What is a Bitcoin (BTC) ETF?

A Bitcoin ETF is an exchange-traded fund designed to track the price performance of Bitcoin. It is a fund that is listed on an exchange, allowing investors to gain exposure to Bitcoin-related investment returns by buying and selling fund shares. Bitcoin ETFs typically achieve tracking of Bitcoin prices through holding Bitcoin itself or Bitcoin-related derivatives.

Compared to directly buying and holding Bitcoin, Bitcoin ETFs offer a more convenient, liquid, and accessible investment vehicle, enabling investors to participate in Bitcoin investment within traditional financial markets. There are two main types of Bitcoin ETFs that people are primarily concerned with: Bitcoin Spot ETFs and Bitcoin Futures ETFs.

What is a Bitcoin (BTC) Spot ETF?

Unlike traditional Bitcoin ETFs, a Bitcoin Spot ETF is an exchange-traded fund that directly holds actual Bitcoin as its underlying asset. However, investors themselves do not personally hold the Bitcoin, and the ETF's share price closely correlates with the Bitcoin market price. This means that investors can indirectly participate in the volatility of the Bitcoin market by buying and selling shares of the Bitcoin Spot ETF.

For example, let's say there is a Bitcoin Spot ETF called "BTC-Alpha." Assume BTC-Alpha holds 10,000 Bitcoins and has issued 1 million shares. Based on this assumption, each share of BTC-Alpha represents 0.01 Bitcoins.

Now, suppose the current market price of Bitcoin is $50,000 per coin. Based on BTC-Alpha's holdings and issuance, the theoretical value per share of BTC-Alpha can be calculated as $500 (0.01 Bitcoins × $50,000/coin).

Therefore, the performance of BTC-Alpha directly correlates with the real-time value of the held Bitcoins. If the price of Bitcoin rises to $55,000 per coin, the theoretical value per share of BTC-Alpha would correspondingly increase to $550 (0.01 Bitcoins × $55,000/coin).

Advantages and Risks of Bitcoin (BTC) Spot ETF

Differences between Bitcoin (BTC) Spot ETF and Bitcoin Futures ETF

· What is a Bitcoin (BTC) Futures ETF?

A Bitcoin Futures ETF is a type of exchange-traded fund that does not directly hold Bitcoin but allows investors to buy or sell Bitcoin at a predetermined price on a future date. The Bitcoin Futures ETF purchases and holds these futures contracts and determines its investment returns based on the price movements of the contracts. Investors can participate in the Bitcoin futures market by buying and selling shares of the Bitcoin Futures ETF without directly trading the actual futures contracts.

For example, let's assume "BTCFutures" is a Bitcoin Futures ETF established and managed by a financial institution. It plans to purchase 1,000 Bitcoin futures contracts, with each contract representing the right to buy one Bitcoin at a price of $60,000 six months later.

To raise funds for the purchase of the contracts, "BTCFutures" issues 100 million shares, with each share representing ownership of the potential profit (or loss) from these futures contracts. This means that each share represents ownership of 0.0001 of each futures contract.

Investors can purchase shares of "BTCFutures" on a regular securities exchange, just like buying shares of other companies. If the market believes that the price of Bitcoin will be significantly higher than $60,000 after six months, these shares may trade at a premium. Conversely, if the market is pessimistic, these shares may trade at a discount.

Let's assume the trading price of "BTCFutures" is $15 per share. An investor who believes that the price of Bitcoin will rise in the next six months spends $10,000 to purchase 1,000 shares of the stock. After six months, if the futures contracts are profitable, the value of the "BTCFutures" shares is likely to increase. If the investor's judgment is correct and the price per share rises to $18, the investment is now worth $18,000, resulting in a net profit of $3,000.

Similar to the example above, a Bitcoin Futures ETF provides an indirect way to participate in the Bitcoin futures market, where investors can invest by purchasing ETF shares without directly trading the actual futures contracts. Investors should understand the operational mechanisms, risks, and potential returns of the ETF and make informed decisions based on their investment goals and risk tolerance.

· The main differences between Bitcoin Spot ETF and  Bitcoin Futures ETF 

Asia's First: 6 Bitcoin Spot ETFs Approved by the Hong Kong Securities and Futures Commission

This marks the first introduction of virtual asset products in the Asian market, with the Ethereum Spot ETF being one of the first globally. The aim is to provide investors with investment returns closely correlated to the spot prices of Bitcoin and Ethereum (net of fees and expenses).