Investing In Bitcoin: Futures ETF vs. Spot ETF vs. Spot Bitcoin

Bitcoin is the first peer-to-peer decentralized cryptocurrency and among the most secure networks in the world. It is also the largest cryptocurrency in terms of market capitalization and has seen an important rise in global acceptance since it was first used in 2009.

Bitcoin was created as a way for people to send money over the internet without the need of a third-party centralized body to facilitate the transaction. But over the years, it has evolved to be used by a number of different investors for many purposes. Bitcoin is being used by personal and corporate investors as a store of value, for commercial transactions, for trading, and the cryptocurrency has even become accepted as a legal tender. More recently, several ETFs related to Bitcoin have been launched, highlighting the merit of cryptocurrencies as a full-scale tool for investment.

Intro to ETFs

ETFs, or Exchange Traded Funds, are a type of investment fund that allow you to buy a basket of different securities the same way you would a stock on a stock exchange. ETFs track the price of an underlying asset to give investors the opportunity to profit from changing price trends. In this way, investors are able to capitalize on different assets and diversify their portfolios without actually owning the assets themselves. Instead, they essentially bet on the growth of the asset as a whole through a fund manager. In the case of this article, that underlying asset would be Bitcoin.

There are different ways to invest in Bitcoin, each with a different

set of pros and cons, so let’s take a deeper look at how they work and how they compare to one another.

What is a Futures ETF?

As you can deduct by the name, these are ETFs backed by Bitcoin futures, a derivative of Bitcoin, rather than Bitcoin itself. Bitcoin futures are an agreement between two parties where one decides to buy Bitcoin from the other at a future date for a predetermined price. Once the contract’s expiration date arrives, the exchange will take place for the agreed upon price, regardless of the actual value of Bitcoin at that time.

Basically, this means that the price of Bitcoin futures contracts and the actual price of Bitcoin can be different based on what both parties agreed to in the settlement of that contract. The value of the contract can exceed the price of Bitcoin if more and more people bet that Bitcoin’s price will rise, and vice versa.

With this in mind, a Bitcoin Futures ETF is an ETF that tracks the price of Bitcoin futures rather than Bitcoin itself. The risk with this investment is that the spot price could be lower than the futures price, which could end up costing investors greatly. In this case, one would say that the future is not tracking Bitcoin properly.

In terms of regulation, Bitcoin futures ETFs were approved by the United States Securities and Exchange Commission just a few months ago in October 2021. However, spot Bitcoin ETFs are facing more difficulties in becoming regulated.

What is a Spot ETF?

A Spot Bitcoin ETF, or simply Bitcoin ETF, are exchange traded funds with their value directly tied to the market value of Bitcoin. Bitcoin ETFs track the performance of Bitcoin and give investors the opportunity to diversify their portfolios with the cryptocurrency without actually owning it. Bitcoin ETFs have been attractive for investors that are interested in having a stake in Bitcoin without buying it directly.

Bitcoin ETFs have been attracting certain investors because they don’t require as much knowledge of Bitcoin’s underlying technology. Not to mention, they don’t require you to store Bitcoin, as it is held in reserve by the fund manager selling the ETFs themselves. There are also some tax benefits that come with owning Bitcoin ETFs. Because they are regulated by the government, you can invest in ETFs through your TFSA or RRSP.

The downside to Bitcoin ETFs is that they often come with expensive fees to the fund manager that drive up the cost of the investment. There is also the disadvantage of not being able to respond as quickly to price volatility in the market, as the stock market is only open during certain times.

What is Spot Bitcoin?

Bitcoin ETFs have only been available since February 2021, and they are continuing to emerge as a new tool for investment. An alternative to investing in Bitcoin ETFs is simply to buy Bitcoin itself, or spot Bitcoin, from a cryptocurrency exchange like Bitbuy. If you are interested in holding your own Bitcoin, cryptocurrency exchanges give you the opportunity to buy, trade, and sell Bitcoin and other cryptocurrencies easily.

Buying Bitcoin from an exchange gives holders full authority over their investment. The goal of Bitcoin is to remove third parties from the process of digital transactions, and ETFs are closely regulated by the government.

Another advantage of actually owning Bitcoin is that, unlike ETFs, spot Bitcoin can be used for trading for other cryptocurrencies through an exchange. Bitcoin is also starting to be increasingly accepted in commercial transactions, and there may be some uses for the cryptocurrency to facilitate secure digital transactions.

Investing in Bitcoin

If you choose to buy cryptocurrency through and exchange, be sure to sign up with one that is  regulated in order to keep your assets and personal information safe. And, as always, be sure to do your research and do your due diligence before making any investment decision.

Bitbuy allows you to buy, sell, and trade Bitcoin and other cryptocurrencies in real time using Canadian dollars, and it is Canada’s most secure and trusted platform to buy Bitcoin. Not to mention, 99% of your crypto is secured in cold storage and covered by a comprehensive insurance policy. All you have to do to start buying Bitcoin is create your account, get verified, add funds, and you’re set!