Bitcoin ETF: Potential Investment Opportunity In Bitcoin With Less Risk
So what is a Bitcoin ETF? How to Invest in Bitcoin ETFs? Can we sell a Bitcoin ETF? Both modern and traditional traders are eyeing this new investment option. Let’s learn what a Bitcoin ETF is and how to invest in it with Coincu.
What is a Bitcoin ETF?
Exchange-traded funds (ETFs) have been in the traditional financial markets since 1993 and are an attractive investment option for many traders.
Why? Because ETFs are considered financial products with a low level of risk and investment fees. An ETF represents a group of commodities, stocks, bonds, futures, or stock indices. Like stocks, traders can trade ETFs on stock exchanges. In addition, ETFs can also track and trade the price of an individual asset, and this is an accurate description of a Bitcoin ETF. Basically, a trader’s investment budget can be more or less using ETFs.
Because ETFs are traded based on the same liquidity of equity as stocks, most exchanges allow traders to trade ETFs with short positions. ETFs trade at real market prices (unlike mutual funds). Therefore, it is an attractive trading option for both traders and investors.
A Bitcoin ETF or bitcoin ETF is a portfolio swap fund that tracks and trades the price of Bitcoin. When we combine an asset like Bitcoin with a vehicle like an ETF, we get a very interesting financial product.
So how can the Bitcoin ETF outperform the leading cryptocurrency, Bitcoin? What is Bitcoin ETF?
Essentially, investors and traders can gain exposure to Bitcoin through a Bitcoin ETF without having to own physical Bitcoins. This is quite similar to Bitcoin CFDs. A Bitcoin ETF can track the price of Bitcoin through futures contracts on a stock
After many years, the Securities and Exchange Commission (SEC) approved ProShares’ first Bitcoin ETF on the New York Stock Exchange (NYSE) on October 19, 2021. It’s called the ProShares Bitcoin Strategy ETF (BITO.US).
ProShares Bitcoin Strategy ETF Chart
Advantages of Bitcoin ETF
Many crypto enthusiasts believe that instead of investing or trading a Bitcoin ETF, one should buy real Bitcoin from a stock exchange.
Like all investments, Bitcoin ETFs have mixed opinions, and not all solutions are right for everyone.
Perhaps the main advantage of a Bitcoin ETF is that investors who may not be too crypto-savvy can participate in the crypto market. Your average person is not necessarily familiar with crypto exchanges, wallet locking, and safe crypto storage in hardware wallets – all aspects of high importance in protecting crypto assets, literally death or Bitcoin.
With a Bitcoin ETF, investors can access the ETF through their regular broker and trade or invest in a Bitcoin ETF like they would any regular stock or asset. Some brokers offer insurance to their clients to provide more security in their operations.
Disadvantages of Bitcoin ETFs
With any advantage of an investment option, there are, of course, always disadvantages.
When comparing Bitcoin ETF trading to cryptocurrencies, the ETFs can only be bought or sold during the market’s trading hours. As you probably know, when buying and selling Bitcoin or any cryptocurrency on an exchange, you can do so 24/7.
Holding your own crypto in exchange does not generate any fees or administration fees, in fact. Usually, when you hold an ETF with a broker, you will incur an administration fee to maintain the account. This may not make financial sense from a Dollar Cost Averaging perspective if you plan to make a lot of trades over time – as a single trader, for example.
Finally, when purchasing a Bitcoin ETF through a broker, you should always adhere to the Know Your Customer (KYC) policy, where cryptocurrency exchanges are generally free. This can be considered as an advantage and a disadvantage, as adopting a KYC policy will ensure the protection of your account.
Why Buy Bitcoin ETF?
The advantage of a Bitcoin ETF is that it provides traditional investors with access to Bitcoin holdings without having to create an account on a cryptocurrency exchange. Some traditional investors have yet to break into the cryptocurrency market, although they may have brokerage accounts at financial institutions that trade securities. For these investors, it may be more convenient to continue using the same brokerage account but still have an investment with access to Bitcoin.
Investing in a Bitcoin ETF provides access to the price of BTC without establishing direct ownership of Bitcoin, something some investors may not feel comfortable or familiar with. Storing your own Bitcoin comes with additional responsibility, which an exchange-traded ETF eliminates. In other words, a Bitcoin ETF makes investing in Bitcoin simpler than buying it yourself.
Institutional investors such as pension funds or wealth managers may have specific mandates and rules that forbid them from investing directly in Bitcoin. However, they have a better chance of being allowed to invest in an SEC-approved vehicle – such as a Bitcoin ETF. Many institutions with a broader mandate can start investing in Grayscale Bitcoin Trust, even if they cannot hold Bitcoin directly. Exchange-traded ETFs make investing in Bitcoin even more accessible from a regulatory perspective.
Bitcoin ETFs invest in alternative Bitcoin assets, which is a good way for investors to diversify their portfolios. This strategy also helps investors to hedge the risks associated with investing in a single asset or in a narrow group of assets. An investor who may not know how to buy Bitcoin directly can still diversify their portfolio using a Bitcoin ETF.
Investing in a Bitcoin-related asset on a stock exchange can bring a whole new group of investors (e.g. institutional investors) into the market. This adds liquidity to the crypto market as more people participate, effectively buying and selling Bitcoin. Having an ETF with underlying investments in Bitcoin creates another forum for further increasing the size of the order book.
Some institutional investors who previously did not have access to selling Bitcoin futures can now effectively sell Bitcoin using an ETF. This provides another tool for investors to trade Bitcoin.
The cryptocurrency market has only been around for a decade but has been subject to numerous sensational media reports as well as fair play scams. Scams not only keep new investors away but there is a learning curve involved in storing your own cryptocurrency.
Without the knowledge of properly storing cryptocurrencies, user errors also lead to losses. Anyone who is particularly concerned about negative news and cryptocurrency storage may feel a little more comfortable investing in ETFs, although it doesn’t necessarily protect them from risk altogether. In short, the ETF is directly investing in Bitcoin.
Fear of the unknown is sometimes enough to keep people from pulling the trigger, and ETFs can feel like a better-known vehicle for traditional investors.
Besides the advantages of a Bitcoin ETF, investors should also consider the drawbacks of this financial product to make the right choice.
The development of cryptocurrencies intersects with the thriving world of traditional finance. Since this progress is in its early stages, now is the time for us to be mindful as an investor so we can make the right choice.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.