Key Takeaways
- Bitcoin ETFs enable investors to track Bitcoin’s price performance without directly owning BTC, and Ethereum ETFs work similarly but focus on Ethereum’s price movement.
- The difference between Bitcoin ETFs and Ethereum ETFs mainly derives from their underlying blockchains, different use cases, and market maturity.
- Investors in Bitcoin ETFs vs. Ethereum ETFs should consider each asset’s risks, benefits, and tax implications when choosing between them as investment options.
Exchange-traded funds have become among the most popular investment vehicles within the digital asset world, allowing individuals and institutions to invest without directly owning the cryptocurrency. This article examines the difference between Bitcoin ETFs vs. Ethereum ETFs to help you choose between the two.
What are Crypto ETFs and How Do They Work?
Exchange-traded funds (ETFs) are investment tools that hold an asset or basket of assets like bonds, stocks, or commodities. ETFs are traded like regular stocks on stock exchanges, making them easier to buy and sell. Their most significant advantage is offering users a simplified way to own a diverse range of assets at a reduced risk level. Bitcoin ETFs and Ethereum ETFs work in a similar way, but instead of the traditional assets, they focus on cryptocurrencies. Crypto ETFs allow investors to track the price movements of digital assets like Bitcoin and Ether without buying or managing the actual digital assets.
Bitcoin ETFs: The Pioneer to the Market
Bitcoin, the flagship cryptocurrency, remains the most popular and valuable crypto asset. As Bitcoin’s growing price consistently reflects a strong market presence, the introduction of Bitcoin ETFs in January 2024 was met with great expectancy by both individual and institutional investors. Bitcoin ETFs offer investors an exciting opportunity to gain exposure to the digital asset through the traditional stock market. Their introduction was a game changer, as investors no longer have to worry about private keys, digital wallets, or risks associated with keeping the actual cryptocurrency.
Since their inception, the spot Bitcoin ETFs market has grown rapidly, with over 12 countries offering them in at least six geographical markets. These ETFs are primarily available in most G20 countries, including the US, Germany, Brazil, Canada, Australia, Hong Kong, Jersey, Bermuda, Thailand, Switzerland, Liechtenstein, and Guernsey. The exceptional growth of the Bitcoin ETFs market has enabled individual and institutional investors worldwide to join the crypto market via traditional financial products, allowing them to have a balanced exposure to crypto that leverages the security of regulated investments.
The Performance of Bitcoin ETFs So Far
It’s an open secret that Bitcoin ETFs entered the market with a bang, reportedly yielding over $4.66 billion in trade volume on their first day. Despite the regular ups and downs of the financial market, the product’s good performance continues to attract institutional investors, especially those who see BTC’s long-term potential in the future of finance and want to exploit the ability to buy or sell the investment fast whenever the need arises.
Why Bitcoin ETFs Are Popular
One key reason Bitcoin ETFs have gained significant popularity is the reputation of BTC, often referred to as digital gold, which is now considered a reliable store of value. Bitcoin has established itself as a reputable brand and the preferred choice of institutions entering the crypto market. Unlike buying and selling Bitcoin directly, which comes with risks such as security and managing private keys, Bitcoin ETFs operate in a regulated and secure environment, making it easier for investors to include BTC in their portfolio without buying it directly.
Ethereum ETFs: The Upcoming ETF Star
Ethereum, the king of altcoins, remains the second-largest digital asset by market cap and value and offers different use cases from Bitcoin. Whereas Bitcoin has established itself as a store of value, the Ethereum blockchain has cut a niche for itself as the bedrock of decentralized applications (DApps) and smart contracts. The introduction of Ethereum ETFs also opened a way for individual and institutional investors to track the performance of ETH and potentially grow with its ecosystem without owning it directly.
The Performance of Ethereum ETFs So Far
Licensed in July 2024, Ethereum ETFs may still be relatively newer in the market, but they have already shown all the signs of firm performance. During their first day in the market, Ethereum ETFs recorded over $1.08 billion, a good start suggesting great potential in the future. Notably, the performance of the ETH-based ETF comes to about a quarter of what its Bitcoin counterpart registered on its first day in the market. Only time will tell whether the Ethereum ETF will build up to catch up or even surpass the BTC ETF in terms of market demand and trade volume.
While Bitcoin thrives in its advantage as the first mover, Ethereum has some unique strength, which could give BTC a run for its money if harnessed well. Some of the key features that are worth noting include:
Utility
Besides supporting smart contracts, the Ethereum blockchain boasts over 4,000 DApps that keep driving the demand for ETH. For example, during the 12 months of 2024, the monthly Ethereum gas fees ranged between $1.22 million at the lowest and $38 million at the highest. Given Ethereum’s unique role as a utility, it could easily upturn Bitcoin, whose primary role remains a store of value.
Staking and Passive Income
Ethereum pioneered the staking model, which gives users a source of passive income comparable to dividends in traditional finance models. This has been one of the magnets attracting investors who are used to traditional finance, as they see a steady source of returns.
Price Advantage
Regarding pricing, Ethereum is relatively low compared to Bitcoin. This offers potential investors a more affordable entry point, which could enhance their perception of investing in Ethereum ETFs, which have the potential to grow their profits as the asset’s value grows over time.
How About Market Dominance
Market Dominance
As the undisputed crypto leader, Bitcoin ETFs have generally attracted more investors compared to Ethereum ETFs. This could be attributed to the asset holding the lion’s market share and developing a more concrete following. Nonetheless, Ethereum dominates the decentralized finance (DeFi) and smart contract segments of the market, and as its popularity grows, it could one day challenge Bitcoin in the ETF sector.
Who are the Investors?
Both Bitcoin ETFs vs. Ethereum ETFs have attracted different calibers of investors. While BTC ETFs have primarily attracted conservative investors who like BTC for its long-term investment potential and store of value, Ethereum ETFs appeal to people interested in the potential of the technology that supports cryptocurrencies and the future of DApps.
Analysts believe that the differences in the investors’ profiles could transform the future of the crypto ETF market: Bitcoin ETFs could remain the mainstay of risk-averse investors, while Ethereum ETFs could draw the attention of individuals interested in the dynamic growth potential of blockchain technology.
Conclusion
Opinions are still divided among experts as to who will dominate the market between Bitcoin ETFs vs. Ethereum ETFs. While some argue that BTCs status as the pioneer and most trusted cryptocurrency gives its ETFs an upper hand, another group believes Ethereum’s ongoing technical advancements and broader application base give it an edge over BTC. Ultimately, what you choose as an individual will be based on your goals, risk appetite, and general outlook on the future of the digital asset market.
