Exposure To Crypto: Exploring Passive Investment Opportunities Using Bitcoin ETFs
Price volatility and rapidly shifting emotions that can lead to quick gains or losses can make cryptocurrencies overwhelm participants of stock and other traditional markets.
However, given the increasing levels of crypto acceptance and the shift in public opinion on the significance of digital currencies in the future of Web3, more and more investors are eager to engage in this asset class.
ETFs provide access to cryptos with inconveniences
A few exchange-traded funds (ETFs) that provide access to cryptocurrencies like Bitcoin BTC/USD without the inconveniences of holding or protecting crypto tokens through an online or hardware wallet have emerged, offering the best of both worlds.
The ProShares Bitcoin Strategy ETF BITO, which initially proposed the idea in October 2021, drew investments totaling approximately $1 billion in the concept’s first few days of operation.
Investors have two options for purchasing BITO shares, which are actively traded on the NYSE Arca network: directly through the ProShares or through a brokerage.
BITO most actively managed BTC ETF
The most actively managed BTC ETF, BITO has more than $800 million in assets under management (AUM) and invests in BTC futures contracts, treasury securities, and cash.
The ProShares Short Bitcoin ETF BITI, the newest entry in the BTC ETF market, is another product offered by ProShares. It was introduced in June 2022.
As opposed to BITO, BITI uses a shorting strategy to trade in cash-settled futures markets in an effort to mirror the daily performance of BTC.
BITI, which has an AUM of $62 million, is becoming increasingly popular among investors who are more interested in making money from a decrease in the price of BTC over a certain time frame.
Investors may also choose to purchase shares in the Valkyrie Bitcoin Strategy ETF BTF, VanEck Bitcoin Strategy ETF XBTF, AdvisorShares Managed Bitcoin Strategy ETF CRYP, or Global X Blockchain & Bitcoin Strategy ETF BITS.
BTF, which debuted shortly after BITO with an AUM of $22 million, wants to invest nearly all of its funds in BTC futures.
Similar to BITO in concept, BTF and BITO are trading at prices that are almost 70% below their listing prices because of the virtually same decrease in the price of BTC from its all-time high of $68,890 in November 2021.
XBTF is established as a C Corporation and is taxed independently in accordance with Internal Revenue Service regulations, which is slightly different from both BITO and BTF (IRS).
Reinvesting in ETF funds can help pay fewer taxes
Reinvesting long-term capital gains or dividends back into the fund might help certain investors pay less in taxes as a result of taxable distributions.
XBTF, which boasts a lower expenditure ratio and is comparable in size to BTF, has outperformed both BITO and BTF marginally.
In contrast to these BTC ETFs, BITS divides its holdings between indirect investments in blockchain businesses that are well-positioned to profit from rising blockchain usage and BTC futures contracts.
In order to provide its investors with long-term capital growth, the fund takes long positions in BTC futures.
BITS, which is smaller than the BTC ETFs previously mentioned and has an AUM of $8.4 million, owns more than 50% of its assets in the Global X Blockchain ETF BKCH.
The CRYP ETF, which provides exposure to BTC through BTC futures ETFs, BTC futures contracts, short-term fixed-income instruments, and cash or cash equivalents, is last but certainly not least.
The smallest among the six BTC ETFs, CRYP has an AUM of $172,000 and has just 10,000 outstanding shares that are available for trading.
Apart from these six BTC ETFs that have been approved by the U.S. Securities and Exchange Commission (SEC), there are many more proposals pending for approvals which could add significantly to the options available in the BTC ETF space.
By choosing either of the above BTC ETFs, investors from across the globe can assume some exposure to BTC while benefitting from NYSE Arca’s fully automated, transparent open and closing auctions in these ETFs.
SEC concerns prevent ETF funds from holding BTC
Due to the SEC’s worries about BTC being traded on unsecure cryptocurrency exchanges, neither of these BTC ETFs really hold any BTC, but they do give investors exposure to the cryptocurrency’s market swings and the opportunity to profit from long-term price growth.
Despite the fact that none of these BTC ETFs have produced positive capital gains since their launch, things might soon change if BTC resumes its upward move.