What are bitcoin ETFs and how do you trade them?
Bitcoin ETFs link traditional financial instruments with the digital currency space. These ETFs enable you to get exposure to the world’s largest cryptocurrency without owning it directly.
What is a bitcoin ETF?
A bitcoin exchange-traded fund (ETF) is an instrument that tracks the price of the underlying asset (ie bitcoin), enabling traders and investors to take a position on the price of the cryptocurrency (‘crypto’ for short) without having to buy and hold it. If the price of bitcoin goes up, so does the price of the ETF; the same correlation exists with falling prices.
Just like more traditional ETFs – such as those tracking stock indices, forex and commodities – spot bitcoin ETFs are traded in the same way that stocks are on regulated exchanges like the FTSE 100 or NASDAQ (known on our platform on as the US Tech 100). This provides a regulated pathway to getting exposure to bitcoin, without the need to buy, store or manage the digital currency.
How do bitcoin ETFs work?
A bitcoin ETF tracks the price of the underlying asset and works the same as a traditional ETF in that it consists of shares which you can buy and own. Alternatively, you can use contract for difference (CFD) trading to speculate on bitcoin’s price movement through the fund without holding shares in the ETF or owning the crypto as an investment. The price of bitcoin ETFs is influenced by price movement in the crypto, so the prices move in tandem.
ETFs are typically created by large financial institutions known as authorised participants (APs). In the case of a bitcoin ETF, the fund will buy the cryptocurrency, store it using a custodian and issue shares. This means that the fund’s shareholders won’t need to manage digital wallets or navigate the complexities of the cryptocurrency landscape, as would be the case with outright bitcoin purchases.
Trading and investing in bitcoin ETFs with us
To trade on the changes in a bitcoin ETF’s price without owning any shares in the fund, you can take a position with us using CFD trading. CFDs are financial derivatives that give you exposure to an underlying asset on a leveraged basis, enabling you to open a trade at a fraction of its full value. While leverage magnifies your profit potential, it also amplifies possible losses – you could even lose more than the initial deposit paid to open the position. It’s important to always manage your risk carefully when trading CFDs.
With us, you can invest in bitcoin ETFs through stock trading, which enables you to become a shareholder of the fund. As the ETF tracks the value of bitcoin, you’d have a proportional representation of the cryptocurrency’s market price in your investment portfolio. When stock trading, you’d pay the full investment amount – plus other costs where applicable – for your chosen number of shares upfront.1 Since the price of bitcoin can theoretically rise in perpetuity, the same applies to your profit potential. On the other hand, maximum possible losses – which are based on the theoretical condition of the underlying’s price dropping to zero – are limited to your full investment amount (excluding any additional fees).
Bitcoin ETFs vs buying bitcoin outright
There are significant differences between getting exposure to bitcoin using ETFs and owning the cryptocurrency itself. For example, you won’t necessarily own an asset with a bitcoin ETF.
Bitcoin ETFs could also be a more cost-effective alternative to direct coin purchases. With us, for example, you’ll pay zero commission when investing in internationally listed bitcoin ETFs using your stock trading account.1 Keep in mind, though, that other costs – like our 0.7% foreign exchange fee and ETF issuer management fees – will still apply.
Below are some of the key differences between bitcoin ETFs and buying the crypto outright.
| Bitcoin ETFs | Buying bitcoin |
| Don’t own the underlying asset when speculating on price movement only, ie trading using leveraged derivatives like CFDs Own ETF shares through stock trading, but won’t own any actual bitcoin |
Holding bitcoin as an investment, ie owning the cryptocurrency |
| You don’t need to manage a digital wallet; the ETF provider controls crypto held by the fund | You’d need to manage a digital wallet directly with an encrypted private key |
| Typically more accessible, and less technical expertise is required | Access to bitcoin tends to be complex, with more technical expertise required |
| Regulated through centralised stock exchanges | Bitcoin is built on a blockchain, a form of technology that removes third-party involvement in transactions that occur on the public ledger |
When trading a bitcoin ETF using CFDs with us, you wouldn’t hold any shares of the fund. Trading spot bitcoin ETFs by speculating on the price only is usually done through short-term positions.
Stock trading (ie buying and owning) of these ETFs is typically done over the long term, which makes it similar to outright buying of the cryptocurrency. Trading and investing in bitcoin ETFs are more accessible ways of getting exposure to the crypto, as you wouldn’t need the technical expertise involved in the processes that enable you to hold the digital currency itself.
How to trade or invest in bitcoin ETFs
You can trade or invest in as many bitcoin ETFs as you like based on your risk tolerance and financial goals. With us, you can either speculate on the performance of a bitcoin ETF using a CFD trading account or you can buy shares in the fund using a stock trading account.
Here are the steps you’d take to trade or invest in bitcoin ETFs with us:
- Research and compare different ETFs
- Develop a risk management strategy
- Open a CFD trading or stock trading account with us
- Decide on the bitcoin ETF you want to trade or invest in
- Place your order
- Monitor and close your position
Remember, when going long or short using leveraged derivatives like CFDs, potential losses can exceed the initial deposit you paid to open the position. While leverage enables you to get full exposure at only a fraction of the total position size, both possible profits and losses are magnified to the full value of the trade.
When investing in a bitcoin ETF through stock trading, it’s important to keep in mind that the biggest loss you could incur is the full amount that you paid to buy the shares (excluding any additional fees). This can only happen in the unlikely event of the share price dropping to zero. Potential profits, on the other hand, could theoretically keep rising as there’s no cap on what the share price can be.
Bitcoin ETFs to watch
Bitcoin ETFs have varying fees and they cater to different risk appetites. They also make provision for preferences like trading volumes and how established the ETF provider is. Due to such factors, each bitcoin ETF presents its own unique potential – so, it’s essential to conduct thorough research before committing to a trade or investment.
Below are some of the popular spot bitcoin ETFs.
Footnotes
1 We provide commission-free trading to clients buying US (up to 50 trades) and international shares online using our instant currency conversion facility, with a 0.7% FX conversion fee per transaction. Clients who choose to convert currencies manually will pay commission of 2 cents per share, with a minimum charge of $10 on US stocks. We charge £10 or €10 per trade, or 0.1% of the trade value for European markets, whichever is higher. Other fees and charges may apply.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
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Think election opportunity ended 5 November?
The polls have closed, Donald Trump has won, but markets are still moving:
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- Set price alerts for significant movements
- Get trading tips on our election hub
* 24/7 excludes the hours on Saturday from 2am to 12pm (Dubai time), and 20 minutes just before the weekday market opens on Sunday night (or Monday morning).
Think election opportunity ended 5 November?
The polls have closed, Donald Trump has won, but markets are still moving:
- Trade Wall Street, EUR/USD and GBP/USD 24/7*
- Set price alerts for significant movements
- Get trading tips on our election hub
* 24/7 excludes the hours on Saturday from 2am to 12pm (Dubai time), and 20 minutes just before the weekday market opens on Sunday night (or Monday morning).
