Bitcoin Mutual Fund: What You Need to Know

Bitcoin (BTC) is all the rage these days. BTC and other cryptocurrencies have entered the mainstream, with adoption spreading and prices climbing higher and higher. 

Understandably, investors are interested. An estimated 16% of Americans have bought, sold, or invested in cryptocurrency. However, many investors are intimidated by an asset class that is trickier to buy and hold than traditional assets. 

Investing in Bitcoin typically requires the investor to open a separate cryptocurrency exchange account, buy BTC, and then store it securely. You typically cannot buy BTC in a normal brokerage account. 

That’s all starting to change with the introduction of Bitcoin mutual funds like the Bitcoin Strategy ProFund, as well as Bitcoin ETFs. 

This guide will cover everything you need to know about Bitcoin mutual funds — what they are, how they work, and how to invest in them. 

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What Is a Bitcoin Mutual Fund?

A mutual fund is an investment product that combines money from many different investors to buy assets. 

A team of professionals manages the mutual fund, which pools money from individual investors and institutions. Funds are then used to invest in a variety of assets (or sometimes just one). 

Mutual funds can be bought and sold through most brokerage companies and in most investment accounts. They are available in retirement accounts, standard brokerage accounts, and even some custodial accounts for children.

Most mutual funds focus on traditional assets, like stocks and bonds. There are also some mutual funds that invest in alternative assets, like precious metals or cryptocurrency. 

A Bitcoin mutual fund focuses on the cryptocurrency asset Bitcoin (BTC). These funds are a way for investors to gain access to the performance of Bitcoin through their standard brokerage accounts. 

Investing in a Bitcoin mutual fund is somewhat like investing in Bitcoin itself, but the specifics differ. The fund should track the performance of Bitcoin closely. If Bitcoin rises 5%, your investment should also rise around 5% (minus fees). 

However, you don’t technically own the Bitcoin itself with a mutual fund. You cannot spend or transfer the Bitcoin or store it in your own wallet. 

For this reason, many cryptocurrency fans prefer to directly buy and sell Bitcoin rather than use funds. 

Another consideration is management fees. Bitcoin mutual funds charge ongoing annual fees, often in the 1-2% range, which can reduce your long-term returns. Holding Bitcoin directly does not involve fees. 

How do Bitcoin mutual funds work?

Bitcoin funds and other crypto mutual funds work by pooling money from many different investors and investing that money in Bitcoin and/or Bitcoin-linked assets. 

At this time, Bitcoin mutual funds in the United States do not directly own Bitcoin. This is due to regulations that prevent fund managers from doing so.

Instead, funds buy Bitcoin futures contracts. These contracts give the holder the legal right to take possession of an asset on a given date. 

A futures contract gives you the right to own an asset on a certain date — but you don’t actually own the underlying asset yet. 

Futures contracts are commonly used for commodities like corn, soybeans, or oil. Investors can buy a contract for large quantities of soybeans if they believe that the price will go up. They can later either sell the contract to someone else or take possession of the physical soybeans on a certain date. 

The price of futures contracts tracks the price of the underlying asset closely. If soybeans rise 5%, soybean futures will rise around 5%. 

Bitcoin futures work similarly. Futures contracts for Bitcoin are traded on regulated futures exchanges. Investors can buy and sell them freely during market hours. However, futures trading is complex, so most individual investors avoid direct futures investing. 

With Bitcoin mutual funds, the fund managers will continually buy and sell these futures contracts. This allows them to have continuous exposure to the price performance of Bitcoin — while getting around the regulatory hurdle of actual BTC ownership. 

Importantly, Bitcoin mutual funds won’t exactly track the price of Bitcoin. They should loosely match the performance of BTC — but over the long run, Bitcoin funds will underperform Bitcoin itself (particularly after accounting for fees). 

Bitcoin mutual fund vs. Bitcoin exchange-traded fund 

There are two types of Bitcoin funds: Mutual funds and exchange-traded funds (ETFs). 

For the most part, these funds hold the same underlying asset — primarily futures contracts. 

However, there are some key differences in how they work. 

‍Exchange-traded funds (ETFs) trade just like stocks. They have a price that updates constantly, and they can be traded during normal trading hours. 

‍Mutual funds trade only once per day. Their price updates at the end of the trading day to whatever the day’s closing price was. 

Apart from this key difference, there are a few others to consider:

• ETFs tend to be more widely available than mutual funds.
• Mutual funds sometimes have upfront fees (called a “load fee”).
• Both ETFs and mutual funds have ongoing management fees (called the “expense ratio”), but these can vary. Some mutual funds may have higher fees. 

At this time, there are more Bitcoin ETFs than there are Bitcoin mutual funds. 

Is There a Bitcoin Mutual Fund? 

Yes — at this time, there is only one Bitcoin mutual fund available to U.S. investors. 

The Bitcoin Strategy ProFund (BTCFX) is a fund that seeks capital appreciation through its investment in Bitcoin futures. Here are some quick facts about this mutual fund:

• Invests in Bitcoin futures
• Minimum investment of $1,000 (may be higher at some brokerages)
• Expense ratio of 1.46%
• Established on 07/28/2021 

The Bitcoin Strategy ProFund is managed by ProFunds, a large mutual fund company. The fund seeks to track the price of Bitcoin by continually investing in Bitcoin futures contracts. It does not directly own Bitcoin tokens. 

