New bitcoin ETFs bring crypto investments to stock market
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Investments tracking cryptocurrency — also known as crypto — recently became available for trading on the U.S. stock market. The Securities Exchange Commission (SEC) approved several exchange-traded funds (ETFs) that hold bitcoin, which is the world’s largest cryptocurrency. This news brings a timely opportunity to teach kids and teens about investing in the stock market and to demystify the ‘cryptic’ world of crypto and new bitcoin ETFs.
They’re called spot bitcoin ETFs because they represent the “spot price” or current price of bitcoin instead of a future price. They allow investors to trade shares of bitcoin using stock exchanges instead of having to use crypto exchanges.
This makes crypto more accessible for everyday retail investors, and for kids and teens learning to invest with Greenlight. Many of these bitcoin ETFs are available inside the Greenlight app, making it a perfect time to learn as a family about the crypto asset class, the recent bitcoin ETF approval, and all the things to consider when it comes to making smart investment choices, such as doing your research and understanding the risk.
What is crypto?
A cryptocurrency is a digital asset that is secured by cryptography. They use software-encrypted “virtual coins” instead of physical coins or paper bills. It’s a form of currency since you can use it to make transactions with some online wallets or mobile apps. Bitcoin is the largest and one of the most well known cryptocurrencies. And it also was the first.
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How does crypto work?
Crypto has advanced security features to protect against things like counterfeiting or theft. In the digital world, things can be copied quickly and infinitely. Think of an internet meme that gets copied over and over and shared around the world. Assets like money have value because of scarcity. Crypto uses technology to create a digital ledger called a blockchain, which is a connected record of independently verified transactions, to make sure that each coin can’t be copied and can’t be spent more than once.
Where is crypto stored?
The blockchain is decentralized, so no one person or party can control it. That means no one can unilaterally change the rules or the amount of crypto that exists, but there’s also no bank or government to call if something bad happens. Crypto exchanges allow people to buy, sell, and store crypto. One example is Coinbase — a publicly traded company in the U.S. It’s listed as a custodian for a majority of the new ETFs, which means that it will be responsible for the security of the bitcoin ETF’s holdings.
Is crypto volatile?
Crypto has had extreme ups and downs. According to Morningstar, the fluctuation of returns over the past five years is nearly 4 times the U.S. stock market’s. For example, there was a $40,000 change in Bitcoin’s price in 2021, with a low around $29,000 and a high around $69,000.
What does SEC regulation mean?
The Securities Exchange Commission has rules to prevent fraud and manipulation, and it requires that there is full, fair, and truthful disclosure about investment products. The SEC will monitor and enforce rules about trading of the bitcoin ETFs. However, the SEC does not regulate bitcoin nor other cryptocurrencies that aren’t considered securities.
What does the SEC want you to know?
The Securities Exchange Commission doesn’t approve or endorse bitcoin itself, which is the underlying asset of spot bitcoin ETFs. In their statement announcing the spot bitcoin ETF approval, they strongly recommended caution when it comes to bitcoin and other crypto products.
Why are there different funds?
Different asset managers – like BlackRock, Fidelity, Invesco and others – are offering spot bitcoin ETFs. Each ETF will hold a certain amount of bitcoin, based on the number of shares it creates, and charge set fees for the transactions and management. Since all the bitcoin ETFs are based on the price of bitcoin itself, a main difference between them will be in what fees are charged.
What are the fees?
Like with any ETF, it’s important to know the expense ratio – the percentage of your investment that you will pay each year for its management. A higher expense ratio reduces your return more. The new bitcoin ETFs range from a low of 0.20% for Bitwise Bitcoin ETF up to 1.5% for the Grayscale Bitcoin Trust. The majority are 0.30% or below.
Will the fees change?
Several of the spot bitcoin ETFs are offering a 0% expense ratio for a limited time, such as for six months, so make sure to know how the expense ratio will change after the initial introduction and fee waivers.
How do I learn more about bitcoin ETFs?
Bitcoin ETFs are now available in Greenlight. As your kids and teens propose investments, remind them to always do their research, understand their risk tolerance, and consider what value their investment may have in the future.
Bitcoin is a speculative asset, in part because it’s not based on something with fundamental value, like dividends you may receive from a stock or interest income from a bond. Its price has changed mostly based on supply and demand, which makes it difficult to predict how prices will change.
Bitcoin bulls, who believe bitcoin will increase in value, argue that because there will only ever be 21 million bitcoin in existence, its value should grow over time as a more convenient store of value than gold.
Bitcoin bears, who believe bitcoin will decrease in value, argue that because the cryptocurrency is a digital creation that is not based on something with fundamental value, it is doomed to fall in value.
For families curious to learn more about spot bitcoin exchange-traded funds, Greenlight offers several that you can explore in the investing section of the app. Below is a full list of spot bitcoin ETFs available in Greenlight, including the ticker symbols that you can search. Since they only opened in January 2024, past performance and similar information will not yet be available.
ARK 21Shares Bitcoin ETF (ARKB)
Bitwise Bitcoin ETP Trust (BITB)
Fidelity Wise Origin Bitcoin Trust (FBTC)
Franklin Bitcoin ETF (EZBC)
Hashdex Bitcoin ETF (DEFI)
Invesco Galaxy Bitcoin ETF (BTCO)
iShares Bitcoin Trust (IBIT)
Valkyrie Bitcoin Fund (BRRR)
VanEck Bitcoin Trust (HODL)
WisdomTree Bitcoin Trust (BTCW)
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