What Is a Bitcoin ETF?

An ETF, or exchange-traded fund, is a fund that trades on a stock exchange like a single stock. A spot Bitcoin ETF holds actual bitcoin behind the scenes, and its share price is designed to track the price of Bitcoin, minus a small annual fee. You buy and sell shares through a regular brokerage account during market hours, the same way you would trade a share of any company.

Spot Bitcoin ETFs became available in the United States in early 2024 after regulators approved them. For many people they are the simplest way to follow Bitcoin's price inside accounts they already use, including some retirement accounts, without setting up a crypto exchange or managing a wallet.

There are two main kinds. A spot Bitcoin ETF holds real bitcoin, so its value moves with the current market price of the coin. A futures Bitcoin ETF instead holds futures contracts, which are agreements about Bitcoin's price at a future date. Futures funds existed first, but they can drift slightly from the live price because the contracts have to be rolled over regularly.

When most people say Bitcoin ETF today, they mean a spot fund, because it tracks the price more directly. It is worth checking which type a fund is before assuming how closely it will follow Bitcoin.

The big tradeoff is control versus convenience. With an ETF, a regulated company handles custody, so there are no wallets or private keys to manage, and the shares fit neatly inside accounts you already have. With direct ownership, you hold the actual coin and can send or spend it any time, but you are responsible for keeping it secure.

Neither approach removes the price risk. Whichever you choose, you are still fully exposed to how much Bitcoin rises or falls.

Bitcoin ETFs charge an expense ratio, a yearly fee shown as a percentage of your investment. The percentages look small, but over long holding periods fees quietly reduce your returns, so it is worth comparing the expense ratios of similar funds before choosing one.

Some funds advertise temporary fee waivers to attract early investors. A waiver can expire, so it helps to know the standard fee, not just the promotional one.

A Bitcoin ETF removes the hassle of custody, but it does not remove market risk. Bitcoin is highly volatile, and an ETF rises and falls right along with it. The fund can also track the price slightly imperfectly, and the annual fee is a small ongoing drag.

As with any single, volatile asset, the cautious approach most people describe is to keep any position small enough that a sharp drop would not derail their finances. None of this is a recommendation to buy. Our guide on the risks of Bitcoin investing covers the wider picture.