Bitcoin spot vs. futures ETFs: Key differences explained

A Bitcoin exchange-traded fund (ETF) allows buyers to invest in Bitcoin without buying the actual asset. This investment method streamlines the buying process, enabling users to circumvent signing up for an exchange or dealing with crypto wallets. 

In traditional investing, an ETF is a form of investment that tracks the price of either an asset or a group of assets. ETFs represent an easy way to invest in multiple assets concurrently without actually holding said assets. 

In Bitcoin’s case, a Bitcoin ETF is an asset that simply tracks the price of Bitcoin. By investing in a Bitcoin ETF, users can still profit from Bitcoin’s gains without going through the process of acquiring Bitcoin, such as signing up for an exchange and going through various verification methods.

That said, the Bitcoin ETF, in and of itself, is quite limited. The first so-called Bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO), launched in October 2021. However, this ETF doesn’t invest directly in the asset, but in Bitcoin futures contracts as an alternative.

The majority of Bitcoin futures ETFs hold Bitcoin futures contracts. Futures contracts provide users the ability to bet on Bitcoin’s price, having them agree to buy or sell Bitcoin at a specific price on a set date. 

A Bitcoin futures ETF is an exchange-traded fund that owns Bitcoin futures contracts, which are an agreement in which one will buy or sell Bitcoin at a specified price on a pre-determined date. For example, when buying via the ProShares Bitcoin Strategy ETF, an investor is buying into a fund that holds futures contracts. However, the ETF ensures the user can avoid investing in futures themselves, and can instead trade BITO like they would a traditional stock.

Futures contracts are generally used for speculative or hedging purposes. Sure, one could simply just buy any amount of Bitcoin at any time without ProShares but a futures ETF ensures that users can invest in digital assets and Bitcoin futures contracts without inconveniencing themselves via exchanges.

This method also costs less in fees when compared to most crypto exchanges. However, a futures ETF doesn’t involve investing in Bitcoin at its spot price, which is why some enthusiasts might not consider the offering a “real” crypto adoption.

Also, companies that offer a Bitcoin futures ETF may charge annual fees, which can leave many wanting an alternative ETF option in which to invest.

A spot Bitcoin ETF provides the same streamlined investment capabilities as a Bitcoin futures ETF, but it only allows users to invest at Bitcoin’s spot price rather than a future value.

A spot Bitcoin ETF brings all the benefits of a futures ETF, such as investing in Bitcoin without using an exchange, paying less in fees than on a crypto exchange, and streamlining the process overall. But a spot ETF invests in Bitcoin on the spot.

That’s right, a spot ETF invests in Bitcoin at its spot price, meaning buyers will be holding Bitcoin within the fund, similar to buying a stock. Enthusiasts view a spot ETF as a more legitimate method of investment because a spot ETF involves holding Bitcoin. 

However, as of now, there’s no such thing as an actual Bitcoin spot ETF due to the industry’s nascent nature. Crypto industry pundits often fight for a firm to establish a Bitcoin spot ETF as they believe that markets will take Bitcoin seriously after a spot ETF has been established.

The Bitcoin spot ETF does not yet exist, with crypto companies proposing various concepts to the Securities and Exchange Commission (SEC) over the years. However, a few companies have legitimized the Bitcoin futures ETF. 

Crypto companies have fought to legitimize a Bitcoin spot ETF in the United States for years, but the SEC has yet to give in despite its recent two allegedly “crypto-positive” chairmen. 

For instance, Jay Clayton, who was head of the SEC from May 4, 2017, to December 23, 2020, is a fan of Bitcoin as a store of value. However, no proposal convinced Clayton that a Bitcoin ETF of any kind was ready. That said, BITO is registered under the Investment Company Act of 1940, meaning it does not require explicit approval from the SEC in order to commence operations.

Either way, Clayton’s successor, Gary Gensler, approved ProShares’ BITO. Other ETF proposals, including those from Valkyrie and Van Eck, have also seen approval. That said, one company, Grayscale, might be the first to implement a Bitcoin spot ETF.

Grayscale, which holds the world’s only SEC-approved, publicly-traded Grayscale Bitcoin Trust (GBTC), proposed its Bitcoin spot ETF to the SEC in 2016. The group shortly withdrew its application in 2017 due to a stalemate in the conversation. Similar to BITO, however, GBTC does not explicitly need SEC approval to commence operations. Rather, GBTC is now offered to accredited investors, and shares may be traded over the counter after a defined holding period. 

As of March 2022, Grayscale remains committed to converting GBTC to the world’s first Bitcoin spot ETF, even threatening to sue the SEC if its latest attempts don’t go through. In opposition, the SEC claims that market manipulation is its largest holdup to a Bitcoin spot ETF approval.

Bitcoin spot ETFs and Bitcoin futures ETFs both have their pros and cons.

While spot Bitcoin ETFs are certainly more “legitimate” than Bitcoin futures ETFs as they involve actually buying Bitcoin, it’s hard to say which is better.

After all, a Bitcoin futures ETF might not involve buying in at Bitcoin’s spot price, but it streamlines the buying process and allows investors to bet on the market whether they choose to short it or otherwise. In that same vein, some Bitcoin futures ETFs struggle to accurately track Bitcoin’s price, and many charge annual fees. BITO, on the other hand, has accurately tracked the price of Bitcoin futures since its inception.

Conversely, a Bitcoin spot ETF, according to many Bitcoin enthusiasts, will bring “legitimacy” to the asset as it’s allowing users to invest in Bitcoin without actually holding it — and doing so at Bitcoin’s actual price point.

There are various companies offering Bitcoin ETFs, and each is available on their own respective exchanges.

This article previously mentioned the ProShares BITO Bitcoin futures ETF, which currently holds around $1 billion in investments. BITO is listed on the New York Stock Exchange (NYSE Arca). 

Another Bitcoin ETF is the Valkyrie Bitcoin Strategy ETF. Also offering Bitcoin futures ETFs, Valkyrie is listed on Nasdaq with the BTF ticker. Then, we have the VanEck Bitcoin Strategy ETF. Providing users with exposure to Bitcoin futures ETFs, the VanEck Bitcoin Strategy ETF is listed on the CBOE exchange with the XBTF ticker.

There are currently only these three Bitcoin futures ETFs listed on the market: BITO, BTF, and XBTF. Which ETF is best is up to the user, of course, as they’re available on different exchanges, which can vary in rates.