What Is a Bitcoin ETP?

Key takeaways

1. Bitcoin has become a more popular investment in recent years, driven by institutional interest and clearer regulation. This shift enables Bitcoin exchange-traded products (ETPs) to offer regulated access through traditional investment platforms.
2. While it offers potential diversification benefits, Bitcoin still carries volatility and security risks.
3. ETPs offer an accessible way to gain Bitcoin exposure without the hassle of managing digital wallets.

A decade ago, the cryptocurrency Bitcoin was a curiosity hovering on the margins of the investment world. Now, practically everyone has heard of it, and it has grown into a more widely accepted investment in recent years. Yet despite its rising visibility, many investors still aren’t sure what Bitcoin really is or how it might fit into their financial plans.

Here, we’ll cover the basics of Bitcoin, tracing its evolution from a niche digital asset to a more broadly accepted potential diversification tool. We’ll also explore how exchange-traded products (ETPs) have made Bitcoin more accessible to everyday investors.

What is Bitcoin?

In 2009, Bitcoin was launched as the world’s first cryptocurrency—a form of digital currency that's not backed by banks or other lending institutions but by blockchain, an open and public digital ledger of all transactions involving the currency. This ledger is spread across many computers to ensure its security and transparency by recording every transaction. Its decentralized nature allows individuals with internet access to buy, sell or spend cryptocurrency with relative anonymity. Since its inception, Bitcoin has grown to dominate the cryptocurrency market, often representing a significant portion of the total market capitalization. Following Bitcoin's lead, other cryptocurrencies, such as Ethereum, Litecoin and Cardano, have emerged. While some advocates support Bitcoin’s use as an everyday currency, most merchants don’t accept it or other cryptocurrencies. Instead, its growth has been driven by its emergence as a tradeable asset, with many people investing in it as they would in stocks.

The evolution of Bitcoin as an asset

In its early years, Bitcoin was largely confined to a niche community of digital‐asset enthusiasts. Buying it required specialized knowledge: Users had to set up digital wallets, navigate unfamiliar exchanges and manage private keys on their own. It functioned more as a novel digital commodity than as a practical investment tool.

Over time, several developments contributed to Bitcoin’s increasing acceptance. Institutional interest grew as hedge funds, asset managers and corporate treasuries began allocating small portions of their portfolios to the cryptocurrency. Regulated exchanges and custodians emerged, making it easier and safer for individuals and institutions to buy and hold Bitcoin without needing to manage their own digital wallets.

At the same time, bipartisan efforts to establish clearer digital-asset regulatory oversight began to take shape. Lawmakers from both parties have worked toward setting standards for custody, trading, taxation and anti-fraud protections. For example, Congress passed the Genius Act in 2024 with bipartisan support, giving the U.S. Commodity Futures Trading Commission authority over digital commodities like Bitcoin and helping clarify jurisdiction.

While the regulatory landscape is still evolving, efforts like these have made Bitcoin more aligned with traditional financial rules. Taken together, they have helped it shift from an experimental digital token into a more accepted potential diversification tool.

Bitcoin’s potential role in a diversified portfolio

Given the youth of this asset class, it’s probably not the best idea to invest mainly or exclusively in Bitcoin or any other cryptocurrency. But Bitcoin does offer several potential benefits when incorporated as a modest portion of a diversified portfolio:

• Potential diversification

  Bitcoin’s price movements have historically shown a low correlation to those of traditional asset classes like equities, bonds and real estate. While correlations can shift over time—especially during periods of market stress—Bitcoin still provides exposure to a fundamentally different set of drivers, including network adoption, technological development and public sentiment around digital assets. Including a modest allocation in a broader portfolio can potentially help spread risk across uncorrelated sources of return.

• Potential hedge against inflation

  One of Bitcoin’s core design features is its fixed supply cap of 21 million coins, making it resistant to the kind of inflation that can erode the value of government-issued currencies. While it hasn’t always worked as a perfect inflation hedge, it has sometimes appreciated during periods of rising inflation. For investors concerned about the long-term decline of their purchasing power, Bitcoin may serve as a potential hedge alongside more traditional investments like real estate.

