Best Bitcoin ETFs of 2023

    Pathik Bhattacharya
    Pathik Bhattacharya
    Published on February 03, 2023 05:25 PM

    Bitcoin exchange-traded funds (ETFs) are pools of bitcoin-related assets provided by brokerages on standard exchanges for trading as ETFs.

    Source: Unsplash

    Bitcoin ETFs allow investors to gain exposure to the allure of BTC without having to personally buy or store it. Bitcoin ETFs are made up of futures contracts or company stocks, but the Securities and Exchange Commission (SEC) is wary about allowing Bitcoin spot ETFs—trades based on the price of Bitcoin rather than a futures ETF. Many investors have put their money into Bitcoin ETF stock as the market waits for greater regulatory certainty.

    5 Best-Performing Bitcoin ETFs of 2023

    An ETF is a type of investment fund that can be bought just like a stock. ETFs, or exchange-traded funds, are comparable to mutual funds in many aspects. Best-performing ETF shall provide complete or significant exposure to cryptocurrencies, digital assets, and related technologies, such as blockchain. Here's a list of Bitcoin ETFs to consider for 2023:

    1. Proshares Bitcoin ETF

    ProShares Bitcoin Strategy ETF (BITO) is the first Bitcoin-linked ETF in the United States. A Bitcoin futures ETF is another name for this type of fund. Since its introduction in October 2021, the fund has been one of the most traded ETFs in the market, generating an asset management value of more than $1 billion in a matter of weeks.

    The fund gives investors controlled exposure to bitcoin futures contracts, but it does not invest in Bitcoin directly. It invests in bitcoin futures contracts that are cash-settled and have the shortest maturity period. Treasury bills and cash are also included in BITO.

    BITO's futures contracts are regulated by the Commodity Futures Trading Commission and traded on the Chicago Mercantile Exchange (CME). The firm also invests in buyback agreements and uses leverage on occasion.

    Given Bitcoin's all-time high of $69,000 in November 2021 and subsequent decline, the fund's total assets have decreased. Nonetheless, it has a sizable stake, and BITO's approval was a significant step forward for cryptocurrencies and ETFs.

    2. Grayscale Bitcoin Trust (GBTC)

    Grayscale Bitcoin Trust (GBTC) is the second one on the list. The trust fund trades and holds spot Bitcoin and may soon become a spot ETF. This might position it as the first Bitcoin ETF in the United States. This would provide more exposure to spot Bitcoin than ETFs derived from Bitcoin futures.

    Even before Bitcoin ETF clearance in the United States, it was a preferred choice for investors. Investors in the fund purchase shares that are traded on a regulated public stock exchange and get dividends.

    Except for its high expense ratio, it is the largest and most liquid crypto fund to invest in today, with a market capitalization of about $20 billion. At that price, it controls nearly 30% of the Bitcoin in circulation. Grayscale generates a gross-proceeds tax document for tax reporting purposes.

    3. Valkyrie Bitcoin Strategy ETF 

    Valkyrie Bitcoin Strategy ETF (BTF) debuted a few days later, following in the footsteps of the ProShares ETF. This is another actively managed fund that primarily invests in bitcoin futures. It is traded on Nasdaq and tries to track the CME's value.

    Rather than investing directly in Bitcoin, BTF employs bitcoin futures contracts to ensure that the notional value of the bitcoin underlying the futures contracts is as close to 100% as possible.

    One of the primary benefits of investing in this fund is that US investors are not required to file a K-1 form with the IRS. Because it invests in futures through a Cayman Islands subsidiary, trading is regulated by the Commodity Futures Trading Commission.

    4. VanEck Bitcoin Strategy ETF

    The VanEck Bitcoin Strategy ETF (XBTF) has one of the lowest expense ratio funds among Bitcoin ETFs, with a 0.65% expense ratio. This is yet another Bitcoin ETF. XBTF was the market leader for the lowest-cost Bitcoin-linked in the US at the time of its launch in November 2021.

    VanEck's effort to attract long-term investors resulted in tax breaks for them. The company achieved this by forming the fund as a C-corporation. Because C-corps are not compelled to distribute long-term capital gains as dividends, investors benefit from tax efficiency. As a result of the lower taxable distributions, investors can keep more money invested in funds.

    The fund garnered great traction during its initial debut, but succeeding fund introductions hampered its growth. Since then, the fund has grown to just about $30 million until reaching its current size.

    5. Fidelity Advantage Bitcoin ETF

    Fidelity Advantage Bitcoin ETF (FBTC) established itself at the end of November 2021, after other Bitcoin ETFs after the SEC gave the go-light. For decades, Fidelity has been a market leader in offering securities, and it wanted to provide bitcoin investors with access to ETFs.

    Purchasing the Fidelity Bitcoin ETF entails purchasing a fund that exposes you to Bitcoin, allowing you to acquire physical Bitcoin. Because of its minimal correlation to stocks, bonds, and cash, this fund allows you to diversify your portfolio. The minimal management fees are one of the primary advantages of this ETF. FBTC charges 0.40% annually, making it one of the most affordable.

