Bitcoin ETFs explained

Bitcoin continues to shake up the financial world – sometimes due to its price performance, sometimes through controversial debates. For years, investors have discussed whether it's worth investing and what options exist for getting into the digital currency. With the US Securities and Exchange Commission's approval of Bitcoin ETFs, a new investment opportunity is coming into focus, one that promises to make cryptocurrencies more accessible to the masses. But some questions remain. What exactly is a Bitcoin ETF, what types exist, how do they work, and is it really a sensible investment?

In this article, we'll answer these questions, show you the key opportunities and risks of this cryptocurrency, and explain how you can invest in crypto ETFs.

• Basic principle: A Bitcoin spot ETF is an exchange-traded investment fund that holds physical Bitcoins as its main asset.

• Easier access: Unlike traditional ETFs that are based on indices, stocks or bonds, Bitcoin spot ETFs offer investors the chance to gain indirect exposure to real Bitcoins. This eliminates all the complex technical aspects and security requirements usually associated with owning cryptocurrencies.

• Regulation: The US Securities and Exchange Commission has now finally approved Bitcoin spot ETFs in the US. In Germany, they haven’t been approved yet, which is why alternatives like Bitcoin ETNs are popular.

• Security: Bitcoin ETFs provide additional security, as there's no need for self-custody and professional providers handle the safekeeping.

What exactly is a Bitcoin ETF?

ETFs (short for Exchange-Traded Fund) are standard index funds traded on stock exchanges, made up of a wide selection of securities. An ETF typically tracks the performance of an underlying index, offering private investors an easy way to access the market. A Bitcoin ETF, more specifically, tracks the price of Bitcoin and enables investors to buy and sell shares of the fund without actually having to own Bitcoins.

ETFs are attractive because private investors can benefit from broad diversification with just a small monthly investment. Since ETFs require little active fund management, the costs and fees are generally lower than those of actively managed investment funds, which also come with a much higher administrative burden.

Did you know? An ETF belongs to the broader category of ETPs (Exchange Traded Products). ETP is the umbrella term for all exchange-traded investment products that track an underlying asset or index. This includes most ETFs as well as ETNs (Exchange Traded Notes) and ETCs (Exchange Traded Commodities).

When investing, you can distinguish between two types of Bitcoin ETFs:

• Bitcoin spot ETFs

• Bitcoin futures ETFs

In short: A Bitcoin spot ETF invests directly in Bitcoin as its underlying asset, while a Bitcoin futures ETF invests in derivative contracts based on its price. Both spot and futures ETFs offer a convenient way to invest in Bitcoin. However, these ETPs have fundamental differences that can significantly impact overall investment strategy and potential returns. Let’s take a closer look at both types.

These are Bitcoin spot ETFs

Bitcoin spot ETFs, also known as “Bitcoin spot exchange-traded funds”, are specialised investment funds. In this context, “spot” refers to the ETF’s structure – it represents the physical asset Bitcoin, which is held by the fund. In concrete terms, this means the ETF actually owns and stores real Bitcoins.

Therefore, Bitcoin spot ETFs offer investors a straightforward way to invest indirectly in physical Bitcoins – without having to acquire and store a Bitcoin wallet or access key. For those new to the crypto world, this is often a more attractive and convenient option than investing in Bitcoins directly.

• Investors gain transparency regarding the underlying assets.

• Each unit of a Bitcoin spot ETF typically corresponds to a specific share of physical Bitcoins held in reserve by the ETF.

• Bitcoin spot ETFs are directly linked to the price movements of the Bitcoin cryptocurrency.

A Bitcoin spot ETF is a popular choice for many investors, as its potentially higher liquidity could promote price stability in the broader Bitcoin market – which in turn could encourage more positive sentiment and increased investment in Bitcoin and other crypto assets.

