What is the new Bitcoin ETF and can UK investors buy it?

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After much prevarication, and somewhat begrudgingly, the SEC finally gave the go-ahead for the listing of Spot Bitcoin ETFs this week. As many as ten new Bitcoin ETFs were waiting in the wings, and other listing applications may now follow as a result of the SEC decision.

What are the new spot Bitcoin ETFs?

ETFs are Exchange Traded Funds which are open-ended funds, that are listed and traded on a stock exchange, in the same way as stocks and shares.

An ETF typically tracks the performance of an index, sector or commodity. Movements in the price of an ETF reflect the changes in the value of the underlying instruments it’s tracking.

The new Spot Bitcoin ETFs, authorised by the SEC this week, will track the spot or cash price of Bitcoin in US dollars, and the value of the funds will be supported by, and hedged with, physical holdings of Bitcoin, rather than derivatives exposure.

The SEC had previously authorised ETFs that track Bitcoin futures prices, but not the coins themselves.

However, the new funds will hold Bitcoins, probably offline, in so-called cold storage, and away from would-be hackers and thieves.

Spot Bitcoin ETFs have been launched by a tranche of well-known money managers, including iShares, Invesco, Fidelity, Franklin Templeton, Vaneck and Wisdom Tree.

When you can buy the new Bitcoin ETFs?

Spot Bitcoin ETFs are already trading on NYSE ARCA, the electronic trading arm of the New York Stock Exchange.

It’s early days of course, but the iShares Bitcoin Trust, which is managed by BlackRock, and traded under the ticker IBIT, seems to be the most active of the Bitcoin ETFs. With more than 1.50 million shares traded shortly after the open on Wall Street.

What are the best Bitcoin ETFs?

As we noted above the iShares Bitcoin Trust seems to be attracting the most trading volume which we might think of as a proxy for fund flows. But, with less than a full day’s trading under their belts, it’s too early to say the best spot Bitcoin ETF is or will be.

IBIT’s fund manager, BlackRock, is amongst the biggest money managers in the world and is in the top two when it comes to ETF assets under management.

Bitcoin ETF investors are no different to other people and as such they tend to stick to what they know.

Many of the new funds are discounting or waiving fees entirely, either for a fixed period, or until the funds reach a certain critical mass, or indeed a combination of both.

Bitcoin ETF Name Ticker Fees Price  US$
iShares Bitcoin Trust IBIT Discounted to 0.12% for 12 months 25.76
Ark 21 Shares Bitcoin ETF ARKB 0.21% but waived to 0.0% by Ark 45.35
Invesco Galaxy Bitcoin ETF BTCO 0.00% for six months or $5.0 billion in AUM 44.81
Franklin Bitcoin ETF EZBC 0.19% but waived until August  2024 26.20
Vaneck Bitcoin Trust HODL 0.25% 51.25
Fidelity Wise Origin Bitcoin Fund FBTC 0.25% 39.50

Apart from their fee structures and trading liquidity or volume, investors will need to get a handle on things like tracking error, that is the difference between the performance of the reference asset that the ETF tracks, versus the ETF’s performance, and we will need some time to elapse before we can judge that.

Institutional investors and others will also need to do some due diligence around custody and security arrangements for the physical coins, that will support the ETFs and also establish that the creation-deletion process for making and breaking Bitcoin ETFs works smoothly, and doesn’t create a log jam in Bitcoin’s blockchain workflows.

Are Bitcoin ETFs a good investment?

Bitcoin’s price has rallied by +48.90% over the last 6 months, thus outperforming many other asset classes. Whether the cryptocurrency will add further gains in 2024 remains to be seen.

It was thought that the introduction of spot Bitcoin ETFs would increase demand for Bitcoin and thus boost its price, but at the time of writing, we haven’t seen that follow-through.

Spot Bitcoin ETFs are a simpler and safer way for the average investor to gain exposure to the world’s largest cryptocurrency. And, it’s thought that many money managers will add some sort of holding to their client’s portfolios.

Bitcoin of course remains a high-risk investment without any obvious intrinsic value, beyond its scarcity and the network effects its existence creates.

How do I invest in Bitcoin ETFs in the UK?

As a UK retail investor, you won’t be able to because  US ETFs which don’t conform to UK rules or produce Key Information Documents, also known as KIDs are off-limits to UK private investors.

Unless the investors hold professional status, in which case you should be able to trade the Spot Bitcoin ETFs through your broker in the same way that you would any other US share.

If you think you qualify as a professional investor, you can compare ETF investing platforms here.

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