Spot Bitcoin ETFs explained

An exchange-traded fund, or ETF, is a fund whose shares trade on a stock exchange. A spot Bitcoin ETF uses investors' money to buy and hold bitcoin itself, so each share tracks the price of the coins the fund owns. The US Securities and Exchange Commission approved the first spot Bitcoin ETFs in January 2024.

How it works

Large financial firms called authorised participants create new ETF shares by delivering cash or bitcoin to the fund, and redeem shares by taking cash or bitcoin out. This creation-and-redemption process keeps the share price close to the value of the bitcoin held. The bitcoin itself sits with a custodian, usually a regulated crypto custody firm.

Why people use them

• They can be bought in an ordinary brokerage or retirement account.
• There are no wallets or seed phrases to manage.
• Some investors are only permitted to hold regulated securities.

What you give up

• **Fees.** Funds charge an annual management fee, which reduces returns over time.
• **Control.** You own fund shares, not bitcoin. You cannot send the coins or use them on-chain.
• **Trading hours.** Shares trade when the stock market is open, while bitcoin trades around the clock, so prices can gap at the open.

Spot versus futures

Before spot funds, US investors could buy ETFs holding Bitcoin futures contracts. Futures funds roll contracts each month, and that cost can make them trail the bitcoin price. Spot funds avoid that by holding the asset directly.

Key takeaways

• A spot ETF gives price exposure without self-custody.
• Compare fees between funds; they differ.
• Holding an ETF and holding bitcoin carry different risks, not no risk.