Bitcoin ETF: Why are traditional investors now following this?

Question

To be honest, the sign of Bitcoin entering mainstream finance is the emergence of ETFs. Since Canada first approved the Purpose Bitcoin ETF in 2021, this has completely changed the way retail investors and institutions invest in BTC.

Simply put, what is an ETF?

An ETF (Exchange-Traded Fund) is basically a “basket” that contains Bitcoin or Bitcoin futures. You don't have to go to the exchange to fuss around, nor do you have to worry about losing your private keys; you can buy and sell directly in your stock account, just as smoothly as buying stocks.

There are two ways to play this:

Spot ETF: Directly hold real Bitcoin, with prices synchronized in real-time with BTC market trends. Available in Canada, Switzerland, and Germany.

Futures ETF: Tracks Bitcoin futures contracts without directly holding BTC. Currently, this is the main type in the US, as the SEC is still dragging its feet on approving spot ETFs.

Why are ETFs so important?

At the end of 2021, the Bitcoin ETF was launched in the United States, attracting billions of dollars in inflows in a short period of time. Why? Three reasons:

1. Low Threshold: Don't understand blockchain or can't manage private keys? No problem, buy directly with a stock account, just like buying Apple stock.

2. Strong Security: ETFs are managed by regulated institutions, and investor funds are protected (in the US, there is FDIC insurance coverage). Buying coins and storing them in an exchange? Then you have to take responsibility for security yourself.

3. Attracting Institutions: Pension funds and hedge funds can finally allocate Bitcoin in a legitimate manner. Clear regulations, high transparency, and strong liquidity make it very appealing.

U.S. vs International: Significant Regulatory Differences

As of early 2024, the US SEC has approved a bunch of futures ETFs (BITO, BTF, etc.), but spot ETFs are still waiting in line. Although BlackRock and Fidelity have submitted applications, the SEC is just not approving them quickly.

In contrast to Canada and Europe: spot ETFs are everywhere. The Purpose Bitcoin ETF in Canada manages over 2 billion Canadian dollars, while the CoinShares Physical Bitcoin ETF in Sweden has over 700 million dollars.

What does this mean? Although American institutional investors can participate, they are not as “native” as their overseas counterparts.

How to choose? Key factors to consider are these points.

Fees: This is an invisible vampire. Some ETFs have management fees of over 1%, which can erode your returns when held for the long term. Spot ETFs are usually cheaper.

Liquidity: Choose those with high trading volume, otherwise you may not be able to sell at a good price when you want to.

Historical Performance: While past performance does not guarantee future results, it is possible to see the management quality and stability of this fund.

Your Risk Tolerance: BTC is highly volatile, and a 20% drop in a single day is quite normal. If your sleep quality depends on trading coins, I advise you to stay away.

Practical Operation: How to Buy

Opening an account: Choose a reliable broker (recommended mainstream brokers for US users, international users check if there are corresponding ETFs in their location)
Search for the code: Find the stock code of the ETF you want to buy (US BITO, BITI, etc., International BTCC, XBT, etc.)
Placing an Order: Just like buying stocks, enter the code, quantity, and buying price, and you're done.
Hold: Don't worry about it, just let it sit in the account.

Bottom line

The ETF has transformed Bitcoin from a “geek toy” into an “asset allocation option”. It is friendly for both institutions and newcomers, and the risks are relatively controllable. But don't forget — although the form has changed, the volatility of the underlying asset (BTC) remains the same. Do your homework and choose according to your financial goals, and do not blindly FOMO.

Want to learn more? Check the regulatory policies in your area and the prospectus for specific ETFs.