Navigating the Bitcoin ETF Landscape

Bitcoin ETFs have emerged as a novel and enticing product in the Exchange Traded Funds (ETF) market, offering investors the opportunity to engage with the potential of Bitcoin without the complexities of direct ownership or secure storage. Previously, participation in the Bitcoin market was primarily through Bitcoin futures contracts, company stocks, or other ETFs involving cryptocurrencies. However, in a groundbreaking move on January 10th, 2024, the United States Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs for trading in the U.S.With multiple Bitcoin ETFs available, investors may wonder which one to prioritize. To help navigate this burgeoning sector, Forbes Advisors have reviewed the current Bitcoin ETFs trading in the U.S., focusing on those with an Assets Under Management (AUM) exceeding $10 million and excluding ETFs that trade only in blockchain-related stocks or other cryptocurrencies, while prioritizing those focused solely on Bitcoin futures.

Top Bitcoin ETFs

1. iShares Bitcoin Trust (IBIT): IBIT was the fastest ETF in history to reach $10 billion in AUM, breaking the record previously held by the SPDR Gold Shares (GLD) which took over two years to achieve this milestone.
2. Fidelity Wise Origin Bitcoin Fund (FBTC): FBTC experienced a substantial increase in trading volume, with about 27 million shares changing hands on its second day, surpassing the 16.8 million shares traded on its debut day.
3. ARK 21Shares Bitcoin ETF (ARKB): ARKB saw approximately 7 million shares traded on its second day, marking a notable uptick from its initial trading day.

These ETFs have attracted billions of dollars within three months of launching, with the iShares Bitcoin ETF (IBIT) holding over 250,000 bitcoins and collectively, all spot Bitcoin ETFs now holding close to 6% of the worldwide supply of Bitcoin.The strong inflows into Bitcoin ETFs are colliding with the looming reduction in Bitcoin's supply growth (known as the 'halving') and a more "risk-on" sentiment following the potential easing of interest rates from global central banks like the Federal Reserve.While some may be concerned about the potential impact on price from the large inflows into Bitcoin ETFs, the market's reaction has been swift, with Bitcoin reaching new all-time highs at US$70,845 since the launch of the spot Bitcoin ETFs in the U.S

The Best Bitcoin ETFs of January 2024

Source: Forbes https://www.forbes.com/advisor/investing/cryptocurrency/best-bitcoin-etfs/

Specific reasons for selection

ProShares Bitcoin Strategy ETF (BITO) Chart

Source: TradingView, data from 15th of January, 2024

The ProShares Bitcoin Strategy ETF, known as BITO, marked its entry as the inaugural Bitcoin ETF in U.S. markets in October 2021.  Its launch was met with significant investor interest, rapidly accumulating approximately $1 billion in assets within its initial days, making it one of the most actively traded ETFs in the history of the market.

It was the ideal product to expose the portfolio to Bitcoin. However, since the launch of the Bitcoin spot ETF, it makes little sense to hold Bitcoin futures ETF, since futures ETF has higher risk of price divergence to spot price because of negative roll yields in contango market and critically futures ETF usually has high annual fees (0.95%) compared to spot ETFs (average 0.24% to 0.9%, excluding Grayscale GBTC). VanEck Bitcoin Strategy ETF, XBTF, was announced to liquidate the ETF because of the reason mentioned above. Encouraging investors to hold its Bitcoin spot ETF, HODL instead.

Despite that, BITO is still a great product to perform short term trade, or advanced traders are able to arbitrage and other strategies to profit from contango. BITO price increased 96.45%, while Bitcoin price increased 155.78% in 2023.

ProShares Short Bitcoin ETF (BITI)

Source: TradingView, data from 15th of January, 2024

The ProShares Short Bitcoin ETF, known as BITI, debuted in June 2022 and stands as the sole ETF sanctioned by the U.S. Securities and Exchange Commission (SEC) to inversely track Bitcoin's daily performance.

BITI's operational strategy focuses on delivering returns that are the exact opposite of the S&P CME Bitcoin Futures Index's daily performance. To maintain this inverse relationship, BITI engages in trading within the cash-settled futures market. In this specific market framework, the dynamics of payment are dictated by the fluctuation in futures contract prices. Specifically, when the contract price rises, the seller compensates the buyer, and conversely, the buyer pays the seller if the contract’s price experiences a downturn.

