Spot Bitcoin and Ethereum ETFs: The difference between owning the coin and the fund

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Investing in bitcoin and ethereum used to be hard. Investors needed to find an exchange, learn how to navigate it, and study how crypto wallets work. In 2024, the arrival of spot Bitcoin and Ethereum exchange-traded funds, or ETFs, changed how people access digital assets. Rather than navigating crypto exchanges and managing wallet apps, you can now buy a fund that holds the coins directly through your regular brokerage account. You just purchase shares like you would with any other stock. The fund handles secure custody.

If you can buy a fund that tracks the price of bitcoin or ethereum, why would you go through the trouble of buying the coin yourself? Many investors still do, and some own coins directly in addition to investing in spot crypto ETFs. Others go the ETF-only route. In this guide, we'll explore both options, Bitcoin or Ethereum spot ETFs vs. direct ownership, and compare the pros and cons of each.

An exchange-traded fund, or ETF, refers to single or bundled assets that you can buy and sell on a traditional stock exchange. ETFs let you invest in an asset without buying it directly. You buy shares of the fund, and the fund holds the underlying investments.

The word spot refers to the current market price of an asset. A spot ETF holds the actual asset, real bitcoin (BTC) or ether (ETH), rather than futures contracts.

Futures contracts are derivatives — agreements to buy or sell an asset at a future date for a predetermined price. Because futures bets depend on future prices, their value can drift away from the actual coin's current price. A spot ETF avoids that drift because it holds the real thing, with a little help from arbitrage to keep the price synced to the underlying asset's price.

Before the approval of Bitcoin and Ethereum spot ETFs, futures ETFs were the primary way to gain crypto exposure through a traditional investment account. Both types of funds still exist, but futures track the real-world asset price the way a sailboat navigates to its next destination: Expect some drift. By contrast, spot ETFs track more like a slot car. There's a little wiggle in the turns, but it stays on track.

Spot crypto ETFs hold the underlying asset, so their prices closely mirror the coin's daily market price. Spot Bitcoin funds track the price of BTC, whereas spot Ethereum funds track the price of ETH. It works like this: