The exchange-traded fund (ETF) industry is firing on all cylinders this year, highlighted by the launch of the first spot Bitcoin (BTC) and Ether (ETH) ETFs.
“Looking back at 2016, there was only one option to directly hold Bitcoin within your retirement account,” says Chris Kline, chief operating officer and co-founder of Bitcoin IRA. “Now, there are routes to hold crypto assets in nearly every type of financial account, and the market is better for it.”
Spearheading the next wave in the sector is boutique digital asset management firm Canary Capital, founded by Steven McClurg, who previously co-founded Valkyrie Funds and served as a managing director at Galaxy Digital Holdings Ltd. (ticker: GLXY.TO).
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Canary Capital is at the forefront, with new filings for spot cryptocurrency ETFs targeting Solana (SOL), Litecoin (LTC) and Ripple (XRP), three of the largest “altcoins” by market capitalization after Bitcoin and Ethereum with significant decentralized finance (DeFi) applications.
Should the SEC approve these filings, the cryptocurrency ETF market could see substantial inflows. Investors previously limited to these altcoins through cryptocurrency exchanges would be able to invest through regular brokerage accounts, much like buying stocks. Donald Trump’s election victory could also boost crypto as the president-elect has been supportive of the industry and Bitcoin surpassed $75,000 after he won the race.
Until these developments come to fruition, investors already have a broad spectrum of products at their disposal, including existing Bitcoin and Ethereum spot ETFs, as well as leveraged, inverse and income-oriented strategies involving derivatives, in addition to crypto industry equity funds. However, experts note that these cryptocurrency ETFs still have drawbacks.
“ETFs are limited to traditional trading hours, while direct-access platforms allow unrestricted trading,” Kline says. “Additionally, when it becomes time to take these assets out for retirement, ETFs must be sold to dollars and distributed, while a direct-access platform allows for more flexibility.”
Here are seven of the best cryptocurrency ETFs to buy today:
| ETF | Expense ratio |
| iShares Bitcoin Trust (IBIT) | 0.25% |
| iShares Ethereum Trust ETF (ETHA) | 0.12% |
| Grayscale Bitcoin Trust ETF (GBTC) | 1.50% |
| Grayscale Ethereum Trust ETF (ETHE) | 2.50% |
| Roundhill Bitcoin Covered Call Strategy ETF (YBTC) | 0.95% |
| Global X Blockchain ETF (BKCH) | 0.50% |
| Defiance Daily Target 2X Long MSTR ETF (MSTX) | 1.29% |
iShares Bitcoin Trust (IBIT)
“More options are good for investors, and the spot Bitcoin ETFs are a welcome addition to the market,” Kline says. “The massive inflow numbers these investments have shown this year reinforce that their convenience is helping drive wide-scale adoption.” One of the notable winners was IBIT, which has already swelled to over $33 billion in assets under management (AUM) since its debut in January.
As a spot cryptocurrency ETF, IBIT is backed by Bitcoin held in cold storage with its custodian. This allows the net asset value (NAV) of the ETF to precisely track its benchmark, the CME CF Bitcoin Reference Rate. The ETF is highly liquid, with a minimal 0.03% 30-day bid-ask spread and average daily volume of around 41 million shares traded. In addition, the SEC has approved IBIT for options trading.
iShares Ethereum Trust ETF (ETHA)
IBIT’s Ethereum-themed counterpart is ETHA, which was launched in June. This ETF has grown at a far slower pace, but still commands a respectable $1.4 billion in AUM today. As with IBIT, ETHA works by using a custodian for cold storage of its underlying Ethereum reserves, transferring amounts to a hot wallet as needed for creation and redemption of ETF units.
ETHA is benchmarked to the spot Ethereum price via the CME CF Ether-Dollar Reference Rate-New York Variant. It is still fairly liquid, with a 0.05% 30-day median bid-ask spread and just over 3 million shares traded daily. However, unlike IBIT, ETHA does not have an options chain. The ETF charges a 0.25% base sponsor fee, but it is being waived for 12 months to 0.12% on the first $2.5 billion in AUM.
Grayscale Bitcoin Trust ETF (GBTC)
GBTC has been around since 2013, but prior to January 2024, the ETF was actually a close-ended trust. This meant that depending on buying or selling pressure, the market price of GBTC traded at either above (premium) or below (discount) to its NAV. By converting to an open-ended ETF structure, GBTC’s current market price now tightly tracks its NAV, providing investors with greater liquidity.
Although surpassed by IBIT in terms of size, GBTC remains highly popular, with over $16.8 billion in AUM. However, its 1.5% expense ratio is quite pricey. To address this, Grayscale distributed 10% of GBTC’s underlying Bitcoin to a spin-off ETF, the Grayscale Bitcoin Mini Trust (BTC). This new ETF trades at a far lower price per share and also has a significantly lower expense ratio of just 0.15%.
Grayscale Ethereum Trust ETF (ETHE)
ETHA’s $1.4 billion AUM is respectable, but it pales in comparison to ETHE, which continues to reign with just over $4.6 billion in AUM. This spot Ethereum ETF actually dates back to 2017, again as a close-ended trust. When spot Ethereum ETFs were approved in July, Grayscale converted ETHE into an open-ended ETF, which as with GBTC solved the premium/discount to NAV issue.
ETHE is even more expensive than GBTC. At a 2.5% expense ratio, $10,000 invested in this ETF would result in around $250 in annual fees. To remedy this, Grayscale did another spin-off, distributing 10% of ETHE’s Ethereum into the Grayscale Ethereum Mini Trust (ETH). This newer Ethereum ETF closed at a very low price of $2.74 per share on Nov. 7 and charges a 0.15% expense ratio.
[Read: The History of Bitcoin]
Roundhill Bitcoin Covered Call Strategy ETF (YBTC)
“YBTC offers the potential for high income, as it generates monthly income through a covered call strategy on Bitcoin,” says Dave Mazza, CEO of Roundhill Investments. “This ETF provides upside exposure to Bitcoin subject to a cap, offering a unique blend of income generation and Bitcoin exposure without the complexities of direct Bitcoin investment or the hassle of trading options directly.”
This ETF currently uses a “fund of funds” structure to hold the ProShares Bitcoin Strategy ETF (BITO), which provides indirect Bitcoin exposure via futures contracts. Then, YBTC sells covered calls, which produces high immediate income via options premiums and also reduces upside price potential. The ETF charges a 0.95% expense ratio and currently pays a 21.7% distribution yield.
Global X Blockchain ETF (BKCH)
“As observed in 2023, blockchain and crypto-related stocks, such as miners and crypto exchanges, typically offer higher beta trades ahead of major events,” says Ido Caspi, research analyst at Global X ETFs. “The influx of institutional capital into Bitcoin is expected to significantly increase Bitcoin activity and, consequently, transaction fees.” The ETF to use for exposure in this scenario is BKCH.
Unlike the previous ETFs, BKCH does not hold spot cryptocurrency or derivatives. Instead, this ETF tracks the Solactive Blockchain Index, which holds 25 cryptocurrency industry stocks. Notable top holdings include cryptocurrency exchange Coinbase Global Inc. (COIN), Bitcoin miners such as Hut 8 Corp. (HUT) and digital asset managers like Galaxy Digital Holdings.
Defiance Daily Target 2X Long MSTR ETF (MSTX)
MicroStrategy Inc. (MSTR), led by Michael Saylor, is notable for its substantial Bitcoin reserves, having adopted an aggressive strategy of issuing convertible senior notes to fund its Bitcoin purchases, which leaves it highly leveraged. Now, investors have the option of engaging with this high stakes company using MSTX, a single-stock ETF that aims to deliver twice the daily price returns of MicroStrategy.
Given MicroStrategy’s inherent volatility, MSTX amplifies these fluctuations by double, making it suitable primarily for risk-tolerant traders looking for enhanced exposure. Should MicroStrategy’s price fall by close to 50% in a single trading day, there is a material risk of this ETF being wiped out. MSTX is also pricey, with a 1.29% expense ratio due to the use of swaps, and is not intended for long-term holds.
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7 Best Cryptocurrency ETFs to Buy originally appeared on usnews.com
Update 11/08/24: This story was previously published at an earlier date and has been updated with new information.
