The cryptocurrency market is currently worth $1.6 trillion, and Bitcoin (BTC -0.21%) accounts for 50% of that total. Bitcoin dominance (i.e., the market value attributable to Bitcoin) was also 50% five years ago, though it has ranged from 38% to 70% during that time period.
With that in mind, Morningstar analyst Michael Miller expects the cryptocurrency market to soar 300% to $6.4 trillion by 2032. If Bitcoin dominance stays at 50%, the implied upside for Bitcoin would also be 300%. Alternatively, the implied upside would be closer to 200% if Bitcoin dominance slipped to 38%, and the implied upside would be closer 460% if Bitcoin dominance increased to 70%.
Regardless, cryptocurrency bulls have good reason to invest in Bitcoin, and that can be done in a few ways. The most obvious method is a cryptocurrency exchange like Coinbase (COIN -1.32%). But creating and managing an account may be a headache, especially for investors with existing brokerage accounts.
Fortunately, a new type of investment product eliminates that friction: spot Bitcoin ETFs.
CRYPTO: BTC
Key Data Points
Spot Bitcoin ETFs reduce friction for investors
Earlier this month, the U.S. Securities and Exchange Commission (SEC) approved 11 spot Bitcoin ETFs, funds that track the price of Bitcoin. That landmark decision could draw more retail and institutional investors to the market, and the influx of capital could drive the price of Bitcoin much higher in the years ahead.
Spot Bitcoin ETFs are particularly attractive because they eliminate the headache of managing multiple accounts. Investors no longer need to buy Bitcoin through a specialized exchange, nor do they have to worry about storing the cryptocurrency with a blockchain wallet. Instead, spot Bitcoin ETFs make it possible to add Bitcoin exposure to existing brokerage accounts. That convenience is why spot Bitcoin ETFs could drive the price of the cryptocurrency higher.
For context, analysts at Bernstein believe the price per Bitcoin could reach $150,000 by 2025, implying 252% upside from its current price of $42,600. Similarly, analysts at Standard Chartered Bank believe the price per Bitcoin could reach $200,000 by 2025, implying 369% upside.
The best (and worst) spot Bitcoin ETFs
Generally speaking, all spot Bitcoin ETFs do the same thing. They purchase Bitcoin from a cryptocurrency exchange (often Coinbase), divide the Bitcoin into shares, and sell those shares on the stock market. In other words, this is not a situation where a team of experienced asset managers could create substantial value for fund holders by trading the right securities at the right times.
For that reason, buy-and-hold investors should focus on fees or expense ratios. As mentioned, the SEC has approved 11 spot Bitcoin ETFs, but fees vary widely between certain funds, as detailed below:
- Bitwise Bitcoin ETF Trust (BITB -0.13%): 0.20%
- Ark 21Shares Bitcoin ETF (ARKB -0.07%): 0.21%
- Fidelity Wise Origin Bitcoin Fund (FBTC -0.09%): 0.25%
- iShares Bitcoin Trust (IBIT -0.14%): 0.25%
- Valkyrie Bitcoin Fund (BRRR -0.17%): 0.25%
- VanEck Bitcoin Trust (HODL -0.17%): 0.25%
- Franklin Templeton Digital Trust (EZBC -0.16%): 0.29%
- WisdomTree Bitcoin Trust (BTCW -0.03%): 0.3%
- Invesco Galaxy Bitcoin ETF (BATS-CHIXE: BTCO): 0.39%
- Hashdex Bitcoin ETF (DEFI +0.00%): 0.94%
- Grayscale Bitcoin Trust (GBTC -0.14%): 1.5%
Personally, I would eliminate the bottom half of that list based on fees alone, and none more so than the Grayscale Bitcoin Trust. There is simply no reason to pay 1.5% for an ETF -- that means investors would pay $15 annually on every $1,000 invested -- when an identical product could be purchased for a fraction of that cost.
Next, I would consider the issuer behind the ETF. Several funds listed above are run by asset managers with plenty of experience, including Ark Invest and Fidelity. But the iShares Bitcoin Trust would be my top choice, because the fund is run by BlackRock, the largest asset manager in the world.
To be clear, the issuer should matter very little, but ETFs run by larger asset managers may be less prone to liquidity problems arising from insufficient demand. For instance, the iShares Bitcoin Trust finished Jan. 18 at a 0.08% premium to its net asset value. That means investors are valuing the ETF at a 0.08% premium to the price of Bitcoin. That points to strong demand. Conversely, the Grayscale Bitcoin Trust traded at a 0.27% discount to its net asset value, which hints at weaker demand.
Here's the bottom line: I would avoid spot Bitcoin ETFs with an expense ratio above 0.25%, and I would absolutely avoid the Grayscale Bitcoin Trust, simply because there are less expensive alternatives. Building on that, I would feel comfortable buying the spot Bitcoin ETFs run by Ark, BlackRock, and Fidelity, but the iShares Bitcoin Trust would be my first choice.
