The Best Bitcoin ETFs in the UK [2024]
Investing 101
Feb 5, 2024

The Best Bitcoin ETFs in the UK [2024]

Ever since the recent news of the first Bitcoin ETF being approved in the US, many investors are looking to see if the UK has any Bitcoin (BTC) ETFs that they can invest into; for the purpose of gaining exposure to the digital currency market. However, unlike the situation in the United States, the UK has yet to see the Financial Conduct Authority (FCA) endorse such financial instruments for this fascinating asset class, and this may be disappointing for many willing investors.

However, the good news is that UK investors still have similar ETF alternatives at their disposal; albeit ones that are less directly involved, or that use a different investment structuring. But for those who desperately want to be exposed to Bitcoin, this is currently the only way in which to do so until regulations become less stringent. 

This article will therefore seek to provide more clarity on the current situation for UK Bitcoin ETFs in 2024, and will provide an insight into what alternatives are currently available to UK investors. Let's get right into it! 

Understanding Bitcoin ETFs 

This may come as a surprise, but even though there is a lot of attention towards Bitcoin ETFs, many people are still not fully aware of what they are, and how they work. All they know is that these are financial instruments in high demand, and that they are bridging the gap between traditional finance, and the emerging digital asset market. 

It is therefore important to have a solid understanding of its fundamental aspects.Firstly, what is a Bitcoin ETF?

What Is a Bitcoin ETF? 

Bitcoin ETFs can be defined as a type of exchange-traded fund that enables those to buy shares that directly mirror Bitcoin market’s performance, and those who own these ETFs can buy and dispose of them on stock markets within normal trading periods. These ETFs therefore allow for Bitcoin investing within a traditional financial setting, which many believe not only provides more stability and security, but also simplifies the process by which people can invest into Bitcoin.

Bitcoin ETFs come in two main forms:

Spot Bitcoin ETFs: These funds hold actual Bitcoin and their value reflects the current price of Bitcoin on the spot market. These ETFs directly correspond to the current market price of Bitcoin, as the fund physically holds the digital currency. In contrast,

Futures Bitcoin ETFs: Rather than holding the cryptocurrency, these ETFs invest in Bitcoin futures contracts, which are agreements to buy or sell the digital currency at a future date at a predetermined price. futures Bitcoin ETFs deal with contracts that speculate on the future price of Bitcoin, thereby not requiring the actual holding of the digital asset.

It is important to note that each type of ETF operates under different mechanisms, and caters to various investor preferences regarding exposure and risk. However, all share the same objective, and that is to mirror the performance of Bitcoin so that mainstream investors can indirectly invest in the cryptocurrency.

But as is the case with any speculative instrument, there will always be risks present. For this reason, investors should always go into this with the utmost caution, and be aware that there is a chance that they can make losses. 

Benefits 

Bitcoin ETFs present several advantages for those who want to gain exposure to this exciting cryptocurrency. At the same time, due to it still being a nascent asset class (and the speculative nature of ETFs), there are also some risks that you should also consider. In terms of the benefit of using a Bitcoin ETF, the most obvious one is its accessibility. All investors have to do is sign up to a broker, and trade shares of a Bitcoin ETF on a regulated stock exchange. This is a much more simple entry into the cryptocurrency market compared to doing this individually, which requires individuals to manage their own crypto wallet, and sign up to a crypto exchange. 

Another benefit is seamless diversification. A Bitcoin ETF can diversify an investment portfolio, offering exposure to the price movements of Bitcoin without the need to invest directly in the digital currency. Moreover, an ETF which revolves around Bitcoin can include various different subsections of the cryptocurrency (mining, infrastructure, technology), which allows investors to hedge their bets within the ecosystem. 

Last but not least is security. Investors benefit from the enhanced security that comes with regulated investment products over holding cryptocurrencies directly, which can be at risk of theft or loss.

Risks 

While Bitcoin ETFs provide investment opportunities, they also come with risks.

Firstly there is volatility to consider.  Because the price of Bitcoin is highly volatile, this can result in significant fluctuations in the value of a Bitcoin ETF. However, those who view Bitcoin as a long-term investment will argue that Bitcoin has had more impressive historic growth than assets like gold, and that people should view the asset through a long-term lens. Either way, investors should still be aware of this risk. There are then costs to consider. Certain Bitcoin ETFs carry higher expense ratios, especially actively-managed ones, which can erode returns over time. This may put certain investors off, who may deem this to be eating into their profit margins. 

But perhaps more worrying are the regulatory uncertainties. Although the Securities and Exchange Commission (SEC) have authorised the first Bitcoin ETF recently, changes in regulation could still (in theory) impact the stability of a Bitcoin ETF. Given how Bitcoin is still a nascent asset class with no mainstream adoption, this is a risk until adoption proves otherwise. On this note, it may be helpful to have a look at the regulatory landscape in the UK, and why a Bitcoin ETF has still not been made available to the general public. 

