Bitcoin ETFs 101: What is Bitcoin ETF? Bitcoin vs Bitcoin ETFs

For cryptocurrency enthusiasts, perhaps you have heard about Bitcoin ETF or BITO. The first cryptocurrency ETF ProShares (BITO-US) started trading in October 2021 and opened with an initial share price of US$40 and peaked to US$42.15 with an increase of 4.85% on the first trading day. Its volume had reached nearly US$1 billion with 20 million+ shares traded by the end of the first trading day, which marked a testament to its popularity.

If you are also interested in investing in Bitcoin ETF, read on to find out what Bitcoin ETF is, what the differences between Bitcoin and Bitcoin ETF are, and what you should be aware of before investing a Bitcoin ETF.

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What is Bitcoin ETF?

A Bitcoin ETF is a type of ETF that tracks the value of Bitcoin through a basket of assets such as spot markets, derivatives, or Bitcoin ownership instead of owning Bitcoin directly. Owners can gain exposure to Bitcoin without the accompanying expenses e.g. investing in wallet and the risk of owning them outright. It can also track Bitcoin derivatives in the form of futures contracts e.g. tracking prices of bitcoin futures contracts traded at the Chicago Mercantile Exchange (CME). 

Bitcoin vs Bitcoin ETF

Bitcoin vs Bitcoin ETFBitcoinBitcoin ETF
Investment costHigherLower
Investment riskHigherLower
Security levelLowerHigher
Suitable forExperienced investorsBeginners

Ready to trade Bitcoin ETF?

Open your US stock brokerage account for trading Bitcoin ETF now!

Should I invest in Bitcoin or Bitcoin ETF?

Every investor has varying needs and expectations. A Bitcoin ETF does not represent BTC ownership but it still offers exposure to its value. If you do not prefer actively managing your investment, but at the same time you would like to diversify your investment portfolio, Bitcoin ETF suits you better than directly buying Bitcoin. 

Bitcoin ETF allows investors, especially beginners, to invest in Bitcoin without the need to go through the hassle of setting up a cryptocurrency exchange account while providing leverage to its value. If Bitcoin increases in price, so does the Bitcoin ETF, and vice versa.

Another consideration is that a Bitcoin ETF investor doesn’t need to take on the risks of owning Bitcoin directly. Bitcoin itself can be tricky to store and secure. For example, If a Bitcoin investor loses the password to the cryptocurrency wallet, their Bitcoin is lost forever. A Bitcoin ETF investor needs not to bear such risks. However, Bitcoin ETFs charge management fees for the convenience they provide.

Best Brokerage for buying Bitcoin ETF

BrokerageUS Stock Commission FeePlatform Fee
Charles SchwabUS$0US$0
Huatai InternationalUS$1US$0

Best Bitcoin Exchange

Crypto exchangeTrading feesAccount opening requirement
KikitradeHK$0HK resident aged 18 or above
MatrixportHK$0HK resident aged 18 or above
Coinunited.ioHK$0HK resident aged 18 or above
MyethshopHK$0HK resident aged 18 or above
Saxo0.05% of trade valueHK resident aged 18 or above

Things You Need to Know Before Investing in Bitcoin ETF

Risks involved in investing Bitcoin ETF

If you think that investing in a Bitcoin ETF is free of risk, then you need to think again. There are still risks involved in investing in any investment products with no exception in Bitcoin ETF. Just because it is an ETF doesn't mean that it is necessarily safer or guarantee returns. Although it isn't a direct investment in Bitcoin, it is still risky due to the exposure to Bitcoin.

No actual Bitcoin ownership

Bitcoin ETFs attempt to track the performance of Bitcoin. You are not actually buying the underlying investment Bitcoin directly. While Bitcoin ETFs track the price of Bitcoin, they can also have multiple holdings in order to diversify the investment portfolio, suggesting that a rise in the price of Bitcoin may not be accurately reflected in the price of Bitcoin ETF.

Choosing a licensed exchange

Before finding the right online brokerage for investing Bitcoin ETF, you should always check that the online trading platform is licensed and registered by the Securities and Futures Commission. If the online broker is located outside of Hong Kong, you should check if they are licensed in jurisdictions.

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Do I need a US stock account in order to invest in BITO?

Yes, you need to set up an investment account which trading US stocks is available.

Does Bitcoin ETF provide leverage to the price of Bitcoin?

Yes, if Bitcoin increases in price, so does the Bitcoin ETF, and vice versa. However, as Bitcoin ETFs have multiple holdings in order to diversify the portfolio, implying that a rise in the price of Bitcoin may not be proportional to that of Bitcoin ETF.

Is there any other ETF that tracks other cryptocurrency besides Bitcoin?

To date, most ETFs track Bitcoin and the popular ones are as follows:
  • Simplify U.S. Equity PLUS GBTC ETF (SPBC)
  • Valkyrie Bitcoin Strategy ETF (BTF)
  • VanEck Bitcoin Strategy ETF (XBTF)
  • Global X Blockchain & Bitcoin Strategy ETF (BITS)
  • Valkyrie Balance Sheet Opportunities ETF (VBB)