Bitcoin has had a phenomenal journey from a niche digital currency to a trillion-dollar asset class in a 15-year period.
The January 2024 approval of 11 spot bitcoin ETFs was a watershed moment, presenting investors with a gateway to being able to invest in bitcoin through their traditional investment accounts. We expect this will continue to boost broader investor adoption of bitcoin and attract investors who previously did not want to open a digital wallet or a digital asset custodial account. The approval of 11 products all at once can seem overwhelming, so the following guide can be used as a tool for investors who are interested in adding these types of investments to their portfolio.
Understanding spot bitcoin ETFs
An exchange-traded fund (ETF) is a type of pooled investment security that can be bought and sold much like an individual stock. The main difference between an ETF and a mutual fund is that though a mutual fund is also a pooled investment, it trades only once a day after markets close. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be designed to track specific investment strategies.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A spot bitcoin ETF is a breakthrough financial vehicle that tracks the current price of bitcoin, providing a simplified investment approach without the complications of direct ownership. In contrast to mutual funds that trade once at the end of the day, these ETFs operate similarly to stocks, allowing for real-time trading, adding flexibility to investment strategies.
Spot bitcoin ETFs operate by securing and holding actual bitcoin, stored in secure digital wallets by custodians. These custodians play a crucial role in safeguarding assets, employing sophisticated security measures such as cold storage to mitigate theft risks.
Bitcoin trades 24/7 throughout the world, but remember, the 11 spot products that were approved will trade only when markets are open, even though their underlying investment will be trading all of the time. For example, if you are looking at the spot price on a weekend, you will not see the ETF price changing until markets open the coming week.
A closer look at the approved spot bitcoin ETFs
The selection of SEC-approved spot bitcoin ETFs comes with various expense ratios and fees, tailored to meet different investment profiles. To entice investors, some offer limited-time fee waivers or reductions. Some of those ETFs include:
- ARK 21Shares Bitcoin ETF (ARKB). No fees for six months, until hitting $1 billion in assets.
- Fidelity Wise Origin Bitcoin Trust (FBTC). Fees waived until July 31, 2024.
- Franklin Bitcoin ETF (EZBC). No fees until August 2, 2024, or until reaching $10 billion in assets.
- Invesco Galaxy Bitcoin ETF (BTCO). Zero fees for the first six months, or until $5 billion in assets is accumulated.
- Others, including the Bitwise Bitcoin ETF (BITB) and the Grayscale Bitcoin Trust (GBTC), have opted not to offer fee waivers.
Investors should carefully consider all fees and terms before making investment decisions and do research or talk to a professional before choosing to invest. Since these products are designed to track the performance of spot bitcoin, we recommend not solely focusing on fees to make a decision on which one to buy. If the product is low-cost but doesn’t track very tightly to the performance of bitcoin, then you are incurring a “cost” in addition to the stated fee.
Risk assessment and considerations
Investors must carefully weigh the risks associated with spot bitcoin ETFs, including regulatory uncertainties, custody arrangements, fees and price volatility. This is still an emerging asset class and will likely have big price moves day-to-day that we don’t think can be timed.
If clients express interest in having bitcoin exposure, we will generally recommend about 1% to 2% of the portfolio to start. This allows investors to acclimate to the high volatility. We emphasize that even if bitcoin were to hit zero, with a 1% to 2% portfolio allocation, it would not significantly impact their overall portfolio return in the long run. With an asset that can move in short periods of time +100%, a small allocation will still provide benefits to overall performance of the entire portfolio. A little can go a long way with this type of investment.
If clients want to have the ability to move bitcoin to a wallet, they won’t be able to do that with an ETF. Some investors prefer to be able to control the token vs having it wrapped in an ETF with other investors. Think of it this way: You can buy a gold coin and store it on your own, or you can buy an ETF with gold as its sole holding.
If at any point there are unrealized losses that an investor wants to harvest for tax reasons, they are subject to abiding to the same wash sale rules of securities. If you sell the bitcoin ETF, the way the IRS rules are written, you have to stay out of it for 30 days if you want to book the loss on this transaction. Selling one spot bitcoin ETF and buying another that invests identically is likely going to be a violation of the wash sale rule.
It is unclear at this point how custodians will monitor this on investor 1099s and how it will be enforced. If they own the token directly and harvest it, they can buy it back immediately under current tax rules, which is a notable difference vs using an ETF.
A shift in sentiment
The approval of spot bitcoin ETFs signifies a significant shift in regulatory sentiment toward digital assets. While this marks a milestone, uncertainties remain regarding future approvals and regulatory developments.
As the digital asset landscape continues to evolve, informed decision-making remains paramount for navigating the complexities of this dynamic market. If you have interest in learning more, speak to your financial adviser about your risk tolerance with an investment like this and what place bitcoin may have in your portfolio.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
Related Content
- What Is Bitcoin Halving and Why Is It Important?
- Best Bitcoin and Crypto ETFs to Buy Now
- What's Behind the Bitcoin Rally?
- Three Common Mutual Fund Misconceptions Debunked
- Five Financial Strategies for High-Net-Worth Individuals
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
Giving Tuesday Is Just the Start: An Expert Guide to Keeping Your Charitable Giving Momentum Going All Year
Instead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard Personal Injury Lawyers
Uber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
A Financial Adviser's Health Journey Shows How the 'Pink Tax' Costs WomenFact: Women pay significantly more for health care over their lifetimes. But there are some things we can do to protect our health and our financial security.
-
I'm a Cross-Border Financial Adviser: 5 Things I Wish Americans Knew About Taxes Before Moving to PortugalMoving to Portugal might not be the clean financial break you expect due to U.S. tax obligations, foreign investment risks, lower investment yields and more.
-
Show of Hands: Who Hates Taxes? The Best Time to Plan for Them Is Right NowBy creating a tax plan, you can keep more of what you've earned and give less to Uncle Sam. Here's how you can follow the rules and pay only your fair share.
-
'Smart' Estate Planning Can Cause Huge Problems: An Expert Unravels Popular MythsSometimes no plan at all could be better than making these unfortunate mistakes. Don't let your best intentions mess things up for your heirs.
-
I'm a Financial Literacy Expert: Bubble-Wrapping Our Kids Robbed Them of Resilience. Now What?By raising them to think they're amazing no matter what and lifting them over obstacles, we left them unprepared to work in the real world.
-
I'm a Financial Planner: If You're a High Earner, You Need an 18-Month Safety NetNo job seems to be safe in this age of AI. If you make a larger-than-usual salary, then you need to have a larger-than-usual emergency fund. Here's why.