BITI price decreased 66.95%, while Bitcoin price increased 155.78% in 2023. As observed, BITI price was not able to replicate the Bitcoin price 1:1 inversely due to the futures contango effect. 

Simplify Bitcoin Strategy PLUS Inc ETF (MAXI)

Source: TradingView, data from 15th of January, 2024

The Simplify Bitcoin Strategy PLUS Inc ETF, known as MAXI, is a recently initiated fund that began operating in September 2022, making it the newest fund on this list.

Similar to other Bitcoin-oriented funds, MAXI is not able to directly invest in Bitcoin (BTC). Instead, its primary goal is to achieve capital growth by investing in Bitcoin futures. In addition, MAXI employs a unique strategy of using short-dated put or call spreads on global equity indices, a technique aimed at generating income for its investors. This strategy highly depends on the strategy executed by the fund managers as well as the volatility of the Bitcoin price. 

MAXI price increased 84.51%, while Bitcoin price increased 155.78% due to the low volatility in Bitcoin price in 2023. It would be interesting to monitor the performance of the ETF in the 2024 bull-cycle as expectation of Bitcoin price volatility will increase significantly compared to 2023.

 Blockchain ETF (BKCH) chart

Source: TradingView, data from 15th of January, 2024 

Global X Blockchain ETF, BKCH invests in a diverse portfolio of blockchain companies, encompassing entities engaged in digital asset mining, cryptocurrency exchange operations, and the development of new blockchain technologies. Investors who wish to have equity exposure to crypto assets, BKCH is the most convenient option. The top 10 holdings as of 22nd January 2024 are Marathon Digital, Coinbase, Cleanspark, Riot Platform, Bitfarms, Bit Digital, Iris Energy, Applied Digital, Galaxy Digital and Terawulf. 

BKCH price increased 259.01% in 2023, outperforming Bitcoin price by 103.23% in excess. Although BKCH holdings are directly impacted by the development of Bitcoin and other crypto assets, there are several risk factors that are advised to be considered before investing in BKCH. First, before the approval of Bitcoin spot ETF, Bitcoin mining companies are treated as a proxy to Bitcoin price exposure, which caused higher price multiplier in the stocks valuation. Second, individual companies face different kind of business risks and those risks should be taken into consideration before investing. For example, crypto exchanges might have regulatory risk and diminishing profit from trading due as decentralized exchanges gain adoption, while mining companies might experience cash flow issues due to unsustainable cost of mining relative to their hashing power and uncertainty in business operation after Bitcoin halving in April.

The Future of Bitcoin ETFs: A Blend of Opportunities

The launch of Bitcoin ETFs has revolutionized the way investors can gain exposure to the cryptocurrency market. These innovative instruments seamlessly integrate into existing investment portfolios, residing alongside familiar stocks and bonds within traditional brokerage accounts. This democratization of access broadens the horizons for potential Bitcoin investors, inviting those who may have previously felt daunted by the cryptocurrency landscape.

Harnessing the Power of Liquidity

Bitcoin ETFs offer the lightning-fast liquidity of traditional ETF trading, enabling investors to enter and exit positions with remarkable efficiency. This agility empowers informed decision-making in a dynamic market, a stark contrast to the sluggish orders and frustrating delays often encountered on complex crypto exchanges.

Building a Robust Portfolio Shield

Diversification is the cornerstone of sound investment strategy. Bitcoin ETFs provide a powerful tool to implement this principle, allowing investors to incorporate exposure to the burgeoning cryptocurrency market within a comprehensive portfolio. This prudent approach mitigates risk while embracing the dynamic potential of Bitcoin.

Embracing the New Wave

As the dust settles following the arrival of Bitcoin ETFs, one thing is clear: a new wave has washed over the financial landscape. These innovative instruments offer a compelling proposition, inviting investors to participate in the captivating and potentially lucrative world of Bitcoin with accessibility, ease, and strategic advantages. While the journey promises thrilling potential, it also warrants prudent thought. By remaining informed, understanding the market dynamics, and choosing ETFs aligned with their risk tolerance, investors can confidently navigate this new wave and potentially ride it toward rewarding shores.

For more insightful information, kindly reach out to ChainUp crypto analyst experts or you may read this for more insights How Can We Benefit the Most from the Opportunity upon Bitcoin ETF Approval.