Alternatives to Bitcoin mutual funds

In addition to the Bitcoin mutual fund (Bitcoin Strategy ProFund), there are a few other options:

‍Bitcoin ETFs, like BITO, XBTF, and BTF, also invest in Bitcoin futures. These trade like stocks and do not have investment minimums or upfront fees (but they still have the ongoing expense ratio annual fee). 

‍Bitcoin trusts, like GBTC, invest directly in actual Bitcoin. GBTC is structured as a trust, but it trades on the open market similarly to an ETF. It has a high expense ratio, however. 

Neither trusts nor ETFs are true mutual funds. At this time, only one BTC mutual fund exists (BTCFX). 

What mutual funds are invested in Bitcoin? 

Other mutual funds may have some level of exposure to Bitcoin and/or Bitcoin-linked assets. 

For example, many funds invest in companies that are involved in the cryptocurrency industry. This includes cryptocurrency exchanges and crypto mining companies. 

An example is the Amplify Transformational Data Sharing ETF (BLOK). This is structured as an ETF, but it invests in a variety of cryptocurrency mining companies, cryptocurrency exchanges like Coinbase, and more. 

These funds provide a very indirect way to gain exposure to cryptocurrency assets. If you want direct Bitcoin exposure, buying BTC directly through a cryptocurrency exchange is the best option. 

How Can I Invest in a Bitcoin Mutual Fund? 

Investors can buy and sell Bitcoin mutual funds via most major stock brokers. If you have an existing account with a broker (Fidelity, Vanguard, Schwab, etc.), simply type the stock ticker (BTCFX) into the search bar. 

From there, you can place an order to purchase the mutual fund. You will need to invest the minimum amount, which you can transfer from a bank account if needed.

The minimum is at least $1,000 (what the fund manager requires) but may be higher depending on the broker. For example, Fidelity requires a minimum $2,500 investment in this fund.

Keep an eye on fees, as well. The Bitcoin Strategy ProFund does not have an upfront load fee, but it does charge a 1.46% expense ratio fee. Your broker may also charge a transaction fee (often $5-$10) when you purchase an asset. 

When you place the order, you won’t immediately purchase the mutual fund. Instead, the order will be completed at the close of the trading day. If you place the order during trading hours, your order will execute later that afternoon. If you place it after the trading day closes, your order will be fulfilled the following day. 

Remember, these funds invest in Bitcoin futures. If you want to directly own Bitcoin, you must open a crypto exchange account. 

What Are the Pros and Cons of Bitcoin Mutual Funds? 

Are BTC mutual funds worth investing in? Here are some of the advantages and disadvantages to consider. 

Pros

Simple to purchase: You can buy a Bitcoin mutual fund like the Bitcoin Strategy ProFund in your existing brokerage account. To buy BTC directly, you would need to open a new cryptocurrency exchange account. 

‍No experience required: Cryptocurrency can be a complex world. With a Bitcoin mutual fund, you don’t need to know as much about crypto or how to operate safely in the industry — you can just invest as you would with any other mutual fund. 

‍Retirement savings: You can purchase the Bitcoin Strategy ProFund in many retirement accounts. Holding actual Bitcoin in a tax-advantaged retirement account is typically not possible outside of uncommon accounts like self-directed IRAs. 

‍All in one place: If you like to view your overall investment portfolio all in one place, there is some benefit to having BTC mutual funds in your standard brokerage account.

‍Regulated: Mutual funds (and Bitcoin futures) are highly regulated by the Securities and Exchange Commission (SEC) and other agencies. The broader cryptocurrency industry is far less regulated.

Cons

No true ownership: Importantly, you don’t actually own Bitcoin when you invest in the Bitcoin Strategy ProFund (or other BTC ETFs/mutual funds). While your investment performance should mostly track the performance of BTC, you won’t be able to transfer the Bitcoin, spend it, or place it in your own wallet. 

‍Fees: Bitcoin mutual funds have an ongoing “expense ratio,” which is a yearly fee often in the 1-2% range. If you have $1,000 in a BTC mutual fund, you can expect to pay $10 to $20 each year. This fee is charged yearly regardless of the investment’s performance. 

‍Investment minimums: Many mutual funds have a minimum investment amount. BTCFX, the Bitcoin mutual fund, has a $1,000 investment minimum. Some brokers may require even higher minimums. With Bitcoin itself, you can buy any amount — even $1. 

‍Inaccurate tracking: These funds are designed to track the price of Bitcoin, but they don’t always do so accurately. Because of how these funds are structured and the fees involved with futures contracts, Bitcoin mutual funds tend to underperform the price of actual Bitcoin slightly. 

‍Limited trading window: Bitcoin trades 24/7/365. However, the Bitcoin Strategy ProFund only trades on business days and only once per day (at the close of the market). You can place orders any time, but they won’t actually be executed until the market closes. 

Conclusion 

Bitcoin mutual funds present an opportunity for investors to gain exposure to BTC without directly owning Bitcoin. This can be more convenient and allow investors to add Bitcoin exposure to their retirement or standard brokerage accounts. 

Keep in mind that with a Bitcoin mutual fund, you don’t technically own the Bitcoin itself — but your investment performance should closely follow the performance of Bitcoin. 

Want to learn more about cryptocurrency? Read through our complete guide to cryptocurrency basics. 

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