Blockchain ETFs vs. Bitcoin ETFs: What's the Difference?

Blockchain ETFs vs. Bitcoin ETFs: An Overview

Even as the cryptocurrency bitcoin has gained traction within the investment community, bitcoin exchange-traded funds (ETFs) are relatively new. Blockchain ETFs have also made their debut in mainstream markets.

In the news and mainstream media reports, the terms bitcoin and blockchain are sometimes used interchangeably. As a result, it's possible to confuse blockchain ETFs and bitcoin ETFs, although they are different financial instruments.

Blockchain ETF

Blockchain ETFs primarily track the stock market prices of companies that have invested in blockchain technology in their fund. Because blockchain is a technology, it is not tied to a specific company or product.

"Bitcoin needs blockchain but blockchain doesn’t need bitcoin,” said Christian Magoon, CEO of Amplify ETFs, the largest ETF focused on blockchain. The blockchain universe of investments is large and not restricted to a particular sector. For example, IBM formed a partnership with the shipping line Maersk to implement blockchain in the freight industry.

Similarly, e-commerce company Overstock has made investments in blockchain through its Medici Ventures and tZERO digital coin exchange. Naturally, these companies are favorites with blockchain ETFs. For example, Amplify ETFs’ Amplify Transformational Data Sharing ETF (BLOK) and Siren Shares Nasdaq NexGen Economy (BLCN) have included both companies in their ETFs. 

Bitcoin ETF

Most bitcoin ETF applications that have been submitted to the Securities and Exchange Commission (SEC) have proposed tracking the price of bitcoin through futures contracts that are traded on the Chicago Board Options Exchange (CBOE) and through the CME Group. In this model, ETFs track the price of bitcoin through ownership of futures contracts.

In October 2021, the first-ever bitcoin futures ETF was launched—the ProShares Bitcoin Strategy ETF. It tracks bitcoin futures contracts pegged to the future price of the cryptocurrency. Since then, several other funds have launched with the goal of investing in bitcoin futures contracts.

However, there are no ETFs that invest in Bitcoin directly. The SEC has rejected every proposal for such funds, citing the possibility of "fraudulent and manipulative acts and practices." The regulator has also raised concerns about price manipulation through Tether and other stablecoins.

In their current form, blockchain ETFs are relatively stable compared to the volatility of (hypothetical) bitcoin ETFs. This is because they are not exposed to bitcoin’s price swings.

That said, blockchain is still considered a nascent technology and does not currently constitute a large market. As such, the stock prices of companies being tracked by the ETF are more susceptible to factors that do not concern or affect blockchain technology. When they are launched, bitcoin ETFs will be directly affected by the policies of regulatory agencies regarding bitcoin and cryptocurrencies.  

Key Differences

To understand the difference between bitcoin ETFs and blockchain ETFs, it's important to know the difference between the instruments they track. Bitcoin is a cryptocurrency, while a blockchain is the underlying database technology. That distinction becomes important when considered within the context of investment instruments. 

Even though bitcoin futures are already offered on the country’s leading exchanges, cryptocurrency’s regulatory status is still unclear in some jurisdictions. In recent years, virtual currencies have been embroiled in multiple regulatory battles, particularly for their role in criminal activities, such as money laundering.

On the other hand, blockchain technology has won the interest of several figures in the world of legacy finance, including J.P. Morgan CEO Jamie Dimon. Blockchain technology is neither banned nor under scrutiny by regulatory agencies.

There are currently eight blockchain ETFs trading in regulated markets, according to ETF Database. All of these ETFs were launched between 2018 and 2021. As of May 2022, they have a combined $1.4 billion worth of assets under management (AUM), and their expense ratios range from 0.50% to 0.95%.

The Bottom Line

As the popularity of bitcoin continues to surge, so have the bitcoin ETFs. In general, digital currencies have become increasingly mainstream among institutional investors. There are many things that are appealing about a cryptocurrency ETF—investors would be able to buy and sell bitcoin more easily, and eliminate the inconvenience of securing and storing bitcoin. However, regulators remain concerned about the risk of exposing retail markets to a bitcoin spot ETF.

Investing in cryptocurrencies and other Initial Coin Offerings (ICOs) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.