Bitcoin & Ethereum ETF Guide: How to Invest in Crypto ETFs

The approval of spot Bitcoin ETFs in January 2024 marked a watershed moment for cryptocurrency investing. For the first time, investors could gain exposure to Bitcoin through their existing brokerage accounts—no crypto exchanges, no private keys, no complex wallet setups. Within months, Ethereum ETFs followed, opening even more doors for traditional investors seeking crypto exposure.

This comprehensive guide covers everything you need to know about cryptocurrency ETFs: how they work, the major funds available, their costs, tax implications, and how to decide whether they're right for your investment strategy. Whether you're a complete beginner or an experienced investor looking to diversify, you'll find actionable information to make informed decisions.

What is a Cryptocurrency ETF?

An Exchange-Traded Fund (ETF) is an investment vehicle that trades on stock exchanges just like regular shares. Cryptocurrency ETFs hold either the actual cryptocurrency or derivatives tied to cryptocurrency prices, allowing investors to gain exposure without directly owning the digital assets.

How Crypto ETFs Work

When you buy shares of a Bitcoin ETF, you're purchasing ownership in a fund that holds Bitcoin on your behalf. The fund manager—such as BlackRock or Fidelity—handles all the technical aspects:

• Custody: Professional-grade storage of the underlying cryptocurrency
• Security: Institutional-level protection against hacks and theft
• Trading: Easy buy/sell through any stock brokerage
• Reporting: Standard tax documents (1099s) at year-end

The ETF share price tracks the underlying cryptocurrency price, minus fees and any tracking error. When Bitcoin rises 10%, your Bitcoin ETF shares should rise approximately 10% as well.

Why ETFs Matter for Crypto Adoption

Before spot ETFs, investors seeking crypto exposure faced significant hurdles:

• Opening accounts on cryptocurrency exchanges
• Learning to manage private keys and wallets
• Navigating unfamiliar tax reporting requirements
• Trusting relatively new custodians with their assets

ETFs eliminate these barriers entirely. Anyone with a brokerage account at Fidelity, Schwab, Vanguard, or any other major broker can now invest in Bitcoin or Ethereum as easily as buying Apple stock.

This accessibility has profound implications for adoption. Retirement accounts, pension funds, and institutional investors who were previously restricted from crypto investments can now allocate capital through familiar, regulated structures.

Spot ETF vs. Futures ETF: Understanding the Critical Difference

Not all cryptocurrency ETFs are created equal. The distinction between spot and futures-based ETFs is crucial for investors to understand.

Spot ETFs: Direct Ownership

Spot Bitcoin and Ethereum ETFs hold the actual cryptocurrency. When you invest in BlackRock's IBIT or Fidelity's FBTC, your money goes toward purchasing real Bitcoin that the fund stores in secure custody.

Advantages of Spot ETFs:

• Direct price tracking with minimal deviation
• No roll costs or contango decay
• Simpler structure with lower expense ratios
• True exposure to the underlying asset

Futures ETFs: Derivative-Based Exposure

Before spot ETFs were approved, investors could only access crypto ETFs based on futures contracts. The ProShares Bitcoin Strategy ETF (BITO), launched in October 2021, was the first Bitcoin-linked ETF available in the US—but it holds Bitcoin futures, not actual Bitcoin.

Disadvantages of Futures ETFs:

• Roll Costs: Futures contracts expire, requiring the fund to "roll" into new contracts. This process typically costs 5-10% annually.
• Contango Decay: When futures prices exceed spot prices (common in crypto), rolling creates a persistent drag on returns.
• Tracking Error: Futures prices don't perfectly track spot prices, leading to deviation over time.

Real-World Performance Comparison

Since spot ETFs launched in January 2024, the difference has been stark. Over identical holding periods, spot Bitcoin ETFs have consistently outperformed futures-based alternatives by significant margins due to eliminated roll costs.

Bottom Line: For long-term crypto exposure, spot ETFs are superior to futures-based products. The only reason to consider futures ETFs is if you're in a jurisdiction or account type where spot ETFs aren't available.

The Road to Approval: A Brief History

Understanding how we got spot Bitcoin ETFs helps explain why they're significant.

Years of Rejection

The first Bitcoin ETF application was filed in 2013. For over a decade, the SEC rejected every spot Bitcoin ETF proposal, citing concerns about:

• Market manipulation in underlying crypto markets
• Lack of surveillance-sharing agreements
• Inadequate investor protections

The Breakthrough

In August 2023, Grayscale won a pivotal court case against the SEC, ruling that the agency had acted arbitrarily by approving futures-based Bitcoin ETFs while rejecting spot ETFs. This legal victory forced the SEC's hand.

