What is an ETF?
An ETF (exchange-traded fund) is a portfolio that allows investors to benefit from the growth of multiple assets without actually having to purchase any of those assets directly. Unlike other funds, ETFs can be traded on stock exchanges like shares. This means their value can fluctuate based on the portfolio’s real-time performance.
An ETF is usually made up of a mixture of different assets across various sectors to help investors diversify and offset risk. For example, the Vanguard S&P 500 UCITS ETF is one of the most popular in the UK and tracks the stock performance of 500 of the largest companies listed on stock exchanges in the United States. However, an ETF can also be set up to track the price of a specific commodity. This would theoretically open the door for a bitcoin ETF, however crypto ETFs have been banned in the UK by the Financial Conduct Authority (FCA) .
Can you buy a bitcoin ETF in the UK?
No. While bitcoin ETFs are available in other countries, UK investors still need to use a crypto exchange and make a direct purchase. A lot of UK cryptocurrency fans will have been excited by the 2024 US Securities and Exchange Commission (SEC) decision to allow investors to purchase a spot bitcoin ETF, but similar approval from UK regulators is some way off and US ETFs are not available for purchase in the UK. The green light in the US only came about after a protracted legal challenge following the SEC’s repeated refusal to approve requests because of concerns over fraud and potential price manipulation.
These reasons were ultimately judged as inadequate in court, but SEC chairman Gary Gensler remained critical of the ETF after approval, saying: “Bitcoin is primarily a speculative, volatile asset that's also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.”
Investors in the US – and other countries where such ETFs are available – can buy into bitcoin without the hassle or risk of digital wallets, or the complication of using crypto exchanges. Giant US investment companies entering the market, such as Blackrock and Fidelity, contributed to the rise of cryptoassets into the investing mainstream and could be a major step towards these investment platforms bringing their products to the UK.
What is the US spot bitcoin ETF?
In the US, investors can buy a spot bitcoin ETF. This is different to a bitcoin ETF and other crypto ETFs because a spot ETF holds the actual cryptocurrency itself, in this case bitcoin. The ETF’s value is therefore directly connected to the real-time price of bitcoin because it owns that asset. Anyone investing in the spot ETF would essentially be buying a share of the fund’s bitcoin holdings, so you would expect it to fluctuate in value in the same way as the cryptocurrency itself.
A spot bitcoin ETF would be a much more direct way of investing in crypto than a traditional EFT, which would hold a more diverse range of assets such as shares in companies related to the crypto industry. As a result, a traditional ETF would be less likely to mirror the performance of the cryptocurrency itself. This could be a good thing if it protects your investment from dramatic dips, but it could also limit potential gains if the price of bitcoin increases.
Will UK crypto regulation change?
The Financial Conduct Authority (FCA) has published its roadmap to fully regulate cryptoassets in the UK by 2026. It outlines how new regulations will be drawn up and when they are likely to be introduced to the UK crypto market. This represents a softening in the FCA’s perspective on cryptoassets and the consultation process could pave the way for a UK bitcoin ETF.
Since bitcoin and other cryptocurrencies broke into the financial mainstream, the FCA has stayed mostly steadfast in its regulatory approach. Like its US counterpart, it has warned of the dangers of investors losing all of their money and the risk of scammers stealing crypto holdings. Currently, the FCA only regulates for marketing and anti-money laundering, so if something were to go wrong, there would be little recourse for investors. This is in contrast to the regulation of conventional investments and protection under the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS). With these programmes, you can get some or all of your money back if you are scammed or your provider goes bust.
The rise in crypto popularity has led to a shift in the UK regulatory landscape, even if it remains some way behind the US and other countries in key areas. The regulator’s plans to bring more crypto activities under its supervision could certainly be seen as a significant step towards a UK bitcoin ETF in the future. This could be just around the corner or a long way off, depending on how the FCA decides to navigate the minefield of keeping consumers safe in the face of growing demand and political pressure to make crypto more easily tradable.
How to invest in bitcoin
Even without the option to buy an ETF, UK investors can still invest in bitcoin and other cryptocurrencies. You will not be able to do so through mainstream investment platforms, as you can in the US, but you can buy crypto through an exchange platform. You will need to store your holdings in some kind of wallet, which we explain in our article ‘What is a cryptocurrency wallet?’.
The investment process is not as simple as it would be through an ETF, but buying and selling bitcoin and other crypto is not hugely complicated once you have a grasp of the basics. Head over to our ‘A beginner’s guide to investing in bitcoin and cryptocurrency’ page to get to grips with the need-to-knows. Though they do charge fees, the best crypto exchange platforms are easy to navigate and can be accessed through a dedicated crypto app. We go through the best app options in our article ‘5 best crypto apps for UK traders’.
As an alternative to investing directly in bitcoin or another cryptocurrency, you could choose to gain exposure to cryptocurrencies by buying shares in companies involved in crypto mining or trading. This would give your investment a less direct connection to the value of a particular digital coin.
Is an ETF less risky than buying bitcoin directly?
Bitcoin is a high-risk asset, along with most other cryptoassets. While the additional regulation that would come with adoption of a UK bitcoin ETF could be seen to reduce some risks, the inherent risk is still there. The utility of bitcoin is still questionable as its use as a payment method has seemingly stalled, leaving it as primarily a speculative investment. Its value shot up in 2024, but it has also nosedived in recent memory, so investing in it through any means is risky.
That being said, it would be easier to consider crypto options alongside other high-risk assets if there were an ETF option, without the hassle and risks associated with crypto exchange platforms. Ultimately, cryptoassets are highly volatile and there is little or no financial protection if things go wrong. This means investing is only really suited to investors who understand the inherent risks associated with crypto and are prepared to lose all the money they invest.