Bitcoin ETFs: What are the current options for U.S. investors?

Bitcoin futures ETFs

Bitcoin has developed a substantial secondary derivatives market. One of the most popular instruments traded are Bitcoin futures, which are agreements between two parties to buy or sell Bitcoin at a pre-determined price and date. They can be used to speculate or hedge risk. 

These futures therefore offer exposure to Bitcoin, but not the spot price. As I explored in an earlier article on commodity futures ETFs, contango and backwardation can create tracking error for these funds. When volatility gets high, Bitcoin futures can diverge from the spot price of Bitcoin significantly.

That being said, the current products on the market have done an admirable job minimizing tracking error and the negative effects of contango. For instance, the ProShares Bitcoin Strategy ETF (BITO) has tracked the spot price of Bitcoin very well year-to-date. 

My theory is that given how easy and low-cost it is to store Bitcoin offline in cold wallets, contango does not occur as often, compared to expensive to store commodities like crude oil or soybeans. That being said, these funds are still expensive – BITO costs an expense ratio of 0.95%. 

Nonetheless, it appears that Bitcoin futures ETFs can be a reliable way of gaining Bitcoin exposure in a traditional brokerage account. This saves investors the need to transact on a cryptocurrency exchange and self-custody their Bitcoin. However, it does prevent you from trading on a 24/7 basis. 

Bitcoin miner ETFs

Investors can also gain Bitcoin exposure by holding the shares of publicly traded Bitcoin miners. This is very much akin to buying gold miner stocks as a substitute for gold bullion. A readily accessible way of buying Bitcoin miner stocks is via a thematic ETF that holds a portfolio of them.

An example here is the Global X BlockChain ETF (BKCH), which holds 24 stocks involved in blockchain technology. This ETF is not a pure-play Bitcoin miner ETF, given that it also holds companies involved in digital asset transactions, decentralized applications, hardware, and digital asset integration.

Nonetheless, it seems to have done its job of tracking the Bitcoin spot price fairly well. Year-to-date, BKCH has a 0.90 correlation with the Bitcoin spot price. However, it also has a higher correlation with equities at 0.86 versus 0.77 for Bitcoin. This is to be expected given that BKCH is comprised of stocks. 

Global X also offers the Blockchain & Bitcoin Strategy ETF (BITS), which combines BKCH at 50% of its holdings with a Bitcoin future overlay. This is a hybrid approach that may appeal to investors seeking the best of both worlds. Compared to BITO, BITS costs a lower expense ratio of 0.65%. 

Please note this article is for information purposes only and does not constitute investment advice.