On January 10, 2024, the SEC approved 11 spot Bitcoin ETFs simultaneously—a historic moment for the cryptocurrency industry. BlackRock's IBIT and Fidelity's FBTC quickly emerged as market leaders.

Ethereum ETFs Follow

Following Bitcoin's success, spot Ethereum ETFs were approved in July 2024. While initially seeing less dramatic inflows than Bitcoin products, Ethereum ETFs have steadily grown and provided investors another major cryptocurrency exposure option through traditional accounts.

Major Bitcoin ETFs: A Comprehensive Comparison

With multiple Bitcoin ETFs available, choosing the right one requires understanding their differences in fees, size, liquidity, and tracking accuracy.

BlackRock iShares Bitcoin Trust (IBIT)

The Market Leader

• Ticker: IBIT
• Expense Ratio: 0.25% (0.12% waived until early 2025)
• Custodian: Coinbase Custody
• AUM: $50+ billion (as of late 2025)

IBIT has become the dominant Bitcoin ETF by assets under management. BlackRock's institutional reputation and distribution network have driven massive inflows from wealth managers, RIAs, and institutional investors.

Pros:

• Highest liquidity with tightest bid-ask spreads
• BlackRock's institutional credibility
• Competitive fees
• Available at virtually every brokerage

Cons:

• 0.25% fee higher than some competitors after waiver expires
• Coinbase custody concentration

Fidelity Wise Origin Bitcoin Fund (FBTC)

The Self-Custody Alternative

• Ticker: FBTC
• Expense Ratio: 0.25%
• Custodian: Fidelity Digital Assets (self-custody)
• AUM: $20+ billion

Fidelity's key differentiator is self-custody—they store Bitcoin using their own infrastructure rather than outsourcing to Coinbase. For investors concerned about custodian concentration, this provides diversification.

Pros:

• Self-custody reduces counterparty risk
• Fidelity's established reputation
• Strong retail distribution
• Direct integration with Fidelity accounts

Cons:

• Slightly lower liquidity than IBIT
• Same expense ratio as BlackRock after waivers

Grayscale Bitcoin Trust (GBTC)

The Converted Pioneer

• Ticker: GBTC
• Expense Ratio: 1.50%
• Custodian: Coinbase Custody
• AUM: $15+ billion (down from peak)

GBTC operated as a closed-end trust for years before converting to an ETF upon spot approval. Its high fee has driven significant outflows as investors migrate to cheaper alternatives.

Pros:

• Longest track record
• Established liquidity

Cons:

• Significantly higher fees than competitors
• Ongoing outflows may create tracking issues
• Legacy structure with tax complexities for some holders

Grayscale Bitcoin Mini Trust (BTC)

Grayscale's Low-Cost Answer

• Ticker: BTC
• Expense Ratio: 0.15%
• Custodian: Coinbase Custody

Recognizing competitive pressure, Grayscale launched a lower-cost alternative. BTC offers competitive pricing while maintaining Grayscale's infrastructure.

Pros:

• Lowest ongoing fee among major issuers
• No fee waiver games—permanent low cost
• Same custodian as legacy GBTC

Cons:

• Newer with less trading history
• Lower AUM than market leaders

ARK 21Shares Bitcoin ETF (ARKB)

The Innovation-Focused Option

• Ticker: ARKB
• Expense Ratio: 0.21%
• Custodian: Coinbase Custody
• AUM: $4+ billion

ARK's partnership with 21Shares brings Cathie Wood's innovation-focused brand to Bitcoin ETFs. Slightly lower fees and ARK's retail following have driven respectable inflows.

Pros:

• Competitive expense ratio
• ARK's strong retail distribution
• 21Shares' crypto expertise

Cons:

• Smaller AUM than leaders
• Less institutional adoption

Bitwise Bitcoin ETF (BITB)

The Crypto-Native Choice

• Ticker: BITB
• Expense Ratio: 0.20%
• Custodian: Coinbase Custody (with Fidelity backup)

Bitwise is a crypto-native asset manager, bringing deep industry expertise. Their competitive fee and dual-custodian approach appeal to crypto-savvy investors.

Pros:

• Low expense ratio
• Crypto-native management team
• Educational resources and research

Cons:

• Smaller brand recognition outside crypto
• Lower AUM and liquidity

Quick Comparison Table: Bitcoin ETFs

Ethereum ETFs: Expanding Your Crypto Exposure

Following Bitcoin's success, spot Ethereum ETFs provide exposure to the second-largest cryptocurrency by market capitalization.

