Bitcoin ETF: Everything You Need To Know

Since its inception in 2009, Bitcoin (BTC) has captured the imagination of traders, institutional investors, and retail enthusiasts alike. Over the years, Bitcoin has delivered a meteoric rise in value, achieving a total return of 18,912% from 2010 to 2022. Its growing acceptance as a legitimate asset class has been reinforced by adoption from institutions such as MicroStrategy and the creation of regulated financial products designed to make Bitcoin more accessible to traditional investors.

One of the most significant developments has been the Bitcoin Exchange-Traded Fund (ETF). As of early 2025, spot Bitcoin ETFs in the United States, approved in January 2024, have collectively grown to nearly $107 billion in assets under management (AUM), representing approximately 6.5% of Bitcoin’s total market capitalization. In this article, we explore what a Bitcoin ETF is, how it works, its benefits and challenges, and the key milestones leading to its current status.

What Is a Bitcoin ETF

A Bitcoin ETF is an exchange-traded fund that allows investors to gain exposure to Bitcoin without directly purchasing, storing, or managing the cryptocurrency. Traded on traditional stock exchanges, Bitcoin ETFs aim to track the price of Bitcoin or the performance of Bitcoin-related assets.

ETFs are managed by regulated financial institutions or asset management companies, which hold the underlying assets (spot Bitcoin or Bitcoin futures contracts) and issue shares that investors can trade like stocks.

Key distinction: While traditional ETFs directly hold the asset they represent, early Bitcoin ETFs, due to regulatory constraints, were often based on Bitcoin futures contracts. With the SEC’s 2024 approval of spot Bitcoin ETFs, US investors can now buy ETFs backed by actual Bitcoin holdings.

How Does a Bitcoin ETF Work

These are some key elements of a Bitcoin ETF:

Underlying Asset: In a stock ETF, stocks are purchased by the investment fund owned by an institution. Similarly, in a Bitcoin ETF, the fund buys and holds a certain amount of Bitcoin.

Shares: The institution creates shares that represent ownership in the fund with the value of the shares directly tied to the price movements of Bitcoin. Owning shares of the ETF allows traders to gain exposure to the cryptocurrency’s price fluctuations without having to buy and hold Bitcoin directly.

These shares can be bought and sold on traditional financial exchanges, just like stocks. Each share of the ETF represents a fraction of the total Bitcoin holdings of the fund.

Market Tracking: The aim of Bitcoin ETFs is to track the performance of Bitcoin, so if the price of Bitcoin goes up, the value of the ETFs’ shares should go up as well, and vice versa.

Net Asset Value (NAV): Many ETFs provide transparency into their holdings and NAV. Traders can see what assets the ETF holds and monitor its performance.

Benefits Of a Bitcoin ETF

Accessibility: Bitcoin ETFs provide a straightforward and convenient way for traditional traders to gain exposure to Bitcoin without managing private keys and wallets. Traders can buy and sell these Bitcoin ETFs directly through their stock brokerage account. This accessibility can help bridge the gap between the traditional financial system and the crypto markets.

Regulation: ETFs are subject to regulatory oversight and must adhere to securities laws. Regulatory approval is a crucial step in launching a Bitcoin ETF. This regulatory framework can provide a level of investor protection and oversight.

Convenience: Traders can trade ETFs through their brokerage accounts, just like they would with traditional stocks, without needing to set up a cryptocurrency wallet or an account with a crypto trading platform.

Challenges & Considerations Of Bitcoin ETFs

Regulatory hurdles: Prior to January 2024, the SEC had rejected numerous spot Bitcoin ETF applications, approving only futures-based ETFs like ProShares Bitcoin Strategy (BITO), CoinShares' Bitcoin Strategy (BTF), and VanEck’s Bitcoin ETF (HODL).

Tracking error: The performance of a Bitcoin ETF may not precisely mirror that of Bitcoin itself due to factors such as tracking error and management fees.

Management fees: Like other funds, Bitcoin ETFs charge management fees, which can eat into returns over time. Traders should be aware of these fees and their impact on their overall returns.

Importance of a Bitcoin ETF

The approval of US spot Bitcoin ETFs is widely regarded as a watershed moment for crypto adoption. Institutional investors—such as mutual funds, pension funds, and hedge funds—often have compliance restrictions preventing direct crypto purchases. Spot Bitcoin ETFs allow these institutions to participate in the Bitcoin market while staying within regulatory boundaries, driving billions of dollars in capital inflows.

In addition, the availability of regulated, exchange-listed Bitcoin products increases market credibility, potentially encouraging further innovation in crypto-based financial products.

Bitcoin ETF Progress Timeline

• 2013-2017: Initial Bitcoin ETF Proposals The first Bitcoin ETF proposal was filed by the Winklevoss twins, Cameron and Tyler Winklevoss, in 2013 with the US SEC. This proposal was initially rejected in 2017.

• 2017-2018: SEC Rejections The SEC rejected multiple Bitcoin ETF proposals, citing concerns about market manipulation, lack of regulation in the cryptocurrency market, and investor protection.

• 2018: CBOE's Bitcoin ETF Proposal In 2018, the Chicago Board Options Exchange (CBOE) filed a proposal for a Bitcoin ETF in collaboration with VanEck and SolidX. This proposal generated significant interest but faced multiple delays and was ultimately withdrawn in January 2019.

• 2019: SEC Review of VanEck/SolidX ETF The SEC initiated a review of the VanEck/SolidX Bitcoin ETF proposal, rekindling hope for a regulated Bitcoin ETF. However, this proposal was eventually withdrawn by the applicants in September 2019.

• 2019-2021: Resubmissions and New Proposals Various companies continued to submit new Bitcoin ETF proposals to the SEC in the hope of gaining regulatory approval. Several proposals were either withdrawn or faced delays due to regulatory concerns.

• 2021: Canadian Bitcoin ETFs In February 2021, Canada approved its first Bitcoin ETFs, allowing investors in Canada to gain exposure to Bitcoin through regulated funds. These ETFs were well-received and marked a significant milestone in Bitcoin ETF history.

• 2021: US-listed Bitcoin ETF Launch of ProShares Bitcoin Strategy (BITO), the first US-listed Bitcoin ETF.

• 2023: Europe’s Bitcoin ETF Europe’s first Bitcoin ETF was launched by London-based Jacobi Asset Management

• January 2024: US Spot Bitcoin ETF Approval The SEC approved 11 spot Bitcoin ETFs, including products from BlackRock (IBIT), Fidelity (FBTC), and ARK Invest, triggering a wave of institutional adoption.

• 2024–2025: Record Inflows & Growth By mid-2025, spot Bitcoin ETFs have accumulated nearly $110 billion in AUM, with iShares Bitcoin Trust (IBIT) leading at over $52 billion. ETFs now account for over 6% of Bitcoin’s market cap.

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