Bitcoin ETF: Everything you need to know
Bitcoin just recently reached an all-time high of over $66,000 on October 20, a day after the first Bitcoin futures ETF (Exchange-Traded Fund) in the US made its debut on the NYSE (New York Stock Exchange).
This launch allows individuals to gain investment exposure to Bitcoin without having to actually purchase the cryptocurrency and also spells out a moment of validation for the developing crypto world.
Being similar to stock trading, Bitcoin ETF shares can be bought and sold at any time during the market trading hours of the day.
The excitement brought upon by the Bitcoin futures ETF to the New York Stock Exchange has been further fuelled by the fact that the price of Bitcoin reached a new historic peak just one day after this launch.
So let’s explore what a Bitcoin ETF is and how it is opening a new door for the crypto market in the world.
What is a Bitcoin ETF?
An ETF or Exchange-Traded Fund is an investment vehicle that tracks the movement of a specific asset or a group of assets and allows investors to diversify their investment portfolio without actually having to own the assets themselves.
A Bitcoin ETF mimics the price value of Bitcoin, thereby allowing investors to purchase the ETF without trading the cryptocurrency itself.
Investing in Bitcoin ETF removes any issues of complicated storage and security procedures required of digital currency investors since they’re not directly investing in Bitcoin.
Benefits of Investing in Bitcoin ETF
If Bitcoin ETFs copy the price of the cryptocurrency itself, then why bother with the middleman? Why not invest in Bitcoin directly? Well, there are many good reasons for investing in Bitcoin ETFs.
- The first is the fact that investors don’t have to deal with the security procedures related to Bitcoin holding and other cryptocurrencies.
- Secondly, investors can just buy and sell the ETF through conventional exchanges and markets.
- Another notable benefit to focusing on a Bitcoin ETF instead of on Bitcoin itself is the fact that ETFs are investment vehicles for which investors would be able to short sell shares of the ETF if they think the price of Bitcoin will go down in the future. This is not something that you can do easily in the cryptocurrency markets.
- Finally, there remains the point that ETFs are much more understood across the investment world than cryptocurrencies, even though crypto tokens and digital coins are becoming increasingly popular.
- An investor would be much more willing to focus on a trading vehicle that they already understand than learn the ins and outs of something unfamiliar and seemingly complicated.
Bitcoin ETFs And Their Road Towards Approval
The Winklevoss Brothers, Source: Fortune
Earlier firms that were looking to launch Bitcoin ETFs have run into problems with regulatory authorities.
Cameron and Tyler Winklevoss, mostly known for their involvement in Facebook and more recently for their Gemini cryptocurrency exchange, had their petition to launch a Bitcoin ETF, known as the Winklevoss Bitcoin Trust, was turned down but the US SEC in 2017.
The reason behind the denial was that Bitcoin is mostly traded on regulated exchanges, leaving it susceptible to market manipulation and fraudulent schemes. The Winklevoss brothers still didn’t give up their efforts.
On 19 June 2018, the US Patent and Trademark Office gave them a patent for a firm known as the Winklevoss IP LLP for exchange-traded products.
CBOE Global Markets (CBOE), the exchange that brought Bitcoin futures, also hoped that the SEC would permit cryptocurrency-related ETFs. CBOE also acquired Bats Global Markets exchange, where the Winklevoss Bitcoin Trust would have been offered.
ProShares Bitcoin Strategy ETF
Last week on 19th October 2021, trading began for the Bitcoin Strategy Fund on ProShares, a provider of specialized exchange-traded products, which marked the first Bitcoin ETF to be ever traded.
The fund, which is traded under the ticker of BITO, will track BTCUSD (Bitcoin) prices through futures contracts that are traded at the CMR (Chicago Mercantile Exchange).
ProShares ETF is different from some of the previously mentioned Bitcoin ETFs since here, and the fund is not directly tied to the spot price of the crypto but instead tracks the future price of bitcoin. This implies that the returns from funds like BITO based on Bitcoin futures contracts can be much different from bitcoin’s spot price.
Crypto enthusiasts are continuing to see the ProShares Bitcoin Strategy ETF event as a step towards the right direction, and many investors and fund managers are eager to see Bitcoin ETFs which are directly tied to the currency get approved by the SEC.
Overall, Bitcoin ETFs are a great way to trade in the cryptocurrency without having to deal with Bitcoin itself, which makes it more understandable for investors and traders in the market.
The very existence of these ETFs means that investing in crypto is going to become a lot easier and that Bitcoin has more in common with gold than it was ever before.