Clarification of terms

You may have noticed the terms “spot Bitcoin ETF” and “Bitcoin spot ETF” are often used interchangeably. There are, in fact, minor differences: “spot Bitcoin ETF” follows naming conventions familiar to traditional investors and focuses more on tools and strategic considerations. “Bitcoin spot ETF” places more emphasis on the digital asset class and its link to actual Bitcoin. Ultimately, however, there’s no fundamental functional difference between the two.

These are Bitcoin futures ETFs

Bitcoin futures ETFs track the Bitcoin price via futures contracts, offering experienced traders flexibility for strategies such as leverage or hedging. This means traders can speculate on Bitcoin's price without owning the asset itself. Futures contracts involve an obligation to buy or sell Bitcoin at a pre-agreed date and price, based on expected future price developments.

Thanks to their clear strategy, Bitcoin futures ETFs can be very useful for experienced traders. However, these ETPs also carry risks, including those linked to futures markets and challenges with contract expiries and rollovers. As futures contracts near their expiration date, the ETF must carry out a process known as a rollover – selling the expiring contract and buying a new one. This procedure can incur extra costs and potential tracking issues.

How do Bitcoin ETFs work?

Bitcoin ETFs essentially work like traditional index funds that you can trade on the stock exchange. A key difference? Instead of stocks or bonds, the focus is on the cryptocurrency Bitcoin. An ETF mirrors the price of Bitcoin or a defined Bitcoin index. This allows investors to purchase shares in the ETF via standard brokerage accounts, without needing to deal with wallets, private keys or the technical storage of the cryptocurrency.

Behind the scenes, the issuer acts as the central authority. They structure the ETP, select the appropriate index – such as the CME CF Bitcoin Reference Rate or a proprietary Bitcoin price model – and ensure compliance with regulatory requirements. Depending on the type of Bitcoin ETF, it either buys Bitcoin directly (physically backed) or tracks the price via derivatives such as futures. Both are handled by specialised service providers, such as custodians for safekeeping or market makers for liquidity provision.

Another advantage? Bitcoin ETFs are just as easy to buy or sell as conventional ETFs. It’s also possible to set up ETF savings plans and use ETPs to diversify your portfolio. For investors seeking a professional yet straightforward entry into the Bitcoin asset class, they are therefore an attractive and legally compliant option.

Regulatory conditions for Bitcoin spot ETFs in Germany

Many German investors look to developments in the US. A 2022 survey by Nasdaq of 500 financial experts found that 72% would be more likely to invest in cryptocurrencies if a spot ETF product were available in the US.

So it was a major milestone when Bitcoin spot ETFs finally received approval from the US Securities and Exchange Commission (SEC). This development lowers the barrier to entry for cryptocurrencies and makes it easier to begin trading them. Bitcoin ETFs could become one of the main access points for mainstream cryptocurrency investments.

However, there's a catch: Investors in Germany still can’t buy Bitcoin spot ETFs on the stock exchange. Traditional Bitcoin spot ETFs, as approved in the US, are not currently available here as UCITS-compliant ETFs. Why? European regulation does not allow approval for ETFs that invest solely in a single commodity or cryptocurrency. Approval requires a certain level of diversification, which some mixed crypto ETFs provide.

While in other countries spot ETFs fall under standard ETP regulations, they are not recognised as ETPs in Germany. This means there is an alternative route to enter the crypto market – for example, via crypto ETNs or recognised crypto ETPs that must meet strict transparency and replication standards. This makes it possible to invest indirectly in Bitcoin without handling custody yourself.

Differences between Bitcoin ETNs and Bitcoin futures ETFs

While the approval process for Bitcoin ETFs was anything but simple, other exchange-traded products (ETPs) had an easier time. Bitcoin Exchange-Traded Notes (ETNs) have been available for investment since 2015 with the launch of “Bitcoin Tracker One” (COINXBT), which is traded on Nasdaq Stockholm. ETNs are essentially debt instruments that guarantee the specific returns generated by the index will be paid to the investor.

