With Bitcoin’s popularity reaching new heights, investing in it has become a goal for many. But if handling cryptocurrency directly feels complex, there’s a simpler alternative on the scene: the iShares Bitcoin Trust ETF (NASDAQ: IBIT).
Approved by the SEC this year, this ETF brings Bitcoin Investing and ETF Trading into one streamlined option, making it as straightforward as buying a stock. However, there’s more to it than meets the eye. Before jumping in, here are three key insights every crypto investor should know about this unique ETF.
1. Accurate Tracking of Bitcoin’s Market Price
The iShares Bitcoin Trust is what’s known as a “spot” Bitcoin ETF. This simply means it buys Bitcoin directly from the open market, making it distinct from older Bitcoin ETFs that relied on derivatives like futures contracts. Derivative-based ETFs can sometimes stray from Bitcoin’s actual price because futures contracts involve projecting future values, which may not match real-time market prices.
The iShares Bitcoin Trust aims to follow Bitcoin’s price more closely by holding actual Bitcoin assets. Since its launch on January 12, 2024, this ETF has mirrored Bitcoin’s price closely: Bitcoin has increased by 77%, and the iShares Bitcoin Trust has risen 75%—a nearly direct match. This close tracking provides a straightforward way for investors to participate in Bitcoin’s market performance without directly holding it.
2. A New Benchmark for the Crypto Market
The iShares Bitcoin Trust isn’t just another Bitcoin ETF; it’s now the most widely used and biggest of the recent spot Bitcoin ETFs. In less than a year, it has attracted more than $17 billion in assets, representing roughly 1% of all Bitcoin in circulation. This scale has given it a new role in the market as a benchmark for investor sentiment toward Bitcoin and crypto in general.
The trust’s trading activity and fund flows (money moving in and out of the ETF) can indicate broader market sentiment. For example, as the 2024 U.S. presidential election approached, investors kept a close eye on fund flows as a barometer of crypto market confidence. On Election Day alone, the iShares Bitcoin Trust recorded over $4 billion in trading volume—a single-day record for this ETF. Watching these fund flows can give investors insight into the general mood of the market, with high inflows suggesting positive sentiment and outflows indicating caution or uncertainty.
3. Indirect Ownership of Bitcoin
When you invest in the iShares Bitcoin Trust, you’re not actually buying Bitcoin directly. Instead, you’re buying shares in an ETF that holds Bitcoin on your behalf. BlackRock (NYSE: BLK), the company managing this ETF, holds the Bitcoin, and you own shares in the trust, similar to how S&P 500 ETF investors hold shares representing the index rather than the actual stocks.
This distinction might seem minor, but it’s worth understanding. Since you don’t directly own Bitcoin, you can’t use it as a currency in transactions or purchases. If you wanted to spend Bitcoin, for example, you would need to sell your ETF shares, convert them to cash, and then make the purchase. On the other hand, directly holding Bitcoin provides flexibility to use it as currency. So, for investors who view Bitcoin as both an asset and a possible means of payment, direct ownership might be more appealing.
Which is Better: Buying Bitcoin or the iShares Bitcoin Trust?
A common question investors have is whether they should buy Bitcoin directly or invest in the iShares Bitcoin Trust. Long-time crypto enthusiasts often prefer direct ownership of Bitcoin because it allows them full control over the asset. They can transfer, store, or use it as they wish. However, for newcomers or those who want an easier entry into the market, the iShares Bitcoin Trust offers a simple and accessible alternative.
Since its introduction, the iShares Bitcoin Trust has simplified Bitcoin investing, enabling anyone to track Bitcoin’s performance almost exactly, without having to directly buy or hold the cryptocurrency. It also makes it easier to buy or sell shares within traditional brokerage accounts, keeping transactions straightforward for those who prefer a traditional investment setup.
In summary, the iShares Bitcoin Trust ETF presents an option for investors looking for Bitcoin exposure through a familiar investment format. For some, this fund’s indirect ownership of Bitcoin may be a benefit, as it bypasses the complexities of managing digital assets.
For others, direct ownership might better match their goals if they wish to hold and use Bitcoin as currency. Regardless of approach, the ETF’s entry into the market has made Bitcoin more accessible to investors of all experience levels, offering a simpler way to engage with the crypto market.