Bitcoin has revolutionized the financial landscape, and exchange-traded products (ETPs) offer a structured way to gain exposure. This guide breaks down the key differences, available options, and strategic considerations for investing in Bitcoin through ETFs and ETNs.
Understanding Bitcoin and Investment Vehicles
Bitcoin is a decentralized digital currency, operating independently of traditional financial systems. It uses cryptographic proof and a peer-to-peer network to validate transactions, recorded on a public ledger known as the blockchain. Unlike government-issued currencies, its value is determined by market supply and demand.
For investors seeking exposure without directly holding the cryptocurrency, Exchange-Traded Funds (ETFs) and Exchange-Traded Notes (ETNs) provide accessible options. These products track the price of Bitcoin and trade on traditional stock exchanges.
Key Differences: ETFs vs. ETNs
While often used interchangeably, ETFs and ETNs have distinct structures:
- ETFs typically hold the underlying asset directly. In the case of a physically-backed Bitcoin ETF, the fund custodian holds actual Bitcoin.
- ETNs are unsecured debt notes issued by a financial institution. Their value is linked to the performance of Bitcoin, and they promise to pay the return of the index they track, minus fees.
The Landscape of Bitcoin ETPs: US vs. Europe
A significant divergence exists between the United States and European markets due to different regulatory frameworks.
Bitcoin ETFs in the United States
In early 2024, the U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin ETFs. This was a landmark event, as previous U.S. products were based on Bitcoin futures contracts. These new spot ETFs, from providers like BlackRock (iShares Bitcoin Trust) and Fidelity (Fidelity Advantage Bitcoin ETF), hold physical Bitcoin, allowing for more direct exposure. This move has facilitated easier access for institutional investors, contributing to substantial inflows and significantly boosting the products' assets under management shortly after launch.
Why Europe Relies on Bitcoin ETNs
In Europe, the UCITS directive governs ETFs. This regulation requires a minimum level of diversification for fund authorization, which a single-asset product like a Bitcoin ETF cannot meet. Consequently, physically-backed Bitcoin ETNs are the primary vehicle for European investors. For all practical purposes, these ETNs function similarly to U.S. spot Bitcoin ETFs, as they are also backed by physical Bitcoin holdings, providing comparable exposure to Bitcoin's price movements.
Comparing Physical Bitcoin ETNs Available in Europe
For European investors, a range of physically-backed Bitcoin ETNs are available. Key factors for comparison include the Total Expense Ratio (TER), which represents the annual cost of owning the product, the fund size (AUM), and the replication method. The following list provides a snapshot of major options, sorted by fund size.
- CoinShares Physical Bitcoin (TER: 0.25% p.a.)
- Bitwise Physical Bitcoin ETP (TER: 2.00% p.a.)
- WisdomTree Physical Bitcoin (TER: 0.15% p.a.)
- 21Shares Bitcoin ETP (TER: 1.49% p.a.)
- VanEck Bitcoin ETN (TER: 1.00% p.a.)
- 21Shares Bitcoin Core ETP (TER: 0.21% p.a.)
It's crucial to analyze not just costs but also performance across different time periods, as returns can vary slightly between products even when tracking the same asset. 👉 Explore more strategies for comparing crypto ETPs
Setting Up a Bitcoin ETN Savings Plan
A highly effective strategy for investing in Bitcoin ETNs is through a periodic savings plan (Sparplan). This approach allows you to invest a fixed amount of money at regular intervals, leveraging dollar-cost averaging to mitigate the impact of market volatility.
Benefits of a Savings Plan:
- Cost-Effective: Many online brokers and neo-brokers offer commission-free savings plan executions.
- Disciplined Investing: Automates the investment process, removing emotional decision-making.
- Accessibility: You can start with very small monthly amounts, often as low as €1 or €25.
- Low Fees: ETNs generally have lower expense ratios than actively managed funds.
To establish a savings plan, you will need an online brokerage account. Numerous brokers now offer a wide selection of Bitcoin ETNs within their savings plan offerings, often with zero fees for the trade execution, making it a accessible way to build exposure over time.
Frequently Asked Questions
What is the main difference between a Bitcoin ETF and a Bitcoin ETN?
A Bitcoin ETF is a fund that typically holds the underlying asset (physical Bitcoin). A Bitcoin ETN is a debt instrument issued by a bank that promises to pay the return of Bitcoin's price, minus fees. For physically-backed ETNs, the risk is mitigated by the issuer holding the actual Bitcoin.
Can I buy US Bitcoin ETFs from Europe?
While possible through some international brokers that offer access to US exchanges, it is generally not advisable for European investors. US Bitcoin ETFs are not UCITS-compliant and may have unfavorable tax treatment compared to European ETNs, such as the lack of a potential long-term capital gains exemption.
How do I choose the best Bitcoin ETN?
Consider the Total Expense Ratio (TER), as lower fees translate to higher returns over the long term. Also, look at the fund's size (AUM)—larger funds often indicate greater investor confidence and liquidity. Always compare the historical tracking performance of similar products.
Are Bitcoin ETNs a safe investment?
No investment is entirely safe. Bitcoin ETNs carry the market risk of Bitcoin's price volatility. Additionally, ETNs carry counterparty risk, meaning if the issuing institution fails, your investment could be at risk. However, physically-backed ETNs are structured to hold the actual asset, which reduces this risk.
What are the tax implications of investing in Bitcoin ETNs?
Taxation varies by country. In some jurisdictions, like Germany, gains from ETNs held for more than one year may be tax-exempt. It is essential to consult with a local tax advisor to understand the specific rules that apply to your situation.
Is it better to invest in a Blockchain ETF instead?
A Blockchain ETF provides diversified exposure to companies involved in blockchain technology, rather than direct exposure to Bitcoin's price. This can be a less volatile way to invest in the broader crypto ecosystem. The choice depends on your investment goal: direct crypto exposure vs. diversified tech equity exposure.