Bitcoin ETF vs. Bitcoin Futures: Which is Driving Institutional Investments?

March 01, 2025, 8:12 AM | The content is supplied by a Guest author

In recent years, Bitcoin has transitioned from a niche digital asset to a mainstream investment vehicle. This is mostly connected with the introduction of Bitcoin Exchange-Traded Funds (ETFs) and Bitcoin Futures. These financial derivatives have introduced a way for institutional investors to make money on Bitcoin without the hassle of direct ownership.

Bitcoin ETF

Exchange Traded Funds (ETFs) are exchange-traded funds that group securities based on indexes, sectors, commodities, or other asset classes. ETF shares are registered, uncertificated securities that prove the owner's ownership of a portion of the fund's assets. Unlike mutual funds, whose net asset value is calculated once at the end of the trading day, ETFs are traded on an exchange and can be bought or sold throughout the day at market prices that depend on supply and demand.

In January 2024, the US Securities Regulator (SEC) registered the first Bitcoin spot exchange-traded funds (ETFs), opening a new chapter in the history of this financial instrument.

A Bitcoin ETF is an exchange-traded fund that invests in Bitcoin. With such a vehicle, investors can profit from changes in the price of Bitcoin without owning or managing the cryptocurrency directly. For some investors, this is a convenient way to gain exposure to the asset. A Bitcoin ETF can own Bitcoin itself or contracts linked to its price and trade on traditional stock exchanges, like regular company shares.

A spot Bitcoin ETF is a type of fund that directly owns Bitcoin as its underlying asset. This means that the value of a spot ETF is directly related to the current price of the Bitcoin in its portfolio. When buying shares of a spot ETF, investors are essentially investing in real Bitcoin without owning the cryptocurrency itself.

Bitcoin Futures

A Bitcoin Futures ETF is a type of exchange-traded fund that does not directly own Bitcoin, but instead invests in Bitcoin Futures contracts. These contracts are agreements to buy or sell Bitcoin at a set price on a specific date in the future. This approach allows investors to speculate on changes in the price of Bitcoin without directly owning the cryptocurrency itself. The first Bitcoin Futures were introduced in December 2017, marking a key milestone in cryptocurrency futures trading.

Bitcoin ETF vs. Bitcoin Futures ETF

	Spot Bitcoin ETF	Bitcoin Futures ETF
Underlying asset	Directly owns Bitcoins	Owns Bitcoin Futures contracts
Factors Affecting Efficiency	Direct link to the Bitcoin price in real time	The Impact of Futures Market Dynamics
Liquidity requirements	Bitcoins must be retained and stored safely, therefore frequent trading is not permitted in order to keep the ETF accurately tied to the spot price of Bitcoin	Contracts roll over as they expire, allowing for frequent trading. However, the liquidity management procedure is more complicated
Potential price discrepancy	Typically follows the spot price of Bitcoin almost exactly	Due to the dynamics of the futures market and contract expiration dates, the price may differ significantly from the spot price of Bitcoin
Earning Opportunities and Risks	Direct access to Bitcoin's price swings. The risks are mostly tied to price volatility.	Indirect exposure to price movements. There are risks associated with the volatility of Bitcoin, as well as the complexities of the futures market, including leverage and contract expiration dates
Complexity of operations	Infrastructure is needed to store bitcoins	Experience in trading futures contracts and ability to navigate the futures market is required.

Institutional Adoption and Trends

The approval of spot Bitcoin ETFs acted as something of a catalyst in creating the rise of institutional investment. In the first quarter of 2024, several wealth management firms, hedge funds, and pension funds notably increased their holdings in Bitcoin ETF. For instance, the Wisconsin Investment Board doubled its holdings in the iShares Bitcoin Trust ETF to 6 million shares. Similarly, major hedge fund players like Tudor Investment Corp. have ramped up positions that, by the end of December 2024, arrived at $426.9 million.

This rise in ETF investment can be at least partially put down to regulatory clarity and ease of investors' access. Investors can weave Bitcoin exposure into their portfolios without having to use crypto exchanges or manage digital wallets.

On the other hand, Bitcoin Futures have also played a role in attracting institutional interest. Bitcoin Futures allow investors to take strategic positions, allowing them to hedge current risks or speculate on market changes with leverage. However, Bitcoin Futures contracts can present new difficulties, such as the need to manage contract durations and potential price differences between futures and spot Bitcoin.

Market Impact and Future Prospects

Bitcoin ETF has changed the game for the cryptocurrency market. The assets under management in the Bitcoin ETF reached a staggering $120 billion as of the end of 2024, with the iShares Bitcoin Trust managing assets worth $57 billion alone. Such an inflow of money boosted Bitcoin prices to as high as $90,000 in November 2024.

Institutional investment in Bitcoin will see further evolution. Innovative ETF offerings ranging from diversified cryptocurrency index funds are set to appeal to an even wider specter of investors. Moreover, regulatory changes and the possibility of more crypto-friendly policies could increase institutional participation. As the market matures, Bitcoin ETF and Bitcoin futures would likely serve complementary functions; in essence, that is each would offer distinct advantages toward different styles of investment.