With the approval of the first Bitcoin ETFs in early 2024, investors can now gain exposure to Bitcoin without directly holding the cryptocurrency. Dozens of exchange-traded funds (ETFs) investing in Bitcoin and related assets are available on the market. However, not all Bitcoin ETFs are created equal—investors should choose products that align with their investment goals and risk tolerance.
For instance, the following two Bitcoin ETFs may suit most investors, while the last one should be avoided at all costs.
The first recommendation is a spot Bitcoin ETF. The six largest Bitcoin ETFs fall into this category, holding Bitcoin directly to track its price performance (net of management fees). Among them, the iShares Bitcoin Trust (IBIT), with $84 billion in assets, stands out for holding Bitcoin as its sole asset. It boasts a low expense ratio of 0.25%, meaning investors pay $2.50 in fees for every $1,000 invested. Compared to other spot Bitcoin ETFs with expense ratios as high as 1.5% or more, this cost-efficient option helps minimize the long-term erosion of returns.
Another ETF worth considering is the ARK Next Generation Internet ETF (ARKW). This actively managed fund, overseen by Cathie Wood, holds $2.35 billion in assets.
While only 6.4% of its portfolio is directly allocated to Bitcoin, the fund focuses on modern technology infrastructure. Its investment strategy includes companies operating in cryptocurrencies, digital wallets, and smart contracts. Besides Bitcoin, its top holdings leading crypto exchange Coinbase, trading platform Robinhood, and stablecoin firm Circle Internet Group. With an expense ratio of 0.82%, it is higher than pure-play Bitcoin ETFs but remains average among actively managed funds.
On the other hand, leveraged Bitcoin ETFs should be strictly avoided. These products use derivatives to amplify Bitcoin’s daily price movements, aiming to deliver twice its daily return.
While this may sound appealing, these ETFs are designed for short-term trading, not long-term holding. For example, while Bitcoin has gained 18% year-to-date, a popular leveraged Bitcoin ETF has risen only 1%. The mathematics of daily resets and high expense ratios—sometimes nearing 2%—make them unsuitable for buy-and-hold investors. These products are best left to day traders and professionals. For ordinary investors seeking Bitcoin exposure, spot Bitcoin ETFs or equities of crypto-related companies are wiser choices.
