Blockchain ETFs vs. Bitcoin ETFs: An Overview
As Bitcoin earned a stable place within the investment community, Bitcoin and blockchain-focused exchange-traded funds (ETFs) have also gained investor interest. The emergence of these ETFs allows access to a broader spectrum of investors wanting exposure to these digital assets without the complications of direct asset management.
Blockchain ETFs—a type of exchange-traded product (ETP)—offer a more diversified exposure to the broader blockchain industry across sectors like finance, supply chain management, and healthcare that the technology is changing. Alternatively, Bitcoin ETFs are more focused, providing more direct exposure to the price movements of Bitcoin, the best-known cryptocurrency.
These funds either hold Bitcoin directly or track its price through futures contracts, giving investors a way to benefit from Bitcoin's price appreciation without storing the cryptocurrency themselves.
Despite these differences, media reports frequently treat the terms "Bitcoin" and "blockchain" interchangeably. As a result, it's possible to confuse blockchain ETFsandBitcoin ETFs, although they are different financial instruments.
Key Takeaways
- Bitcoin exchange-traded funds (ETFs) are relatively new, while the number of blockchain ETFs is growing.
- Bitcoin and other virtual currencies have been embroiled in several regulatory battles and heavily scrutinized by government authorities.
- Blockchain technology is neither banned nor under heightened scrutiny by most regulatory agencies.
- Blockchain ETFs primarily track the stock market prices of companies invested in blockchain technology.
- The first Bitcoin futures ETFs began trading in 2021, and Bitcoin spot ETFs began trading in January 2024.
Blockchain ETFs
Blockchain ETFs primarily track the stock prices of companies that have invested in blockchain technology in their fund, though they aren’t too focused on a specific cryptocurrency or entity. Blockchain is a technology not tied to a particular company or product.
“Bitcoin needs blockchain, but blockchain doesn’t need Bitcoin,” said Christian Magoon, CEO of Amplify ETFs, which says it’s the largest ETF focused on blockchain. The blockchain universe of investments is not restricted to a particular sector, such as IBM's blockchain relationships with the auto sector, wineries, and healthcare.
Other firms whose shares are typically held by blockchain ETFs are Visa, which is exploring ways to use blockchain to restructure payment frictions, and Honeywell, a manufacturing company that uses blockchain for supply chain management.
On the technology front, Nvidia, the graphics processing units giant, provides hardware essential for cryptocurrency mining and blockchain operations and is a blockchain ETF mainstay.
When investing in any ETF, pay attention to the expense ratio, which is what you will pay in fees. Expense ratios reduce returns, so the lower the better.
Bitcoin ETFs
Most Bitcoin ETFs approved by the SEC track the price of Bitcoin through futures contracts traded on the Chicago Board Options Exchange. In this model, ETFs follow the price of Bitcoin by owning futures contracts.
In October 2021, ProShares Bitcoin Strategy ETF (BITO) launched the first Bitcoin futures ETF, tracking Bitcoin futures contracts pegged to the future price of the cryptocurrency.
Since then, several other funds have launched to expose investors to the Bitcoin market without direct ownership of the currency, including the Valkyrie Bitcoin Strategy ETF (BTF), the VanEck Bitcoin Strategy ETF (XBTF), and the Simplify Bitcoin Strategy PLUS Income ETF (MAXI).
Some funds focus on different crypto-related strategies. ProShares Short Bitcoin ETF (BITI) allows investors to short Bitcoin, thus profiting from a decline rather than a rise in Bitcoin prices. Other ETFs invest in blockchain companies and Bitcoin futures, such as the Global X Blockchain and Bitcoin Strategy ETF (BITS), which blurs the line between these ETFs.
For many years, U.S. regulators rejected proposals for funds that hold Bitcoins directly, citing worries over the potential for fraud and market manipulation. The regulator also raised these concerns about Tether and other stablecoins.
However, the SEC eventually relented in 2023, after a federal appeals court ruled that the regulator had provided insufficient justification for rejecting the ETF applications by the asset manager Grayscale Investments. After the ruling, the SEC approved the first Bitcoin spot ETFs, 11 of them, which began trading in January 2024.
Key Differences
Understanding the difference between Bitcoin ETFs and blockchain ETFs means knowing the difference between the instruments they track. Bitcoin is a cryptocurrency, while a blockchain is the underlying database technology. This distinction is significant when considered within the context of investment instruments.
Even though Bitcoin futures were already offered on the U.S.’s major exchanges, cryptocurrency’s regulatory status remains unclear in some jurisdictions. In recent years, virtual currencies have been embroiled in several regulatory battles for their role in criminal activities, such as money laundering.
Alternatively, blockchain technology has won the interest of major companies in the world of legacy finance, including JPMorgan Chase & Co. and Visa. Blockchain technology is neither banned nor under scrutiny by regulatory agencies. Blockchain ETFs are also relatively stable compared with the volatility of Bitcoin since they are not exposed to Bitcoin’s price swings.
That said, blockchain is still considered a nascent technology. As such, the stock prices of companies tracked by the ETF are more susceptible to factors that do not affect blockchain technology. Bitcoin ETFs are also affected by regulations on Bitcoin and other cryptocurrencies.
There are 25 blockchain and Bitcoin ETFs trading in U.S.markets, according to the ETF Database. As of Jan. 18, 2024, these ETFs have a combined worth of just over $25 billion in assets under management (AUM), and their expense ratios range from 0.3% to 2.5%.
Key Differences Between Blockchain and Bitcoin ETFs
Blockchain ETFs
Focus on companies that work with blockchain
Invest in company stock, not cryptocurrency
Blockchain technology is being explored by many companies and isn't tied to a specific business or product
Tends to be more stable
Bitcoin ETFs
Spot Bitcoin ETFs directly hold Bitcoin
Other Bitcoin ETFs invest in cryptocurrency futures to track Bitcoin prices
Tend to be more volatile
How Do You Invest in Blockchain ETFs?
Blockchain ETFs are available through most securities brokerages, including Fidelity, E*Trade, and Robinhood. The easiest way to identify these funds is to search for “blockchain” in your brokerage’s ETF screener. This will return a list of funds you can research further to determine if they meet your investment criteria.
How Do You Invest in Bitcoin ETFs?
You can invest in a Bitcoin ETF through the same broker you use for other ETFs. Using your broker’s ETF screener, search for terms like “Bitcoin” or “crypto” to identify funds related to cryptocurrencies. From there, you can narrow your search further by researching each fund's management and investment philosophy.
When Did Bitcoin ETFs Start Trading?
Bitcoin futures ETFs began trading in October 2021, and the first Bitcoin spot ETFs were approved in January 2024.
How Do Bitcoin and Blockchain ETFs React to Changes in Technology and Finance?
Bitcoin ETFs are generally reactive to events affecting the cryptocurrency market, frequently distinct from the wider technology or financial markets. The price of Bitcoin could be influenced by regulatory news, adoption by major institutions, or economic events or problems in the crypto world affecting investor sentiment toward these currencies.
Blockchain ETFs tend to respond more in line with the broader technology and financial market trends since they represent investments from a cross-section of blockchain technology companies in various sectors.
The Bottom Line
As the popularity of Bitcoin continues to grow, so have Bitcoin ETFs. In general, digital currencies are mainstream with institutional investors. Many details are appealing about a cryptocurrency ETF—investors would be able to buy and sell Bitcoin more easily and eliminate the inconvenience of securing and storing Bitcoin.
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