BlackRock iShares Ethereum Trust (ETHA)

Ticker: ETHA Expense Ratio: 0.25% (waived to 0.12% initially) Custodian: Coinbase Custody

BlackRock's Ethereum product mirrors their Bitcoin offering. ETHA has captured significant market share, benefiting from BlackRock's distribution network and institutional trust.

Key Consideration: Unlike some Ethereum products, ETHA does not stake the underlying ETH. This means holders miss out on staking rewards (currently 3-4% annually), though it also avoids complexity around staking income taxation.

Fidelity Ethereum Fund (FETH)

Ticker: FETH Expense Ratio: 0.25% Custodian: Fidelity Digital Assets

Like FBTC, Fidelity's Ethereum fund uses self-custody rather than third-party storage. For investors wanting Ethereum exposure with custodian diversification, FETH offers a compelling alternative.

Grayscale Ethereum Trust (ETHE)

Ticker: ETHE Expense Ratio: 1.50% Custodian: Coinbase Custody

Similar to GBTC, Grayscale's original Ethereum trust carries legacy high fees. Significant outflows have occurred as investors move to lower-cost alternatives.

Grayscale Ethereum Mini Trust (ETH)

Ticker: ETH Expense Ratio: 0.15% Custodian: Coinbase Custody

Grayscale's low-cost Ethereum option competes directly on fees while maintaining their infrastructure and expertise.

Ethereum ETF Comparison Table

The Staking Question

A key difference between owning Ethereum directly and through an ETF is staking. When you hold ETH directly, you can stake it to earn approximately 3-4% annual yield while helping secure the network.

Current US Ethereum ETFs do not stake underlying holdings due to regulatory uncertainty around whether staking rewards constitute securities. This means ETF holders forgo staking income—a meaningful consideration for long-term investors.

For those who want staking exposure, directly holding Ethereum remains advantageous. Check our guide on how to buy Bitcoin for comparison between direct ownership and ETF investing.

ETF vs. Direct Crypto Ownership: Pros and Cons

Understanding the trade-offs between ETF investment and direct cryptocurrency ownership is essential for making the right choice for your situation.

Advantages of Crypto ETFs

Disadvantages of Crypto ETFs

Who Should Choose ETFs?

ETFs are ideal for:

• Traditional investors comfortable with brokerage accounts
• Retirement savers wanting crypto in tax-advantaged accounts
• High-net-worth individuals prioritizing institutional custody
• Those uncomfortable with crypto security responsibilities
• Long-term holders who won't actively use the cryptocurrency

Who Should Buy Crypto Directly?

Direct ownership is better for:

• Crypto enthusiasts who want full control
• Active users who'll transact with cryptocurrency
• Yield seekers wanting staking rewards
• Privacy-focused individuals
• DeFi participants needing on-chain assets
• Those with long time horizons who want to avoid annual fees

For a detailed comparison of buying methods, see our guide on how to buy Bitcoin.

How to Buy Crypto ETFs: Step-by-Step Guide

Purchasing cryptocurrency ETFs is straightforward for anyone with a brokerage account.

Step 1: Choose Your Brokerage

Most major brokerages now offer Bitcoin and Ethereum ETFs:

• Fidelity - FBTC and FETH available; self-directed and managed accounts
• Charles Schwab - All major crypto ETFs available
• TD Ameritrade - Full crypto ETF selection
• E*TRADE - Morgan Stanley's platform offers all ETFs
• Vanguard - Initially resistant, now offers most crypto ETFs
• Robinhood - Commission-free ETF trading

If you don't have a brokerage account, opening one typically takes 10-15 minutes online with basic personal information and identity verification.

Step 2: Fund Your Account

Transfer money to your brokerage account via:

• Bank transfer (ACH) - 1-3 business days, usually free
• Wire transfer - Same-day, typically $25-30 fee
• Check deposit - Several days to clear

For retirement accounts (IRA, Roth IRA), you may need to roll over from existing accounts or make annual contributions within IRS limits.

Step 3: Search for the ETF

Use your brokerage's search function to find the ticker symbol:

• IBIT - BlackRock Bitcoin
• FBTC - Fidelity Bitcoin
• ARKB - ARK 21Shares Bitcoin
• ETHA - BlackRock Ethereum
• FETH - Fidelity Ethereum

Step 4: Place Your Order

Choose your order type:

• Market Order: Buy immediately at current price (best for high-liquidity ETFs like IBIT)
• Limit Order: Set maximum price you'll pay (provides price certainty)

Enter the number of shares or dollar amount you wish to invest. Many brokerages now support fractional shares, allowing investment of any dollar amount.