In the case of a Bitcoin ETN, it is based on Bitcoin’s price movements and functions like a promissory note from the issuer, delivering the corresponding fiat value – in institutionally recognised currencies like euros or US dollars – to investors. Trust is crucial here, as investors must rely on issuers to deliver the returns. So make sure to buy your ETNs from reputable companies with institutional-grade security standards.

Bitcoin futures ETFs, by contrast, have also been available for investment in the US since the launch of the ProShares Bitcoin Strategy ETF in October 2021. Bitcoin futures ETFs differ from Bitcoin spot ETFs in that they track futures contracts rather than the actual Bitcoin price. As a result, their value only indirectly follows Bitcoin’s price.

How and where can you buy Bitcoin ETFs?

In Germany, traditional Bitcoin spot ETFs are currently not available. However, if you still want to participate in Bitcoin’s price development, you can invest in what are known as Bitcoin ETPs on the stock exchange. Bitcoin ETNs are especially popular – these are debt instruments that aim to mirror Bitcoin’s performance as closely as possible. Such exchange-traded products can be purchased through established online brokers or other issuers.

The purchasing process is straightforward:

1. Register and verify your identity via video identification.

2. Open a brokerage account and deposit funds.

3. Find the right Bitcoin ETN.

4. Choose between a one-time investment or set up a savings plan.

There is also another way to participate indirectly in Bitcoin’s performance. You can invest in crypto ETFs that bundle several cryptocurrencies, or buy shares in crypto-related companies. Whether you want to buy real Bitcoins, funds or other investment products – always choose reputable providers.

What impact do Bitcoin spot ETFs have on the crypto and financial markets?

The approval of Bitcoin spot ETFs in the US has had a noticeable effect on Bitcoin’s price – particularly due to the increased involvement of institutional investors. For the first time, large companies and asset managers can invest in BTC easily and under regulation, without having to manage custody or keys themselves. The ETF provider handles these tasks. This opens the market to capital that previously had limited access.

The launch of these ETFs also coincided with another major event: the Bitcoin halving in April 2024. This combination of growing institutional interest and reduced supply due to halving has amplified focus on Bitcoin as a digital asset class.

What has really changed since the approval of Bitcoin spot ETFs in 2024:

• Higher liquidity: A significant increase in trading volumes, especially during the NAV fixing windows, which improves market depth and price discovery. ETFs create direct connections between traditional and crypto markets.

• Reduced volatility in some cases: Bitcoin’s 90-day volatility has dropped below 40, indicating greater stability. However, during periods of market stress, ETF outflows can still lead to short-term sharp fluctuations.

• Easier access to diversification: Bitcoin investments are now possible through regulated financial products – without a wallet, keys or technical hurdles.

• Enhanced risk management & trust: ETFs offer a regulated framework, clear custody, compliance and transparency – this strengthens Bitcoin’s position as an asset class within portfolio infrastructure.

• Increased mainstream acceptance: ETFs have channelled institutional capital into Bitcoin and established it as a legitimate investment class.

Advantages and disadvantages of Bitcoin ETFs

Buying funds, Bitcoin and other investment products always comes with certain pros and cons. What opportunities and risks do Bitcoin ETFs involve? The following overview shows you.

Advantages of Bitcoin ETFs:

• Bitcoin ETFs offer investors straightforward access to the cryptocurrency.

• Investors benefit from Bitcoin’s performance but don’t need a wallet for storage.

• Professional custodians manage the storage and provide some protection against risks like hacking or loss.

• Bitcoin ETFs can be flexibly traded on the stock exchange.

• Many brokers allow the setup of savings plans for Bitcoin ETPs.

Disadvantages of Bitcoin ETFs:

• In Europe, many products are structured as debt instruments – if the issuer defaults, investors could suffer losses.

• Bitcoin’s performance is volatile, meaning Bitcoin ETFs may also experience sharp price fluctuations.

• Limited diversification, as Bitcoin ETFs focus solely on Bitcoin.

