BlackRock Bitcoin ETFs vs BTC CFDs: Which is better for traders?

BlackRock's Bitcoin ETF allows investors to track the price of Bitcoin without directly holding the asset. It’s convenient, but recent developments have stirred concerns that ETFs might not properly affect and reflect the actual Bitcoin market.

In September 2024, BlackRock filed an amendment to its ETF with the SEC, responding to concerns about Coinbase’s on-chain settlement process. As the custodian of the BlackRock ETF, Coinbase was instructed to ensure Bitcoin withdrawals get processed within 12 hours, aiming to ease investor fears of "paper BTC"—essentially Bitcoin IOUs instead of on-chain Bitcoin transactions. This stems from worries that such paper BTC could be artificially suppressing the actual price of Bitcoin.

Although Coinbase claims all ETF-related transactions get settled on-chain, the lack of publicly disclosed addresses has led to suspicions. The fear is that BlackRock’s Bitcoin ETF might not fully purchase Bitcoin, leading to price stagnation even as institutional money flows in.

Simply put, if you’re buying into a Bitcoin ETF, you’re not actually buying the underlying Bitcoin itself,  which means no direct market impact. Instead, you’re investing in a fund that matches its value, which raises questions, why not just trade Bitcoin CFDs instead?

ETFs vs. CFDs

From the perspective of a retail trader, the advantages of an ETF are less than inspiring. Any trader with a trusted and regulated CFD broker will see mostly negatives when comparing ETFs against CFDs. While trading conditions vary from broker to broker, there are some benchmarks that can help us compare ETFs against CFDs.

ETF pros

Bitcoin ETFs provide a highly regulated, convenient way to gain exposure to Bitcoin without dealing with the technicalities of buying or securing cryptocurrency. Investors don't need to worry about managing private keys, wallets, or using complicated crypto exchanges.

ETFs are traded on established stock markets, making them easily accessible and liquid. Additionally, there’s a level of trust and transparency that comes with regulation and the involvement of reputable custodians, which reassures more risk-averse investors.

ETF cons

One drawback to Bitcoin ETFs is that you don’t actually own Bitcoin—just shares of a fund that tracks Bitcoin’s price. This means you lose the option to transfer, store, or spend your Bitcoin. Management fees can also eat into profits over time, and there are concerns that ETFs holding “paper BTC” could distort real market demand. Moreover, if a significant Bitcoin price surge occurs, ETFs might not reflect the full market value in real time, especially given the lag in transactions settled on-chain.

CFD pros

Bitcoin CFDs offer flexibility without overnight fees or the need to handle private keys, wallets, or exchanges, just like ETFs. However, CFDs go a step further by supporting leverage options, meaning you can take larger positions with a smaller amount of capital, increasing your trading potential with short-term price action trades.

CFDs also allow traders to short-sell Bitcoin, giving you the opportunity to profit from price drops—something ETFs can’t do.

Furthermore, CFDs are ideal for active traders who want to take advantage of Bitcoin’s volatility, as they allow quick, speculative trades at the click of a button.

CFD cons

While CFDs offer flexibility, they also come with high risks due to leverage. Both profits and losses get amplified, and inexperienced traders can quickly lose more than their initial investment if the market moves against them. Additionally, some CFDs often come with fees such as spreads, margin requirements, and overnight costs, making them less appealing for long-term investments.

Conclusion

Both ETFs and CFDs offer unique advantages depending on your trading style. Overall, Bitcoin CFDs offer a more hands-on approach to trading. CFD transaction processing is internal and instant while BlackRock's Bitcoin ETFs have a mandated 12-hour processing window for the custodian.

Bitcoin ETFs are perhaps a better fit for long-term investors who want regulated exposure to the cryptocurrency market along with certain tax benefits–available in certain countries. 

Bitcoin CFDs offer a more short-term agility with leverage options, instant execution, fast withdrawals, and fractional trading.

Overall, both instruments allow you to trade Bitcoin without directly owning it—but you’ll need to dig deep into your pocket if you want to trade with BlackRock, whereas CFD brokers have far more accessible order sizings and manageable minimum deposit.