• Potential for high returns

  As a rapidly evolving asset, Bitcoin carries both significant risk and the potential for significant upside or downside. Since its creation, it has experienced several boom-and-bust cycles, but its long-term trajectory has been positive. Along with the growing recognition of cryptocurrency as an asset class, this history may make it appealing to investors willing to accept volatility in exchange for growth potential.

Risks of investing in Bitcoin

Even with these attributes, Bitcoin remains a volatile, speculative investment. Understanding its vulnerabilities is essential before deciding whether it’s a good fit for your broader investment strategy.

• Volatility

  Bitcoin’s price is notoriously volatile, capable of experiencing double-digit percentage swings in a matter of hours. This instability stems from a combination of factors: a still-maturing market structure, sensitivity to shifts in sentiment and the absence of traditional valuation anchors to help ground prices in clear measures of value—the way that, for example, the price-to-earnings ratio helps provide a rationale for equity prices. While volatility can create opportunities for substantial gains, it also exposes investors to sharp drawdowns.

• Changing regulatory environment

  Even as the evolving regulatory landscape is making Bitcoin more widely accepted as an asset, potentially helping stabilize its performance in the long run, new rules have the potential to trigger significant short-term market reactions, both positive and negative. Investors should be aware of policy shifts regarding cryptocurrency trading and the potential impact they may have on performance.

• Cybersecurity risk

  While Bitcoin’s underlying blockchain has proven resilient, the cryptocurrency market as a whole remains vulnerable to hacking and fraud. A significant cyber event could instrumentally impact the price of Bitcoin, and even the most trusted providers will be unable to protect investors from large swings in value.

• Liquidity concerns

  While Bitcoin is generally considered liquid compared to other cryptocurrencies, liquidity can vary significantly across exchanges and during periods of market stress. This can impact the ability to execute trades at desired prices.

• Market manipulation

  The cryptocurrency market, including Bitcoin, is susceptible to manipulation tactics, such as wash trading and pump-and-dump schemes, which can distort prices and create artificial volatility.

• Technological risks

  Although the Bitcoin blockchain is robust, technological vulnerabilities in exchanges, wallets or other infrastructure can pose risks. Updates or forks in the blockchain can also lead to confusion and potential losses if not managed properly.

• Adoption and market sentiment

  The value of Bitcoin is heavily influenced by public perception and adoption rates. Shifts in sentiment, driven by media coverage or influential figures, can lead to rapid price changes.

Bitcoin ETPs

If you’re interested in investing in Bitcoin without having to manage a digital wallet, you may want to consider an exchange-traded product (ETP). Bitcoin ETPs are relatively new investment options that let you own shares in a pooled fund that owns Bitcoin. The ETPs are traded on a regulated exchange and are subject to regulatory scrutiny, potentially making them a safer option than investing directly in Bitcoin.

What’s more, ETPs are managed by professional financial institutions that implement robust security measures, helping minimize the risk of theft. Because you don’t have to manage your own digital wallet, you don’t have to worry about stolen private keys, phishing attacks or user error that can result in irreversible damage. Financial institutions that manage ETPs also provide familiar year-end tax documents, making tax reporting more straightforward than with direct Bitcoin holdings.

It's important to note that Bitcoin ETPs carry similar risks as a direct investment in Bitcoin, including potentially high volatility. But they also have some unique risks, such as tracking errors and liquidity challenges. While Bitcoin ETPs aim to replicate the performance of the underlying Bitcoin market, discrepancies may arise due to management fees, transaction costs and market conditions.

There are pros and cons to owning Bitcoin within an ETP. The advantages include easier management, security enhancements and streamlined tax reporting. However, investors should be aware of the potential for tracking errors and additional costs associated with ETPs.

Investing in Bitcoin isn’t for everyone. But for investors with a higher risk tolerance who seek an option to further diversify their portfolio, Bitcoin may be worth considering, especially through an ETP. Talk to your advisor to determine if this option is a good fit for your unique financial strategy.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.

There are a number of risks with investing in the market; if you want to learn more about them and other investment-related terminology and disclosures, click here.

Digital assets (including cryptocurrencies) are highly volatile and trading digital assets involves a high degree of risk, including risk of loss of principal. The past performance of any particular digital asset is not indicative of future results. All investments carry some level of risk, including loss of principal invested. No investment strategy can assure a profit and does not protect against loss in declining markets. Investment restrictions apply.