Bitcoin ETFs – The Basics Explained

Unlocking the potential of cryptocurrency investments, Bitcoin ETFs have recently catapulted the price of Bitcoin and other cryptocurrencies to new highs.

First and foremost, what are ETFs? ETF stands for Exchange Traded Fund. Simply put, An ETF is like a stock that pools investments and can be easily bought and sold. ETFs are like mutual funds but unlike mutual funds, which trade only once a day after the market closes, an ETF offers continuous trading throughout the trading day. ETFs are available for different assets, which may range from different types of commodities to currencies.

Bitcoin ETFs are not traded on cryptocurrency exchanges but rather on traditional or conventional market exchanges. The price of a Bitcoin Exchange Traded Fund is interlinked to the price of Bitcoin itself. If the price of Bitcoin goes up, then so does the price of the Bitcoin ETF.

Why Bitcoin ETF scores over Bitcoin

  1. Accessibility- Bitcoin ETFs allow the traditional investors of the market to invest or gain exposure to the cryptocurrency without having to buy the cryptocurrency itself.
  2. Regulated Investment- Bitcoin ETFs adhere to and operate within the already existing financial regulations, which offers a sense of security to the investors concerned with the unregulated nature of cryptocurrency exchanges.
  3. Diversification-Bitcoin ETFs allow the investors to diversify their portfolio furthermore by allowing them to gain exposure to the cryptocurrency market without having to invest in Bitcoins.
  4. Convenience- Investors can buy and sell Bitcoin ETFs through their regular brokerage accounts, which eliminates the need of managing digital wallets as well as having to deal with cryptocurrency exchanges. This makes it much easier for the new investors to invest in Bitcoin ETFs.


Risks of buying into Bitcoin ETFs

  1. Market Volatility-The inherent volatile nature of Bitcoin can lead to significant fluctuations in the value of Bitcoin ETFs as well.
  2. Management Fees- Bitcoins typically charge a specific amount as management fees. This can eat into investor’s returns over time.
  3. Limited Exposure-Some ETFs may not accurately provide exposure to Bitcoin’s price movements, or they may have some other limitations in their investing strategies, which may have an impact on their effectiveness.

How You Can Invest in Bitcoin ETFs from India

People living in India that want to invest in ETFs can do so by following the Liberalized Remittance Scheme (LRS) route. Under this scheme, an individual is allowed to send a maximum of $250,000 in a year to an overseas jurisdiction.

Indian investors who have accounts in platforms that allow for investing in foreign exchanges such as the NYSE or Nasdaq can invest in Bitcoin ETFs from their accounts.

Here is the Forbes list of five Bitcoin ETFs in March 2024:

  1. Grayscale Bitcoin Trust (GBTC)
  2. iShares Bitcoin Trust ETF (IBIT)
  3. Invesco Galaxy Bitcoin ETF (BTCO)
  4. Bitwise Bitcoin ETF (BITB)
  5. Proshares Bitcoin Strategy ETF(BITO)

It is strongly advised to investors that before investing in any Bitcoin ETF, they should do their own research about where they are putting their money into and only then should they invest their money.

Caution: Bitcoin and other cryptocurrencies and all derivatives and funds based on them can be highly volatile and investors may lose all of their investment.

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