In a historic decision, the Securities and Exchange Commission (SEC) approved 11 applications to create a spot Bitcoin exchange-traded fund (ETF) on Jan. 10. Sponsored by high-profile investment firms including BlackRock, Fidelity, Invesco, Ark Invest, and several others, these ETFs allow investors to gain exposure to Bitcoin without having to directly buy and hold the cryptocurrency.
All of the ETFs accomplish the same goal, but they do so with some minor -- yet important -- differences. For investors looking to add some Bitcoin (BTC +0.28%) exposure to portfolios, here are the ones I'd consider.
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NYSEMKT: BITB
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1. Bitwise
No. 1 on the list of candidates is Bitwise. Known for offering innovative crypto-related financial products like its Web3 Index Fund and Bitwise 10 Crypto Fund, Bitwise has become a leader in blending cryptocurrencies with traditional finance.
Already well-versed in the crypto world, Bitwise naturally jumped at the opportunity to join the spot Bitcoin ETF race, and it might be winning. Bitwise's Bitcoin ETF (BITB +1.02%) offers the cheapest exposure to Bitcoin since it has waived all management fees. This does come with a stipulation, however.
Once the ETF has reached $1 billion in assets under management or six months have passed, a 0.2% fee will be tacked on. Even once this waiver passes, Bitwise will still have the lowest fees on the market.
Furthermore, Bitwise gets some kudos because it plans on donating 10% of profits to fund the development of Bitcoin. Given its roots in crypto, low fees, and dedication to Bitcoin philanthropy, Bitwise should be the top choice for investors.
NYSEMKT: FBTC
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2. Fidelity
Coming in at No. 2 on the list is Fidelity with its Wise Origin Bitcoin Fund (FBTC +1.00%). As one of the first asset managers to test the crypto waters, Fidelity boasts a proven track record in traditional finance and experience with digital assets.
As a testament to its embrace of crypto, the company began mining Bitcoin in 2014. By 2018, it launched its own institutional crypto-custody service. And in March 2023, Fidelity unveiled a cryptocurrency exchange.
Being the third-largest asset manager in the world and with more than 80 years of experience in the finance sector, Fidelity's familiarity with crypto is rare. With this knowledge, Fidelity crafted a one-of-a-kind Bitcoin ETF. Rather than opting to outsource custodial responsibilities to another company, Fidelity will serve as the sponsor and the custodian for the ETF. Beyond managing the fund and its records, in other words, Fidelity also handles the actual trading and safekeeping of Bitcoin assets while most of the new ETFs outsource that function.
By overseeing the management of the underlying Bitcoin assets, Fidelity can maintain control over the security infrastructure, operational processes, and risk management related to its Bitcoin holdings. While it doesn't offer a grace period during which fees are waived, the slightly higher fee of 0.25% seems worth it, knowing that the firm directly manages its Bitcoin.
NYSEMKT: HODL
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3. VanEck
Rounding out the list is VanEck's Bitcoin Trust (HODL +0.97%). Similar to Fidelity, the firm has proven experience in the crypto world. In 2021, it launched a Bitcoin Strategy ETF (a fund that tracks futures contracts and is less accurate than the new spot ETFs) as well as its Digital Transformation ETF, which holds dozens of companies at the forefront of crypto innovation.
VanEck stands out among the 11 approved spot ETFs for three reasons. First, it boasts one of the lowest-cost structures at just 0.25%. Second, before launch, the firm raised $72.5 million in initial capital, the most of any ETF issuer. With greater amounts of capital from the onset, this signals confidence from institutional investors in the ETF's investment strategy and potential. Not to mention, with more funds in the ETF, it could lead to lower fees in the future.
Last but not least, VanEck is promising 5% of the profits it makes to fund Bitcoin development. The company has been adamant that it is devoted to expanding Bitcoin's potential to become "the most important financial freedom technology of the internet age." A round of applause to VanEck.
A final note
Before buying any of these ETFs, I would implore readers to consider the differences between achieving Bitcoin exposure via the stock market versus actually owning Bitcoin itself. To own the actual Bitcoin, investors must purchase it off a cryptocurrency exchange like Coinbase Global.
In doing so, investors have direct ownership and control over their holdings, thereby increasing security as the Bitcoin can be sent to cold storage wallets. When choosing the ETF route, you entrust a third party to manage the underlying Bitcoin. Make sure that's what you want before making this leap.
