Bitcoin ETF


What is a Bitcoin ETF?

An Exchange Traded Fund (ETF) is a type of investment fund that keeps track of the price of the underlying assets such as Gold, Silver, Oil, an index or a basket of stocks. An ETF is traded on exchanges in the same way as stocks mean any retail or institutional investor can buy and sell the ETF to other market participants. ETFs are cheaper than mutual funds as they set up passive index-tracking funds. ETFs allow everyone, even private investors to invest in assets that are very difficult to buy/sell and store.

A Bitcoin ETF would have the digital currency Bitcoin as an underlying asset. When an investor is buying Bitcoin ETF that means they are buying Bitcoin indirectly. As we have explained above an ETF keeps track of the price of the underlying assets. Many investors prefer investing in an ETF without actually buying the asset.

Bitcoin is a digital currency and some people think it is difficult to store their BTC for a long time. Bitcoin ETF makes this easy, investors can include Bitcoin in their portfolio without actually buying it. Investors do not need to be aware of the technical process of storing and transferring Bitcoin.

The Bitcoin ETF is traded on major exchanges and there is a very small price difference between the actual market and ETF market. The investors can just buy and hold the ETF and sell it when the price increase. The ETF is regulated by the United States Securities and Exchange Commission (SEC), which means investors can invest hesitating.

Why Bitcoin ETF?

As we have explained an ETF keeps the track of the price of the underlying assets, just think it is a mirror of the real asset so why not buy the asset in this case Bitcoin directly instead of the ETF?

There are many reasons why people prefer ETFs over assets. One reason we have explained above is that investors don’t bother to learn and manage the security procedures associated with holding Bitcoin.

Another reason is that investors don’t want to engage with cryptocurrency exchanges. The Bitcoin ETF is listed on the traditional exchanges and markets so it is very easy to buy and sell an ETF. There is some crucial advantage of a Bitcoin ETF over Bitcoin itself. As an ETF is an investment vehicle, investors have an option to short sell shares of the ETF if they think that the price of the underlying asset Bitcoin will go down in the future. This is something that the Bitcoin traditional market does not offer. Most importantly, the investors had a much better understanding ETFs than Bitcoin and other cryptocurrencies, even the digital currencies have gained a lot of popularity in the past few years. An investor that wants to invest in Bitcoin without knowing the technical ins and outs, just want to ride the price wave. The investor will choose the ETF investment vehicle that he understood better.

Benefits of ETF for Bitcoin

We have explained the advantages of Bitcoin ETF over the asset Bitcoin itself. The ease of purchasing and storing a Bitcoin ETF will open up the gates of the world’s largest cryptocurrency for new investors such as Hedge funds, Mutual funds, and pension funds.

The approval of a Bitcoin ETF would likely boost the Bitcoin price to new highs because of the limited supply and increasing demand. The institutional and private investors as mentioned above are not much aware of the technology can easily and safely invest in Bitcoin by buying the ETF from traditional exchanges. You can see the effect of ETF on a market. The gold market is the best example of this. The ETF for gold is launched in the early 2000s, At that time Gold prices is trading around $250. The ETF brings private and institutional investors and starts a bull rally that will touch a peak in 2011; the peak price of the rally is $1900. A similar situation will happen in Bitcoin after an ETF. The price will reach new all-time highs because of the massive demand from private and institutional investors. This will create a Bandwagon effect because everyone is talking about the potential high return of Bitcoin can give in the future. The crypto community is very optimistic even after a lot of rejection from the SEC.