Regulatory Landscape in the UK 

As mentioned already, the regulatory framework for Bitcoin and other crypto ETFs in the UK significantly differs from that in the United States and Canada. While these North American countries have taken steps towards integrating crypto ETFs into their financial markets, the UK remains more cautious.Let's delve deeper into this. 

FCA’s Stance on Bitcoin ETFs 

In contrast to the SEC in the US, there is no Bitcoin Spot ETF approved by the FCA. The approach taken by the FCA towards crypto regulation can be described as cautious, mainly due to a high level of volatility seen in the crypto market, and the potential loss that retail investors might suffer. However, instead of direct crypto ETFs, the FCA does allow UK investors to invest in ETFs that offer indirect exposure to Bitcoin and other crypto assets, as in their estimation, they help mitigate direct risk exposure; consistent with the UK’s regulatory stance.

Are Bitcoin ETFs Available in the UK? 

As seen above, the answer is no. However, as already mentioned, investors in the UK can engage with Bitcoin-related exchange-traded funds (ETFs), which although do not provide direct exposure to the price of Bitcoin itself, offer a route to invest in a basket of companies active within the Bitcoin industry. These ETFs comply with the stringent regulations required by the UK's regulatory framework.

UK Bitcoin-Related ETFs 

Below are some examples of Bitcoin-related ETFs which UK investors can currently invest in. These ETFs, like all financial products in the UK, adhere to collective investment regulations, and are accessible through regular brokerage accounts.

1) Invesco CoinShares Global Blockchain UCITS ETF 

This ETF focuses on start-ups and established players that are integral to Bitcoin's development. Notable holdings include CleanSpark and Bitfarms, which underscore the fund's commitment to innovating within the cryptocurrency mining sector. The fund's underlying logic is that Bitcoin has a bright future, and that the aforementioned companies will greatly contribute to this growth; thereby making them especially valuable.  

  • Fund Size: 476.19m GBP
  • Performance (Year-to-Date): +98.09%`

2) Bitwise Crypto Industry Innovators ETF 

Another Bitcoin-related ETF is the Bitwise Crypto Industry Innovators ETF. Like the Invesco CoinShares Global Blockchain UCITS ETF, this ETF also focuses on Bitcoin-related start-ups and companies, including the likes of Marathon Digital Holdings and Coinbase Global.

The fund's underlying logic is also based upon the belief that Bitcoin will have a very successful future, and that its portfolio companies will greatly aid in the cryptocurrency gaining mass adoption. 

  • Fund Size: 143.41m GBP
  • Performance (Year-to-Date): +245.36%

Crypto Strategies - UK Alternative to Bitcoin ETFs 

One alternative investment path is to try out a crypto strategy platform. Like Bitcoin ETFs, many of these strategies take medium to long term views, and are designed to invest in several different cryptocurrencies. The goal remains the same – having a diversified portfolio that will increase chances of making outstanding or steady income. The difference lies in how they function. 

Crypto strategies, although similar to Bitcoin ETFs, can be seen as a more bottom-up sort of fund mechanism where investors have more navigational control and access, and are able to see the exact breakdown of each crypto strategy.In terms of where to access these financial instruments, few provide more experience and utilities than ICONOMI, which is one of Europe's oldest and most reputable crypto strategy platforms. What's more, there are strategies on the platform which have large direct positions in Bitcoin.

1) Bitcoin Ether Risk-adjusted Index 

One noteworthy strategy is the 'Bitcoin Ether Risk-adjusted Index', which is designed to provide substantial exposure to Bitcoin and Ethreuem's performance, modulated by risk management strategies.

Whilst this automated strategy focuses on two cryptocurrencies, it is primarily focused on Bitcoin (78.75%). This strategy is designed for UK investors who are looking to capitalise on the two leading cryptocurrencies in a way that seeks to minimise risk. 

In terms of its performance, it has an impressive annualised return of 54.01%, and a volatility rate of 2.24%. Despite experiencing a maximum drawdown of -30.92%, the strategy boasts a compelling return of +60.45% over the past year, highlighting its resilience and potential for high returns in a volatile market. But like any other financial instrument, losses can still be incurred, so it is advisable to view this strategy with caution.

So for investors eyeing the growth of Bitcoin may find this strategy to be a good alternative to a Bitcoin ETF, as it has a similar investment goal - facilitating exposure to Bitcoin without needing to have direct ownership of the cryptocurrency.

Future of Bitcoin ETFs in the UK

In summary, even as the UK does not offer spot Bitcoin ETFs due to the cautious stance of the FCA, the European financial market has adapted with the provision of Bitcoin-related ETFs and innovative crypto strategies. These investment options afford investors the opportunity to garner exposure to the number one cryptocurrency's growth, and within a regulated framework that aligns with UK market standards.

So what does this mean for UK investors?Although investors can still seamlessly buy Bitcoin from exchanges, it appears that investing in a direct Bitcoin ETF is still a way off. The good news is that the recent SEC approval in the US marks a noticeable shift in the willingness of notable financial regulators to consider Bitcoin as a credible asset, and many believe this suggests that a UK Bitcoin ETF is not a matter of if, but when.

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