Bitcoin Exchange Traded Funds (ETFs) Are Now Allowed to Trade on U.S. Stock Market

The Securities & Exchange Commission (SEC) recently voted to allow spot Bitcoin Exchange Traded Funds (ETFs) to trade on U.S. stock exchanges for the first time.

Eleven firms — including heavyweights such as BlackRock, Invesco, Fidelity and others — received approval for spot Bitcoin offerings.

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An ETF is an investment fund that tracks the performance of an underlying asset. Typically, ETFs are associated with stocks but can be tied to currencies, precious metals, real estate or art. In this case, ETF shares represent ownership of actual Bitcoins (the term “spot” refers to today’s price rather than a price for a transaction to be settled in the future).

The SEC’s decision moved Bitcoin into the mainstream as an investment option. Here’s how.

Investors can place buy and sell orders quickly and easily without dealing with the complex digital wallets and futures contracts that were previously the primary ways to acquire Bitcoin. By BlackRock and Fidelity offering Bitcoin ETFs, Bitcoin has gained legitimacy. 

Has the time come to add Bitcoin to your investment portfolio?

Now that Bitcoin can be purchased and traded through ETFs, it does offer the opportunity to earn potential returns with the added benefit of diversification.  However, it’s important to note that, like any investment, Bitcoin carries certain risks, and its price can be highly volatile.

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For investors, one of Bitcoin’s interesting features is that its returns are largely uncorrelated with returns from stocks and bonds, which comprise the majority of most investors’ portfolios. That means holding Bitcoin can provide diversification to your portfolio.

An analysis from Fidelity published in 2023 shows that from January 2015 to June 2021, by shifting just 1% to 2% to Bitcoin, a traditional portfolio of 60% stocks / 40% bonds would have earned higher returns without significantly increasing portfolio volatility. Of course, the correlations between Bitcoin and other asset classes can change without warning, potentially affecting the diversification benefits discussed in Fidelity’s analysis.  As always, past performance is not indicative of future results.

A prudent path to adding Bitcoin to your portfolio

People hold strong views about Bitcoin.

For some, it is the exciting currency of the future. For others, it is a hard-to-understand fad. The new Bitcoin ETFs have given it credibility as an investment worth consideration in many portfolios. Assuming that it aligns with your risk tolerance, time horizon and overall financial goals, Bitcoin may deserve a small place in your portfolio, but it is important to maintain a prudent approach.

Understanding that Bitcoin carries a higher risk level than traditional asset classes is essential. While Bitcoin exposure can provide portfolio diversification benefits, it is necessary to recognize that it may also introduce additional volatility. 

Individual investors should consider management fees, the simplicity of the investment approach and overall alignment with your investment philosophy before investing in Bitcoin ETFs. Consider the risks and rewards of Bitcoin exposure and slowly and carefully test the waters before plunging in headfirst.

Matthew Kelley is president and founder of Gold Medal Waters, a Colorado-based, fee-only financial planning firm. Gold Medal Waters focuses on creating a Purposeful Path to maximize the chance clients will have the financial resources to achieve their deepest aspirations. Please visit goldmedalwaters.com for more information.