What are the types of Bitcoin ETFs? Spot vs. Futures: The Big Difference

Bitcoin ETFs (Exchange-Traded Funds) allow traditional investors to access Bitcoin assets directly through the stock market without the need to custody cryptocurrencies themselves. This innovation makes Bitcoin investing more convenient and has attracted significant institutional capital into the market. But do you know what types of Bitcoin ETFs exist? What are the differences between them?

Understanding Bitcoin ETFs — A New Pathway to Traditional Investment Markets

The core concept of a Bitcoin ETF is simple: it is a fund product listed on an exchange that tracks Bitcoin’s price performance. Investors can place orders just like buying stocks to gain exposure to Bitcoin, without dealing with complex wallet management or exchange operations.

Depending on the underlying assets and trading methods, Bitcoin ETFs are mainly divided into two categories. One is physically-backed spot products holding actual Bitcoin, and the other is derivative products based on futures contracts. Although these two investment tools may seem similar, they operate on fundamentally different principles.

Comparing the Two Main Types: Spot ETF vs. Futures ETF

Bitcoin Spot ETF directly holds real Bitcoin assets. The fund management company purchases actual Bitcoin, stored securely in custody. The ETF shares are linked to the amount of Bitcoin held. This means that the ETF shares purchased by investors correspond to real, verifiable Bitcoin assets.

Bitcoin Futures ETF employs a different strategy. It does not directly hold Bitcoin but tracks Bitcoin’s price through investments in Bitcoin futures contracts. Futures are agreements predicting future prices; the fund holds these contracts to replicate Bitcoin’s price movements. While their ultimate investment goals are similar, their implementation paths are entirely different.

In practical terms, spot ETFs are more direct and transparent, whereas futures ETFs involve derivative pricing mechanisms that may incur additional costs under certain market conditions.

Why Choose ETFs? Four Major Advantages Over Trust Funds

Compared to traditional digital asset trust funds like GBTC, Bitcoin ETFs have clear competitive advantages.

Advantage 1: More Flexible Trading Mechanism

ETFs use a market maker mechanism, allowing creation and redemption of shares on the primary market. This means the supply of ETF shares adjusts dynamically based on market demand. In contrast, GBTC does not allow redemptions; investors can only trade on the secondary market to realize gains. This difference directly impacts investment flexibility.

Advantage 2: Better Liquidity Performance

GBTC has a six-month lock-up period and often trades at a significant premium. Due to limited supply and high demand, GBTC’s price frequently exceeds its underlying asset value, imposing extra costs on investors. In comparison, ETFs, once listed, generally have ample liquidity and usually do not trade at significant premiums or discounts, with prices closer to the actual asset value.

Advantage 3: Significantly Lower Costs

GBTC’s cost structure is complex, involving broker fees, annual management fees, and premium decay. Currently, GBTC’s management fee is as high as 2% annually. In contrast, Bitcoin futures ETFs like the one launched in October 2021 (e.g., BITO) have management fees around 0.95%, half that of GBTC. This cost difference can have a substantial impact on long-term returns.

Advantage 4: Lower Investment Barriers

GBTC requires a minimum investment of $50,000 and is only open to accredited investors. In comparison, Bitcoin ETFs have much looser qualification and minimum investment requirements. Retail investors can buy shares just like stocks, with relatively small amounts, democratizing access to Bitcoin exposure.

From Application to Approval — Timeline of Bitcoin ETF Development

The regulatory journey of Bitcoin ETFs has been rocky. From initial exploration to eventual approval, it has taken over a decade with multiple rejections.

July 2013: The Winklevoss brothers submitted the first Bitcoin ETF application to the U.S. Securities and Exchange Commission (SEC).

Subsequent years saw numerous applications, many rejected:

• July 2016: Blockchain company SolidX submitted an application
• January 2017: Grayscale filed, but withdrew in October
• December 2017: Direxion and GraniteShares submitted applications, rejected in August 2018
• January 2019: Bitwise applied; rejected in October
• June 2020: WisdomTree Trust filed a proposal including 5% Bitcoin assets

A breakthrough finally arrived in 2021. In February, Canada approved the Purpose Bitcoin ETF, listing on the Toronto Stock Exchange.

In October 2021, the U.S. made a significant step. The SEC approved the ProShares Bitcoin Strategy ETF (ticker: BITO) for trading on the NYSE Arca. This was the first Bitcoin ETF in U.S. history. However, it is a futures-based ETF; at that time, the SEC had not approved any spot Bitcoin ETFs.

Subsequently, the Bitcoin ETF market accelerated. In January 2023, amid ongoing demand and institutional push, the SEC approved the first spot Bitcoin ETFs, including the BlackRock iShares Bitcoin ETF (IBIT) and others. This shift opened the door for traditional finance, bringing large capital into Bitcoin markets.

By 2024, spot Bitcoin ETFs have become the main way for global investors to access Bitcoin, with product offerings expanding and fees decreasing through competition, giving investors more choices.

How to Choose the Right Bitcoin ETF

With the increasing options, how should investors decide? Key criteria include:

Asset Type: Prefer spot ETFs for more direct and transparent exposure, avoiding the complexities of futures pricing.

Cost: Compare management fees; this factor has a long-term impact.

Liquidity: Choose products with high trading volume to ensure efficient entry and exit.

Regulatory Background: Understand the issuer’s and custodian’s qualifications to ensure asset safety.

The emergence of Bitcoin ETFs marks an important step toward mainstreaming digital assets. Whether spot or futures, they open new doors for different risk preferences and investment needs. As the market matures, Bitcoin ETFs are poised to become the preferred tools for traditional investors to allocate crypto assets.