Bitcoin ETFs were inevitable. It was almost impossible for the two hottest areas of investment to not cross paths. Well, the time is here now, we finally have the two crossing paths.
For cryptocurrency enthusiasts and investors looking to capitalize on the growing popularity of exchange-traded funds (ETFs), the possibility of an ETF that tracks bitcoin is the best opportunity for this type of connection. However, there have been growing pains and problems in trying to launch the first bitcoin ETFs.
The first bitcoin exchange-traded fund is expected to start trading Tuesday, making the most widely traded cryptocurrency available to most investors with a brokerage account.
In today’s article, we are going to be discussing the Bitcoin ETFs, what it means for investors and how will it impact the community as a whole. Keep reading to find out!
Recommend Read: Investing in Blockchain ETFs
Table of Contents
Bitcoin Trading: a General Introduction
A very common trend in cryptocurrency trading is spot trading. Let’s take a look at what it is.
Spot trading is the process of buying and selling digital assets such as Bitcoin for immediate delivery. In other words, cryptocurrencies are directly transferred between market participants (buyers and sellers).
In a spot market, you have direct ownership of cryptocurrencies and are entitled to economic benefits such as staking participation. Spot exchanges act as intermediaries for buyers and sellers to bid and ask for a crypto asset.
In contrast, a futures market settles the delivery of its underlying assets and futures contracts on a predetermined future date.
Why is the latter better and has less risk association?
Spot trading, well, is complicated and comes with a lot of hassle. One must have 360-degree knowledge of digital exchange before diving into it. It is also time-taking and comes with a great deal of volatility.
How is a Bitcoin ETF better? Let’s find out!
What is a Bitcoin ETF?
Before talking about what a Bitcoin ETF is, let’s first take a look at what traditional ETFs are and how they work. An ETF is an investment vehicle that tracks the performance of a particular asset or group of assets. ETFs allow investors to diversify their investments without actually owning the assets themselves.
For individuals looking to focus only on gains and losses, ETFs provide a simpler alternative to buying and selling individual assets. And because many traditional ETFs target larger baskets of names with something in common, they allow investors to easily diversify their holdings.
A bitcoin ETF mimics the price of the most popular digital currency in the world. And let’s be real Bitcoin trading is not for the weak of heart, a bitcoin ETF will allow investors to buy into the ETF without going through the complicated process of trading bitcoin itself.
Moreover, because holders of the ETF won’t be directly invested in bitcoin itself, they will not have to worry about the complex storage and security procedures required of cryptocurrency investors.
But how is it better than investing directly in Bitcoin?
As we said above, Bitcoin trading is complicated, and ETFs save you trouble. Apart from that, there is no need to deal with cryptocurrency exchanges in the process—investors can just buy and sell the ETF through traditional exchanges and markets.
Another crucial benefit that makes a bitcoin ETF attractive is that since an ETF is an investment vehicle, investors would be able to short sell shares of the ETF if they believe the price of bitcoin will go down in the future. This is not something that can be done in the traditional cryptocurrency market.
One more thing that comes into play is that it makes things easier. ETFs have been here for a long time and a larger number of investors know about them. It makes diving into digital currencies simpler rather than learning the ins and outs of something complicated.
The Journey of Bitcoin ETF Approval
Since 2013, when crypto investors Cameron and Tyler Winklevoss first submitted a proposal, various issuers have tried to get permission for a Bitcoin fund to join the now-$6.8 trillion ETF industry. Firms looking to launch bitcoin ETFs have run into problems with regulatory agencies and have been turned down by the SEC multiple times.
VanEck and SolidX, a fintech company with projects related to bitcoin, announced plans earlier in 2018 for the VanEck SolidX Bitcoin Trust ETF.
Among fund managers who have applied to launch bitcoin ETFs in the United States are the VanEck Bitcoin Trust, ProShares, Invesco, Valkyrie, and Galaxy Digital Funds.
The Nasdaq approved the listing of the Valkyrie Bitcoin Strategy ETF last week.
Grayscale, the world’s largest digital currency manager, is planning to convert its flagship product, the Grayscale Bitcoin Trust into a spot bitcoin ETF, CNBC reported.
After months of back-and-forth between the SEC and potential bitcoin futures ETF issuers, the regulatory authorities appear prepared to greenlight a handful of filings that would open the door to wider access to cryptocurrencies for retail and institutional investors alike.
Under the rule sets used by the ETF issuers, the SEC does not have to give explicit approval to the ETFs, which can be launched at the end of 75 days if the U.S regulator has no objections. Cryptocurrency investors expect the approval of the first U.S bitcoin ETF to trigger an influx of money from institutional players who cannot invest in digital coins at the moment.
- A bitcoin ETF mimics the price of the digital currency, allowing investors to buy into the ETF without trading bitcoin itself.
- Investing in a bitcoin ETF cuts out the complications of cryptocurrency trading.
- The Securities and Exchange Commission has finally given a green light to Bitcoin ETFs.
- This recent approval by the SEC has caused the price of BTC to reach a high of $62,614.66.
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