What is a spot bitcoin ETF?

A spot bitcoin exchange-traded fund (ETF) is an investment fund that tracks the price of bitcoin directly. 

Unlike futures-based ETFs, which derive their value from contracts that speculate on the future price of bitcoin, a spot bitcoin ETF holds the actual cryptocurrency. "Spot" refers to the actual purchase and ownership of the underlying asset.

The ETF provider purchases and stores bitcoin to mirror its value. Investors can then buy and sell shares of the ETF on a stock exchange, gaining exposure to the price movements of bitcoin without directly owning the cryptocurrency themselves.

Why would an investor want to choose a spot bitcoin ETF? 

Investors may choose a spot bitcoin ETF for several reasons:

1. Direct exposure to bitcoin: A spot bitcoin ETF provides direct exposure to the price movements of bitcoin. Investors can gain exposure to the cryptocurrency without needing to worry about about buying and storing it.

2. Convenience: Investing in a spot bitcoin ETF is convenient for investors who prefer traditional investment vehicles like ETFs over managing private keys and digital wallets.

3. Liquidity: ETFs are traded on stock exchanges, providing liquidity and ease of buying and selling compared to purchasing and selling actual bitcoin on cryptocurrency exchanges.

4. Diversification: Investors looking to diversify their portfolios may consider spot bitcoin ETFs as a way to include exposure to the cryptocurrency market alongside traditional asset classes.

5. Risk management: Some investors may view spot bitcoin ETFs as a way to manage risk associated with the volatility of the cryptocurrency market. ETFs can be subject to market forces, but they might be perceived as less risky than holding the cryptocurrency directly.

When were spot bitcoin ETFs approved in the US? 

The United States Securities and Exchange Commission (SEC) approved spot bitcoin ETFs on Jan. 10, 2024. On this day, 11 spot bitcoin ETFs were approved from Bitwise, Grayscale, Hashdex, BlackRock, Valkyrie, BZX, Invesco, VanEck, WisdomTree, Fidelity and Franklin. Two of the ETFs were conversions from previous products.

These spot bitcoin ETFs began trading on Jan. 11, 2024.

Approval chaos

The SEC approval process for spot bitcoin ETFs saw a large amount of confusion and chaos. On Jan. 9, 2024, the SEC's account on the social media platform X was compromised due to an unprotected phone number. The perpetrator posted a message announcing the approval of spot bitcoin ETFs in general along with a quote from SEC Chair Gary Gensler in support of them — causing a brief spike in bitcon's price. The SEC noted that its account was compromised and that ETFs had not been approved at the time.

The next day, there was more confusion as the Chicago Board Options Exchange exchange appeared to jump the gun in announcing that the ETFs were set to start trading the following day. The SEC also inadvertently revealed an omnibus document approving all of the spot bitcoin ETFs before market close and didn't confirm the document was real until it was uploaded to the correct part of its website. However, after all of the drama, the ETFs were indeed approved.

Are spot bitcoin ETFs better than bitcoin futures ETFs? 

Both spot bitcoin ETFs and bitcoin futures ETFs are approved in the United States. Both types of ETFs have their advantages and considerations, and what may be considered "better" can vary based on individual circumstances. Here are some key points to consider for each:

Spot bitcoin ETFs

1. Direct Ownership: Spot bitcoin ETFs provide direct ownership of bitcoin, meaning the fund holds the actual cryptocurrency. This can be appealing to investors seeking direct exposure to bitcoin's price movements.

2. Simplicity: Spot bitcoin ETFs are straightforward in their structure: tracking the spot price of bitcoin. Investors do not need to navigate the complexities of futures contracts.

Bitcoin BTC -2.26% futures ETFs

1. Speculative Opportunities: This type of ETF allows investors to gain exposure to bitcoin through futures contracts, which can introduce speculative opportunities. However, this also comes with increased complexity and potential risks.

2. Leverage: Some bitcoin futures ETFs may incorporate leverage, amplifying both potential gains and losses.

3. Market Dynamics: Bitcoin futures ETFs may be influenced by factors such as the futures market's structure, roll yields and the term structure of futures contracts.

Ultimately, the choice between spot bitcoin ETFs and bitcoin futures ETFs depends on factors such as the investor's risk appetite, familiarity with financial derivatives, and preference for direct ownership of the underlying asset.

How do investors access spot bitcoin ETFs? 

Investors can access spot bitcoin ETFs on traditional stock exchange platforms such as the Cboe, National Association of Securities Dealers Automated Quotations (NASDAQ) and the New York Stock Exchange (NYSE). 

Investment apps such as Robinhood also allow users to buy into spot bitcoin ETFs.

It's important to note that investors should conduct thorough research, understand the risks involved and consider their investment goals before choosing any investment vehicle, including spot bitcoin ETFs.