Step 5: Confirm and Monitor

Review order details and confirm. The trade settles T+1 (next business day) for ETFs. You'll see shares appear in your account and can monitor performance alongside other investments.

Dollar-Cost Averaging into ETFs

For most investors, lump-sum investing or dollar-cost averaging (DCA) are sensible approaches. DCA—investing fixed amounts at regular intervals—reduces timing risk and is easily automated through most brokerages.

Set up recurring purchases of $100, $500, or whatever fits your budget. Over time, you'll accumulate shares at various prices, smoothing out volatility's impact. For more on this strategy, see our dollar-cost averaging guide.

Tax Advantages and Considerations

Cryptocurrency ETFs offer significant tax advantages over direct crypto ownership, though some unique considerations apply.

Simplified Tax Reporting

When you own cryptocurrency directly, every transaction—trade, sale, or even spending—creates a taxable event requiring detailed record-keeping. Many investors face:

• Tracking cost basis across multiple exchanges
• Calculating gains/losses on hundreds of transactions
• Reporting wallet-to-wallet transfers
• Navigating complex crypto tax software

With ETFs, tax reporting mirrors any stock investment:

• 1099-B: Your brokerage reports all sales
• Cost Basis: Automatically tracked and reported
• Dividends: N/A for spot crypto ETFs (no dividend distributions)

This simplification alone makes ETFs compelling for investors who dread crypto tax season. For comprehensive tax guidance, see our crypto tax reporting guide.

Tax-Advantaged Account Access

Perhaps the biggest tax advantage of crypto ETFs is accessibility in retirement accounts:

Traditional IRA

• Tax-deductible contributions
• Tax-deferred growth
• Taxes paid on withdrawal in retirement

Roth IRA

• After-tax contributions
• Tax-free growth
• Tax-free qualified withdrawals

401(k) and 403(b)

• Employer-sponsored retirement savings
• Some plans now include crypto ETF options
• Tax benefits depend on traditional vs. Roth designation

Health Savings Account (HSA)

• Triple tax advantage for medical expenses
• Increasingly including crypto ETF options

Holding Bitcoin or Ethereum in a Roth IRA means all future appreciation is completely tax-free—a powerful benefit for long-term crypto believers.

Capital Gains Treatment

Crypto ETFs receive standard capital gains treatment:

• Short-term gains (held < 1 year): Taxed as ordinary income
• Long-term gains (held > 1 year): Preferential rates (0%, 15%, or 20%)

This matches direct cryptocurrency taxation but with simpler reporting.

Wash Sale Considerations

The IRS wash sale rule prevents claiming losses on securities sold and repurchased within 30 days. Currently:

• ETFs: Subject to wash sale rules
• Direct Crypto: Historically not subject to wash sale rules (though this may change)

This means if you sell IBIT at a loss, you cannot repurchase it (or substantially identical ETFs) within 30 days if you want to claim the tax loss. For tax-loss harvesting strategies, consult our crypto tax reporting guide.

Portfolio Allocation Strategies

How much of your portfolio should be in crypto ETFs? The answer depends on your goals, risk tolerance, and investment timeline.

Conservative Allocation (1-5%)

For investors who want exposure but prioritize capital preservation:

• 1-5% allocation to Bitcoin ETF
• Minimal or no Ethereum allocation
• Focus on largest, most liquid funds (IBIT, FBTC)

Suitable for: Retirees, near-retirees, highly risk-averse investors

Moderate Allocation (5-15%)

A balanced approach providing meaningful crypto exposure:

• 5-10% Bitcoin ETF
• 2-5% Ethereum ETF
• Potentially diversified across 2-3 issuers

Suitable for: Long-term investors with 10+ year horizons, those comfortable with volatility

Aggressive Allocation (15-30%)

For crypto believers willing to accept significant volatility:

• 10-20% Bitcoin ETF
• 5-10% Ethereum ETF
• Consider mixing with direct crypto ownership for staking

Suitable for: Young investors, high-risk tolerance, strong crypto conviction

Rebalancing Considerations

Crypto's volatility means regular rebalancing is essential. A 10% allocation can quickly become 20% (or 5%) as prices swing.

