How to Buy Spot Bitcoin ETFs

In January of last year, spot Bitcoin ETFs were launched on U.S. exchanges.

These are exchange-traded funds (ETFs) that directly hold BTC as collateral, thereby replicating its real-time price movement. 

In reality, similar funds already existed before, especially in Europe, but although their operation is technically very similar, they are not ETFs (Exchange-Traded Funds) but ETPs (Exchange-Traded Products), and in particular, largely ETNs (Exchange-Traded Notes). 

The difference between an ETF and an ETN is purely technical, as they are extremely similar financial instruments. 

Spot Bitcoin ETFs 

The most important feature of a spot Bitcoin ETF is that the fund directly purchases and holds BTC, rather than derivatives like futures contracts. 

Previously, Bitcoin ETFs already existed in the U.S. markets, but they were not spot; instead, they were collateralized in futures contracts. 

Spot ETFs, on the other hand, are able to perfectly replicate the price trend of BTC because they can buy BTC when demand increases and sell BTC when sales rise.

It should be specified that on the stock exchange, the shares of these funds are traded (i.e., bought and sold), while the BTC used as collateral remain stationary in the wallets of the funds themselves. 

ETFs are highly favored by certain investors because they are well-regulated products and are held by authorized financial institutions, thus free from any legal issues (though technical challenges related to the custody of BTC remain). 

Additionally, they can be bought and sold like stocks during the stock market’s trading hours. 

Although holding shares of a spot Bitcoin ETF is not at all like holding BTC, some investors prefer ETFs for certain advantages. 

First of all, they do not require having a crypto wallet or an account on a crypto exchange. Additionally, if the broker allows it, they can be purchased using leverage, sold short, and can also be bought or sold with so-called options. 

Additionally, they are regarded as “institutional” securities by banks and advisors, and can also be included in securities accounts or pension plans. 

Where They Are Traded

Various exchanges host spot Bitcoin ETF trading in the USA and ETN trading in Europe. 

The most important and liquid market remains the American one. 

The largest and most significant spot BTC ETFs are indeed traded on U.S. exchanges, and among these are BlackRock’s iShares Bitcoin Trust (IBIT), Fidelity’s Fidelity Wise Origin Bitcoin Fund (FBTC), ARK Invest and 21Shares’ ARK 21Shares Bitcoin ETF (ARKB), Bitwise’s Bitwise Bitcoin ETF (BITB), and Grayscale’s Grayscale Bitcoin Trust (GBTC).

In addition to these, on the US exchanges, there are also VanEck Bitcoin Trust (HODL), Invesco Galaxy Bitcoin ETF (BTCO), Franklin Bitcoin ETF (EZBC), Valkyrie Bitcoin Fund (BRRR), WisdomTree Bitcoin Fund (BTCW), and Hashdex Bitcoin ETF (DEFI).

In Europe, there are 21Shares Bitcoin ETP (ABTC), traded on the SIX in Zurich and Euronext in Paris and Amsterdam, CoinShares Physical Bitcoin (BITC) traded on the Deutsche Börse Xetra in Frankfurt, WisdomTree Physical Bitcoin (BTCW) traded on Xetra and Borsa Italiana, VanEck Bitcoin ETN (VBTC) traded on Xetra and Euronext, SEBA Bitcoin ETP traded on the SIX, ETC Group Physical Bitcoin (BTIC) traded on Xetra, and Jacobi Bitcoin ETF (BCOIN) traded on Euronext Amsterdam. 

It also seems that in the coming months, the first Bitcoin spot ETFs with the UCITS brand may debut on Borsa Italiana. 

How to Buy

First of all, if you want to buy shares of an ETF or ETN, you need to check which ones are available on the platforms you are using. 

In fact, not all ETFs and ETNs are available on all platforms, so either you check which ones are available on the platforms you are already using, or you look for which platforms offer the ones you decide to purchase. 

It should be noted that European platforms often do not provide access to American ETFs, or that American platforms do not provide access to European ETNs, but there are also global platforms that allow simultaneous access to both American and European markets. 

Once the funds whose shares are actually purchasable on various platforms have been identified, it is necessary to choose which ones to invest in. 

It should be noted that in terms of price trends, theoretically, there should not be any significant difference between one fund and another. At most, the spreads applied by different platforms may vary. 

Additionally, it is important to remember that generally the price of a single share of a spot Bitcoin ETF does not correspond to the price of BTC, because for convenience, a single share of a spot Bitcoin ETF is associated with only a fraction of BTC so that its price is more affordable. 

Bitcoin, in fact, can be divided into one hundred million sub-units, whereas stocks generally cannot be fractioned unless the platform in use allows it (which is quite rare). 

Once the ETF is selected, the purchase can be made just like any other security available on the chosen platform.

The Choice

Perhaps the most challenging aspect is choosing which ETF to purchase. 

There are indeed several factors to consider. 

The first, quite simply, is related to the costs of individual ETFs, which do not depend on the purchase price of the shares, and vary from fund to fund. 

In particular, attention should be focused on the so-called Expense Ratio, which is the annual management fee paid to the ETF issuer to keep it operational.

Although there are no significant differences regarding the Expense Ratio of the main spot Bitcoin ETFs, some are more expensive, while others are slightly cheaper. 

The second factor is liquidity. In fact, if large purchases are made, low liquidity or low trading volumes risk driving up the purchase price at the time of acquisition. 

However, if the purchase is made with modest amounts, this issue often does not arise. 

The third factor is related to risks. 

In fact, it is not true that spot ETFs on Bitcoin are risk-free: they simply involve different risks compared to exchanges and crypto wallets. 

It is advisable to prioritize those ETFs that have a very secure BTC custodian. In the past, there have been several thefts affecting custodians, so it is better to prioritize security even if it means slightly higher management fees. 

Finally, it is always important to keep in mind the risk associated with Bitcoin’s price volatility, but this is a risk that can never be avoided when deciding to invest directly in BTC. 

Where to Buy

The shares of ETFs and ETNs are available on the platforms of traditional financial brokers that allow stock market investments. 

In fact, as previously mentioned, these are securities that are traded directly on traditional exchanges. 

However, there are different platforms that allow investing in the stock market. 

The most common ones are those integrated directly into the web-banking of one’s bank. While this is certainly the most convenient solution, it might not be the most economical. Additionally, they often have a limited offering of securities, so much so that on European bank platforms, for example, U.S. spot Bitcoin ETFs are often not available. 

However, there are also platforms that are not integrated into web-banking, but are “stand-alone”, which anyone can freely access, and in some cases, they offer securities from all over the world. 

Generally, these are platforms with free registration, so you can simply sign up to check if the selected titles are available. Some of these platforms are global giants accessible from almost anywhere in the world. 

Each platform, however, has its own fees, so it’s always advisable to check them first and perhaps choose the one with lower costs. 

There are also existing financial products, such as pension funds or savings plans, that allow for indirect investment in spot Bitcoin ETFs, but they are effectively a different form of investment compared to the actual purchase of ETF shares.