The cryptocurrency market is currently worth $1.6 trillion, and bitcoin (CRYPT: BTC) represents 50% of that total. Bitcoin dominance (i.e., the market value attributable to Bitcoin) was also 50% five years ago, although it ranged between 38% and 70% during that period.
With that in mind, Morning Star Analyst Michael Miller expects the cryptocurrency market to soar 300% to $6.4 trillion by 2032. If Bitcoin dominance remains at 50%, the implied upside for Bitcoin would also be 300%. Alternatively, the implied upside would be closer to 200% if Bitcoin dominance fell to 38%, and the implied upside would be closer to 460% if Bitcoin dominance rose to 70%.
Regardless, cryptocurrency bulls have good reasons to invest in Bitcoin, and that can be done in several ways. The most obvious method is a cryptocurrency exchange like Coinbase (NASDAQ: CURRENCY). But creating and managing an account can be a headache, especially for investors who already have brokerage accounts.
Fortunately, a new type of investment product eliminates that friction: Bitcoin spot ETFs.
Bitcoin spot ETFs reduce friction for investors
Earlier this month, the US Securities and Exchange Commission (SEC) approved 11 Bitcoin spot ETFs, funds that track the price of bitcoin. That landmark decision could attract more retail and institutional investors to the market, and the influx of capital could send the price of Bitcoin much higher in the coming years.
Bitcoin spot ETFs are particularly attractive because they eliminate the headache of managing multiple accounts. Investors no longer need to purchase Bitcoin through a specialized exchange, nor do they have to worry about storing the cryptocurrency with a blockchain wallet. Instead, spot Bitcoin ETFs allow you to add Bitcoin exposure to existing brokerage accounts. That convenience is why spot Bitcoin ETFs could drive up the price of the cryptocurrency.
To put it in context, Bernstein analysts believe that the price per Bitcoin could reach $150,000 in 2025, which implies a 252% increase from its current price of $42,600. Similarly, analysts at Standard Chartered Bank believe that the price per Bitcoin could reach $200,000 in 2025, implying an increase of 369%.
The Best (and Worst) Bitcoin Spot ETFs
Generally speaking, all Bitcoin spot ETFs do the same thing. They buy Bitcoin on a cryptocurrency exchange (often Coinbase), split the Bitcoin into shares, and sell them on the stock market. In other words, this is not a situation where a team of experienced asset managers can create substantial value for fundholders by trading the right securities at the right time.
For that reason, buy-and-hold investors should focus on fees or expense ratios. As mentioned, the SEC has approved 11 Bitcoin spot ETFs, but fees vary widely between certain funds, as detailed below:
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Bit by Bit Bitcoin ETF Trust (NYSEMKT: BITB): 0.20%
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Ark 21Shares Bitcoin ETF (NYSEMKT:ARKB): 0.21%
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Fidelity Wise Origin Bitcoin Fund (NYSEMKT: FBTC): 0.25%
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iShares Bitcoin Trust (NASDAQ:IBIT): 0.25%
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Valkyrie Bitcoin Fund (NASDAQ: BRRR): 0.25%
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VanEck Bitcoin Trust (NYSEMKT:HODL): 0.25%
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Franklin Templeton Digital Trust (NYSEMKT:EZBC): 0.29%
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WisdomTree Bitcoin Trust (NYSEMKT:BTCW): 0.3%
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Invesco Galaxy Bitcoin ETF (BATS-CHIXE: BTCO): 0.39%
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Bitcoin Hashdex ETF (NYSEMKT:DEFI): 0.94%
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Bitcoin Trust in Grayscale (NYSEMKT:GBTC): 1.5%
Personally, I'd eliminate the bottom half of that list based on fees alone, and none more so than Grayscale Bitcoin Trust. There is simply no reason to pay 1.5% for an ETF (that means investors would pay $15 annually for every $1,000 invested) when an identical product could be purchased for a fraction of that cost.
Next, I would consider the issuer behind the ETF. Several of the funds listed above are managed by highly experienced asset managers, including Ark Invest and Fidelity. But iShares Bitcoin Trust would be my best option, because the fund is managed by Black Rockthe largest asset manager in the world.
To be clear, the issuer should matter very little, but ETFs managed by larger asset managers may be less likely to suffer liquidity problems stemming from insufficient demand. For example, iShares Bitcoin Trust ended January 18 at a 0.08% premium to its net asset value. That means investors are valuing the ETF at a 0.08% premium to the price of Bitcoin. That points to strong demand. In contrast, Grayscale Bitcoin Trust traded at a 0.27% discount to its net asset value, hinting at weaker demand.
Here's the bottom line: I would avoid spot Bitcoin ETFs with an expense ratio above 0.25%, and I would avoid the Grayscale Bitcoin Trust altogether, simply because there are less expensive alternatives. On that basis, I would be comfortable buying the spot Bitcoin ETFs managed by Ark, BlackRock, and Fidelity, but iShares Bitcoin Trust would be my first choice.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool positions and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
1 of the Top Bitcoin ETFs to Buy Before the Crypto Market Soars 300%, According to a Wall Street Analyst was originally published by The Motley Fool
