significant losses. Investors stand to lose some or all of their investment.

Regulatory uncertainty: The regulatory environment for cryptocurrencies is still evolving.⁹ Although spot Bitcoin ETFs may seem like they are less exposed to risk than holding Bitcoin directly, the reality is that any changes in laws or regulations could impact the fund’s operation or value. It’s important to stay informed about potential legal shifts that could affect the market.

Management fees: Bitcoin ETFs may charge management fees. This may cut into potential returns over time. It’s essential to understand the fee structure before committing to an investment.

Evaluate before investing in Bitcoin ETFs

Bitcoin ETFs may be an option for investors who want to add Bitcoin to their portfolio without having to manage digital wallets or cryptocurrency exchanges. Bitcoin’s volatility can potentially create value, but the risk of loss is significant. Before deciding whether to invest in Bitcoin ETFs, it’s necessary to gauge portfolio allocation and risk appetite. Consult a financial professional to determine whether these ETFs align with the overall strategy and risk tolerance.