Bitcoin ETF Strategy Explained – Full Guide

BTC ETF Strategy explained

Key Takeaways: 

  • The first Bitcoin ETF sweeps Wall Street with a record high trading volume 
  • Analysts point growing adoption of crypto will accelerate in 2022  

First Bitcoin ETF Lands on Wall Street

After years of waiting, the first Bitcoin exchange-traded fund (ETF) arrived to the US in late October 2021. The Bitcoin Strategy ETF, with a ticker BITO, received a warm welcome from Wall Street as it smashed trading debut records.  

In other words, the Bitcoin ETF became the fastest ETF to hit $1 billion in assets under management. It did so in just two days. The strong upside swing highlighted the increasing investor appetite for bitcoin and cryptocurrency products.  

Moreover, the fund, packaged by ProShares, gathered inflows of nearly $600 billion on its first trading day. By the end of the second day, the ETF had accumulated a staggering $1.2 billion in trading volume.  

What is a Bitcoin ETF?

So, what exactly is a Bitcoin ETF? First, let’s take a look at what is an ETF. An exchange-traded fund, ETF for short, is essentially a basket of securities, that tracks the underlying asset’s price. It could track the performance of a single asset or multiple assets. More importantly, an ETF allows investors to hold a derivative, such as futures contracts, instead of owning the underlying asset outright.  

Such is the case with the current Bitcoin ETFs trading on Wall Street. When investors purchase shares of BITO, for example, what they own is not actual bitcoin. Instead, they own a bundle of futures contracts tied to the price of bitcoin.  

Advantages of a Bitcoin ETF

  1. It’s convenient.  

Both new retail traders and experienced Wall Street professionals can get exposure to bitcoin’s price through a Bitcoin ETF. Owning shares of an exchange-traded fund tied to bitcoin takes away the stress of having to sign up for a crypto exchange. Also, you don’t deal with the technicalities of a bitcoin wallet on the blockchain. 

       2. It’s diversification. 

A Bitcoin ETF allows you to diversify your portfolio. Depending on what’s in it, you can expect to reduce your total risk as you balance your portfolio.  

        3. It’s regulated. 

One of the main differences between Bitcoin and a Bitcoin ETF is regulation. Bitcoin operates more or less in a legal gray area as it’s not regulated in many countries, including the US. While it’s been recognized by financial watchdogs, bitcoin is yet to get a green light and enter traditional markets.  

A Bitcoin ETF, on the other hand, is a fully-compliant and regulated financial asset. That means institutional investors can own it and banks can offer it to clients. 

Investing in Bitcoin vs BTC ETF

On that note, investors need to know how investing in Bitcoin differs from a Bitcoin ETF investment. First, these are two entirely different financial products, or assets. In more detail, bitcoin is the world’s first cryptocurrency. It was invented by a pseudonymous creator called Satoshi Nakamoto.  

A single bitcoin in January 2022 would set you back about $48,000. Also, bitcoin operates on what’s called a blockchain, a decentralized peer-to-peer computer network. When an investor purchases bitcoin, he adds to the market capitalization of the coin. Presently, the total worth of bitcoin is about $900 billion.  

At its highest point, however, bitcoin was valued at more than $1.3 trillion with a price per coin of $69,000. With this in mind, you don’t have to get a whole bitcoin at once. You can purchase a fraction worth only a few dollars. 

Owning Bitcoin ETF Shares

On the flip side, owning shares in a Bitcoin ETF gives you a specific number of futures contracts. Depending on the volume of your purchase, you can own as many as you want, provided your broker could sell you the amount.  

As we mentioned earlier, investors in a BTC ETF do not own genuine bitcoin. What they get is futures contracts that allow them to speculate with the price of bitcoin. At the current time, this is the only way Wall Street investors could get exposure to the red-hot cryptocurrency market.  

This is because financial regulators, like the US Securities and Exchange Commission, have not yet allowed actual bitcoin to trade in regulated markets.  

To this end, however, some countries like Canada have allowed ETFs holding actual bitcoin to trade on their stock markets. The US, analysts say, is close to accepting its first real Bitcoin ETF and market participants expect this to happen in 2022. 

How to invest in a Bitcoin ETF?

Investing in a Bitcoin ETF happens by purchasing shares from a liquidity provider, or a broker. On that front, you can check whether your broker is offering shares of BITO. If that is the case, you can go ahead and directly buy as many as you want using your brokerage account. 


It’s worth noting that the enthusiasm around a Bitcoin ETF product on Wall Street is propelled by the neck-breaking rally in Bitcoin. This said, a Bitcoin ETF is impossible to function without bitcoin as the underlying asset. The futures markets, in essence, is a derivatives market, meaning it’s based on other financial products.  

Against this backdrop, bitcoin had its most progressive year in terms of global adoption and popularity. In practice, the original cryptocurrency gained about 65% over the past twelve months. More importantly, it landed for trading on the Wall Street stock exchange through a bitcoin ETF based on the future price of bitcoin. 

Also, bitcoin was adopted as legal tender in El Salvador. Now, Salvadorans could use their coins to purchase anything from coffee to land. In addition, regulatory agencies presented a largely accommodative stance toward bitcoin. More precisely, US regulators said they have no intention to ban bitcoin or crypto.  

In conclusion, the arrival of a Bitcoin ETF marked the successful junction between traditional markets and the looming cryptocurrency space. This trend is expected to continue into 2022. 



What is a bitcoin ETF?

A bitcoin ETF is a financial product traded on the stock exchange. The ETF holds futures contracts tied to the price of bitcoin. A bitcoin ETF based on futures allows you to own a bundle of futures contracts, but not actual bitcoin. There are, however, bitcoin ETFs that hold actual bitcoin, but not in the US. Presently, there are only futures-based Bitcoin ETFs trading on Wall Street. 

How does a bitcoin ETF work?

The way a bitcoin ETF works is it allows you to purchase shares from it and speculate with the future price of bitcoin. Essentially, by buying shares from the BTC ETF, you get yourself futures contracts on the price of bitcoin. Bitcoin ETFs are traded on the stock market, such as the New York Stock Exchange. A Bitcoin ETF tracks the price of its underlying asset, bitcoin. 

What are the benefits of a bitcoin ETF?

There are several benefits of a bitcoin ETF. Among them, convenience, diversification, and regulation. Buying a BTC ETF is easy as it happens on traditional markets. This way, you can get exposure to bitcoin’s price through an exchange-traded fund. Also, buying a BTC ETF gives your portfolio some needed diversification. This guarantees you another financial instrument that will bring you good returns if price performs well. And finally, a Bitcoin ETF is a regulated trading asset that could be offered across brokerages and banks. Due to the regulated nature of it, institutional investors could also offer it to their clients. To this end, demand for bitcoin and crypto-related products has been booming and is expected to continue growing. 

Previous Lesson Tips on What to Look Out for When Investing Next Lesson What is cryptocurrency? A Beginner’s Guide