The advocates of Bitcoin had to wait for nearly eight years to receive an ETF that is based on this digital currency. And finally, when it arrived in October 2021, they had not one or two, but three varied types of funds to celebrate. With that let us have a look at the concept and the elements of Bitcoin ETF.
But before we get into the topic, let us understand what an ETF is. The launch of digital currency ETF could bring an inflow of the latest money into the digital asset space, which can result in the latest all time highs for various digital tokens and currencies. This holds true after the U.S. Securities and Exchange Commission ultimately approved the initial ETF that was linked to Bitcoin.
What Is An ETF?
An ETF stands for exchange traded funds which is a security that keeps a track of an index, a commodity, or even a basket of assets. Unlike mutual funds, shares in the exchange traded funds are tradeable similar to stocks. The best ETC outperforms mutual funds on a regular basis, making these lucrative options in the traditional space.
The concept of ETF being available for crypto assets would solve various issues blocking the mass adoption of digital currency. A managed asset would dampen some of the fluctuation’s effects and would challenge the maintaining and storing of a crypto wallet and portfolio. As some of the digital assets included in these exchange traded funds would be crypto futures, it would also broaden the choices available for investors. Some traditional ETFs have been permitted for hedging and speculation strategies, which could be helpful in the digital asset space.
What Is A Bitcoin ETF?
A Bitcoin ETF is an investment fund that tracks the Bitcoin price. ETFs are traded on exchanges in a similar way as stocks. That implies that any investors – institutional or retail– can purchase and sell holdings in an ETF to other market users over the stock exchange.
ETFs are generally cheaper compared to mutual funds since they are passive index-tracking funds. Hence, they allow private investors to avail themselves of asset classes and niche industries where it would otherwise be hard to invest.
Buying Bitcoin ETF Vs Buying Bitcoin
A Bitcoin ETF similar to the one that has been propped by the Winklevoss twins back in 2013 would have the cryptocurrency Bitcoin as an underlying asset. That implies that by buying an ETF of Bitcoin, an investor would be indirectly buying Bitcoin as they would be holding that ETF in a portfolio as opposed to holding and purchasing the cryptocurrency itself.
However, as the ETF would track closely the value of Bitcoin, for the investor, it should make very little difference whether they are actually holding an ETF or the crypto itself. The primary difference between purchasing a bitcoin ETF and bitcoin itself is that investors are buying a regulated investment tool, instead of purchasing and owning a crypto asset.
Thus, a bitcoin ETF has several advantages for investors:
1. It Is More Convenient
For beginners, you do not have to worry about the security issues of properly storing Bitcoin. There is no requirement to learn the complexities of using a crypto wallet or dealing with a crypto exchange. Purchasing an ETF smoothens the complete process of investing in digital currencies.
2. It Is Regulated
As a decentralized and at times unregulated asset class, access to BTC is fraught with regulatory complexities in many jurisdictions. ETFs are traded under strict institutional views in mainstream market exchanges. This is helpful from a legal perspective along with a tax efficiency dimension.
3. It Can Diversify Risk
There is no denying the high fluctuations and exposure to risk that investing in BTC brings to a portfolio. This is where an ETF structure can make a big difference – you may be able to find funds that mix BTC with other famous altcoins, AAA stocks, traditional commodities, and more for added diversification. It offers you more choices for risk management while still getting a look into the vibrant crypto markets.
A Latest Bitcoin ETF Is Coming
Despite the long list of drawbacks and history, most experts believe that a Bitcoin ETF is coming. Ric Edelman, who is the founder of Edelman Financial Engines, said in an interview,
“It’s virtually certain. The only question is when. The SEC has several legitimate thoughtful concerns that the industry has to overcome but I’m confident they will.”
ETF.com’s editor-in-chief, Tom Lydon, agrees with Edelman stated,
“There is pent-up demand. We interview advisors all the time. Seventy-four percent say they’ve talked to clients about their interests in bitcoin.”
Even the commissioner of the Securities and Exchange Commission, Hester Pierce, has said that she agrees that a Bitcoin ETF will come but that the investors of bitcoin will have to be patient until the Bitcoin ETF approval criteria of SEC have been fulfilled by the BTC market. With that release, you will get to know the latest Bitcoin ETF price.
Attorney Jake Chervinsky, who specializes in blockchain technology and crypto assets, told in an interview that he thinks that
“it’s entirely possible that another 10 months of development in the cryptocurrency ecosystem could be enough to finally warrant approval of a bitcoin ETF.”
The Bottom Line
The scope of digital currencies widens with every passing year. The inclusion of Bitcoin futures ETFs in the US industry is a prominent step in the correct direction. Investors deserve to have more high-yield, innovative choices to balance their portfolios.
While a spot ETF stays the ultimate dream, Bitcoin futures also have merits. In a challenging economic scenario, they could fill a void and offer lucrative high-growth choices at a decreased risk for institutional and retail investors. This guide on Bitcoin ETF has rightly justified that.
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