Crypto Exposure: Exploring Passive Investment Opportunities Using Bitcoin ETFs

Price volatility and rapidly changing sentiments that can lead to rapid gains or losses can cause cryptocurrencies to overwhelm participants in stocks and other traditional markets.

However, given the increasing levels of crypto acceptance and the shift in public opinion about the importance of digital currencies in the future of Web3, more and more investors are eager to get involved in this asset class.

ETFs provide access to cryptos with downsides

A few exchange-traded funds (ETFs) that provide access to cryptocurrencies such as Bitcoin BTC/USD without the inconvenience of holding or protecting crypto tokens through an online or hardware wallet, offering the best of both worlds.

The ProShares Bitcoin Strategy ETF BITOwhich originally proposed the idea in October 2021, attracted investments totaling roughly $1 billion in the concept’s first days of operation.

Investors have two options for purchasing BITO shares, which are actively traded on the NYSE Arca network: directly through 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, Treasuries 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.

Unlike BITO, BITI uses a shorting strategy to trade in cash-settled futures markets in an attempt 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 profiting from a decline in the price of BTC over a certain time frame.

Investors can also choose to buy shares in Valkyrie Bitcoin Strategy ETF BTF, VanEck Bitcoin Strategy ETF XBTF, AdvisorShares Managed Bitcoin Strategy ETF CRYPor Global X Blockchain & Bitcoin Strategy ETF BITS.

BTF, which debuted shortly after BITO with an AUM of $22 million, wants to invest almost all of its funds in BTC futures.

Similar to BITO in concept, BTF and BITO are trading at prices almost 70% below their listing prices due to the roughly equal decline 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 under Internal Revenue Service regulations, which are 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 can help some investors pay less in tax as a result of taxable distributions.

XBTF, which boasts a lower expense ratio and is comparable in size to BTF, has marginally outperformed both BITO and BTF.

Unlike these BTC ETFs, BITS divides its holdings between indirect investments in blockchain companies that are well-positioned to profit from the growing use of blockchain and BTC futures contracts.

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, holds more than 50% of its assets in Global X Blockchain ETF BKCH.

Last but certainly not least is 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.

The smallest among the six BTC ETFs, CRYP has an AUM of $172,000 and only has 10,000 outstanding shares available for trading.

Apart from these six BTC ETFs approved by the US Securities and Exchange Commission (SEC), there are many more proposals awaiting approvals that could significantly add to the options available in the BTC ETF space.

By choosing one of the above BTC ETFs, investors from around the world can take on some exposure to BTC while taking advantage of NYSE Arca’s fully automated, transparent open and close auctions in these ETFs.

SEC concerns prevent ETF funds from holding BTC

Due to the SEC’s concerns about BTC being traded on uncertain cryptocurrency exchanges, none of these BTC ETFs actually hold any BTC, but they do give investors exposure to the cryptocurrency’s market fluctuations 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 could soon change if BTC resumes its upward movement.