• In many jurisdictions outside the US, there’s still a lack of clearly defined regulatory guidelines for Bitcoin ETFs.

• Issuers often charge ongoing management and custody fees.

The future of Bitcoin spot ETFs

The approval of Bitcoin spot ETFs in the US has already brought billions of dollars into the crypto market. A decisive step that underscores Bitcoin’s relevance in the global financial system. These ETFs are now considered a bridge between traditional finance and the crypto sector. They allow institutional investors to invest in Bitcoin in a regulated and efficient manner, without technical hurdles such as wallets or key management.

The increased trading volume and improved liquidity have boosted the confidence of major market players. As a result, Bitcoin is increasingly perceived as a serious asset class – especially by traditional financial institutions. The rising demand shows that Bitcoin spot ETFs have become a permanent fixture in portfolio management and are anchoring Bitcoin more firmly in the financial landscape.

Conclusion: are Bitcoin ETFs worthwhile?

Bitcoin ETFs offer a regulated, exchange-traded way to participate in the potential performance of Bitcoin. However, Bitcoin ETFs aren’t tradable in all countries. Especially in Europe, where traditional spot ETFs have not yet been approved by the financial supervisory authority, ETNs and crypto ETPs represent an attractive alternative. They allow investors to participate in Bitcoin’s price performance via the stock exchange.

So if you're looking for a professional, accessible and regulated way to invest in Bitcoin, ETFs and ETNs can be a useful addition to traditional crypto trading.

Frequently asked questions about Bitcoin ETFs

Is there a Bitcoin ETF?

Yes, there is not just one Bitcoin ETF but several that have been approved on stock exchanges in countries such as the US. These funds invest directly in real Bitcoins and are seen as a milestone for crypto adoption in the financial market. In Europe, however, such products are not yet available.

What exactly is a Bitcoin ETF?

A Bitcoin ETF is an exchange-traded fund that mirrors the performance of Bitcoin. Depending on its structure, the fund holds either physical Bitcoins (spot ETF) or futures contracts (futures ETF). This allows investors to participate indirectly in Bitcoin without having to store the cryptocurrency themselves.

Bitcoin or Bitcoin ETFs – which is better?

Which is better depends on how you want to invest. If you want maximum control and true self-custody, buying Bitcoin directly through a crypto platform is the right choice. You store the BTC yourself – for example, in your own wallet – and are completely independent of third parties.

Bitcoin ETFs, on the other hand, offer advantages if you want to keep access as simple and secure as possible:

• You don’t need to set up a wallet or manage private keys.

• Custody is handled by a regulated provider.

• You can buy and sell Bitcoin through standard brokerage accounts.

• You benefit from regulatory oversight and clear compliance standards.

Especially for institutional investors or beginners, a Bitcoin ETF can be a convenient way in, with no technical hurdles or self-managed security.

Can I benefit from rising Bitcoin prices with Bitcoin ETFs?

In principle, yes, since a Bitcoin ETF tracks the performance of Bitcoin. If the Bitcoin price rises, the same applies to the Bitcoin spot ETF. With a Bitcoin futures ETF, however, there may be deviations from the actual Bitcoin price.

Are Bitcoin ETFs approved in Germany?

No, there is currently no approval for spot ETFs backed by physical Bitcoins in Germany. The reason is the UCITS regulation, which requires broader diversification for ETFs. Instead, German investors turn to alternatives like ETNs or crypto ETPs on the stock exchange.

Can I set up savings plans with Bitcoin ETFs?

Yes, Bitcoin ETFs can also be used for savings plans. In Germany, many brokers also offer the option to set up savings plans for Bitcoin ETNs and crypto ETFs.

More topics related to cryptocurrency

Want to deepen your knowledge of cryptocurrencies? Take a look at our more detailed articles, which offer further insights into the fascinating world of digital currencies.

• What is a Bitcoin halving?

• Consensus algorithms: proof of work

• What is an ETF?