    If you have a registered account, you can get tax breaks on the Fidelity Bitcoin ETF. This fund is traded on the Toronto Stock Exchange and is available in both Canadian and US dollars.

    What is an ETF?

    ETFs, or exchange-traded funds, are comparable to mutual funds in many aspects. They often track the price of an asset (such as gold) or a basket of assets (such as the S&P 500), allowing investors to diversify their portfolios by having access to an entire asset class. They trade on exchanges, as the name implies, and can be purchased and sold like a stock through a standard brokerage account.

    ETFs are extremely popular. ETFs will be worth $7.74 trillion in 2020, nearly six times what they were a decade ago. ETFs have produced an entirely new category of financial enterprises as a result of a surge in interest in low-fee index investments.

    Several famous Bitcoin-tracking ETFs are presently available in Canada and Latin America, and a number of US firms have applied to the Securities and Exchange Commission (SEC) to list and trade BTC ETFs on US exchanges. These funds would allow American investors to obtain financial exposure to cryptocurrency through their brokerage accounts without purchasing or managing bitcoin directly.

    Bitcoin ETF Meaning

    Bitcoin ETFs are exchange-traded funds that follow Bitcoin's value and trade on standard market exchanges rather than cryptocurrency exchanges. They let investors to invest in Bitcoin without the inconvenience of using a cryptocurrency exchange, while also giving price leverage.

    A Bitcoin ETF would function similarly to a traditional ETF in that the price of one share of the exchange-traded fund would vary in tandem with the price of Bitcoin. If the value of Bitcoin rises, so will the ETF, and vice versa. However, rather than trading on a cryptocurrency exchange, the ETF would trade on a market exchange such as the NYSE or TSX.

    The first Bitcoin ETF concept developed shortly after investors and brokers saw that bitcoin prices were rising and the cryptocurrency was gaining popularity. Most significantly, there appeared to be a chance to profit from purchasing and trading bitcoin.

    Advantages of Bitcoin ETFs

    • Ease: Investing in a Bitcoin ETF gives you access to the price of Bitcoin without having to learn how it works, join up for a cryptocurrency exchange, or take on the hazards of directly owning Bitcoin. Bitcoins, for example, are stored in a wallet, and if an investor forgets the password to the wallet, their Bitcoin is lost forever. A Bitcoin ETF makes it easier to invest in Bitcoin.
    • Tax effectiveness: Because Bitcoin is unregulated and decentralized, the bulk of the world's tax havens and pension funds do not permit Bitcoin purchases. A Bitcoin ETF trading on standard exchanges, on the other hand, would almost certainly be regulated by the SEC and qualify for tax breaks.
    • Diversification: An ETF can invest in multiple assets. A Bitcoin ETF, for example, may include Bitcoin, Apple stocks, Facebook stocks, and other assets, allowing investors to reduce risk and diversify their portfolios. A Bitcoin ETF, similarly, would allow investors to diversify their existing equities portfolios by trading on a regulated market exchange.

    Disadvantages of Bitcoin ETFs

    • Inaccuracy in ETFs: While ETFs track the price of an underlying asset, they can potentially hold many assets to diversify the portfolio. However, because of its other holdings, a 50% increase in the price of Bitcoin may not be correctly represented in the value of the exchange-traded fund. As a result, while an ETF gives leverage to the price of Bitcoin, it may or may not be an accurate tracker of its price.
    • Management costs: ETFs typically impose management fees in exchange for the convenience they provide. As a result, owning a considerable number of shares in a Bitcoin ETF may result in high management fees over time.
    • Restrictions on trading cryptocurrencies: Bitcoin can be exchanged for other cryptocurrencies such as Ethereum, Litecoin, and XRP, among others. Because a Bitcoin ETF is not a cryptocurrency, but rather an investment fund that tracks the price of Bitcoin, it cannot be traded for other cryptocurrencies.

    Bitcoin ETFs FAQs

    Which Bitcoin ETF is best?

    Below is the list of some of the famous Bitcoin ETFs you can explore:

    • ProShares Bitcoin Strategy ETF (BITO)

    • Valkyrie Bitcoin Strategy ETF (BTF)

    • VanEck Bitcoin Strategy ETF (XBTF)

    • AdvisorShares Managed Bitcoin Strategy ETF (CRYP)

    • Global X Blockchain & Bitcoin Strategy ETF (BITS)

    • ProShares Short Bitcoin ETF (BITI)

    Is there an ETF that tracks Bitcoin?

    The GBTC fund invests in genuine cryptocurrency, with each share worth 0.00091297 Bitcoin as of February 2023. Unfortunately, GBTC is presently trading at a 47% discount to its net asset value, which is nearly the highest discount in history.

    Is it better to buy Bitcoin ETF?

    A Bitcoin ETF is a better option than simply purchasing Bitcoin if you don't want to actively manage your crypto investment but want to diversify your portfolio with a high-risk, high-reward asset.