Options include:

• Calendar rebalancing: Quarterly or annual rebalancing to target weights
• Threshold rebalancing: Rebalance when allocation drifts 5%+ from target
• Never rebalancing: Let winners run (higher risk, higher potential reward)

For comprehensive portfolio strategy guidance, see our crypto investment thesis guide.

Risks and Limitations

While ETFs reduce many crypto risks, important limitations remain.

Market Risk

The underlying cryptocurrency can lose significant value. Bitcoin has experienced multiple 50-80% drawdowns throughout its history. ETFs don't protect against this inherent volatility—they simply provide a regulated wrapper around it.

Tracking Error

No ETF perfectly tracks its underlying asset. Factors contributing to tracking error include:

• Management fees
• Cash drag from creations/redemptions
• Trading costs
• Premium/discount to NAV

Major ETFs like IBIT and FBTC have demonstrated excellent tracking, but smaller or less liquid products may experience larger deviations.

Custodial Risk

When you buy a Bitcoin ETF, you're trusting the custodian (usually Coinbase or Fidelity) to safely store the underlying Bitcoin. While these are regulated institutions with strong security track records, concentration in a few custodians creates systemic risk.

Regulatory Risk

Despite SEC approval, the regulatory landscape continues evolving. Future regulations could:

• Increase compliance costs (and expense ratios)
• Require operational changes
• In extreme scenarios, face trading restrictions

Opportunity Cost

By choosing ETFs over direct ownership, you forgo:

• Staking rewards on Ethereum
• Ability to use crypto in DeFi
• 24/7 trading capability
• Self-sovereign ownership

For risk management strategies, consult our crypto risk management framework.

Expense Ratio Drag

Even a 0.25% annual fee compounds significantly over decades:

At 0.25% annually, you lose approximately 7% of your investment to fees over 30 years—assuming flat prices. With compounding growth, the absolute dollar impact is larger.

This is why fee-conscious investors may prefer the 0.15% Grayscale Mini products or eventually transition to direct ownership for very long-term holdings.

Making Your Decision: Who Should Consider Crypto ETFs?

After weighing all factors, here's a framework for deciding whether crypto ETFs fit your investment approach.

Crypto ETFs Are Right for You If:

1. You want simple, regulated crypto exposure without learning crypto-specific technology
2. Retirement accounts are your priority, and you want crypto in tax-advantaged vehicles
3. Security responsibility feels overwhelming, and you prefer institutional custody
4. You don't plan to actively use the cryptocurrency for transactions
5. Tax simplicity matters, and you want standard 1099 reporting
6. Your investment advisor or employer plan offers ETF access but not direct crypto

Direct Crypto Ownership Is Better If:

1. You want full self-sovereign control over your assets
2. Staking rewards matter for your Ethereum holdings
3. You'll actively participate in DeFi or crypto transactions
4. Minimizing fees over decades is a priority
5. 24/7 market access is important for your trading style
6. Privacy is a significant consideration

The Hybrid Approach

Many sophisticated investors use both:

• Retirement accounts: Crypto ETFs for tax-advantaged growth
• Taxable accounts: Direct ownership for flexibility and staking
• Long-term holdings: ETFs for simplicity
• Active positions: Direct crypto for DeFi participation

This balanced approach captures benefits of both structures.

Conclusion: A New Era for Crypto Investing

Spot Bitcoin and Ethereum ETFs represent a fundamental shift in cryptocurrency accessibility. For the first time, anyone with a brokerage account can invest in the two largest cryptocurrencies through regulated, institutionally-managed products.

The benefits are clear: simplicity, security, tax-advantaged access, and regulatory protection. The costs—ongoing fees and foregone capabilities—are reasonable trade-offs for many investors.

If you're new to cryptocurrency, ETFs offer an excellent entry point. Start with a conservative allocation to Bitcoin (the more established asset), learn how it behaves in your portfolio, and consider adding Ethereum exposure as your comfort grows.

For experienced crypto holders, ETFs complement direct ownership—particularly for retirement accounts and long-term holdings you don't plan to actively use.

The key is matching your investment vehicle to your goals. ETFs aren't "better" or "worse" than direct ownership—they're different tools for different purposes. Understanding both allows you to build the crypto exposure that best fits your investment thesis and lifestyle.

Ready to go deeper? Explore our guides on building a crypto investment thesis and risk management frameworks to develop a comprehensive crypto strategy.

Disclaimer: This guide is for educational purposes only and does not constitute financial advice. Cryptocurrency investments are volatile and may lose value. Always do your own research and consult with a qualified financial advisor before making investment decisions.