Bitcoin ETFs, also known as exchange-traded funds are designed to keep track of the value of bitcoin and trade on traditional market exchanges, instead of crypto exchanges. Using bitcoin ETFs, investors have the opportunity to invest in bitcoin without having to go through the painstaking process of using a cryptocurrency exchange. The exciting thing about Bitcoin ETFs is that it provides leverage to its price.
Bitcoin ETFs and how it works
An exchange-traded fund or ETF for short is a type of investment fund that helps track the price of a specific asset or index. In today’s investment space, ETFs are available for multiple assets and industries and they range from currencies all the way down to commodities.
In terms of performance, Bitcoin ETF works almost the same way as a traditional ETF, especially considering that the price of one share of the ETF would fluctuate with the price of the number one cryptocurrency by market cap. Let’s say for instance the price of bitcoin skyrockets, we also expect bitcoin ETF to behave the same way. The only difference with a bitcoin ETF is that instead of being traded on a crypto exchange, a bitcoin ETF is typically listed and traded on an open market exchange like TSX and NYSE.
What are the top benefits of ETFs and why should investors care?
Bitcoin ETFs offer tons of amazing perks you don’t want to miss out on and today, we will take a minute to run you through some of the fantastic advantages of Bitcoin ETFs and why investors should consider this option.
There are many things we love about bitcoin, but the best one is the convenience it offers. For starters, bitcoin ETFs provide leverage to the price of bitcoin. What this means is that investors don’t need to understand how bitcoin works, open an account on cryptocurrency exchanges or take on the risks of owning bitcoin directly. Let’s break things down further so you get exactly what we are talking about.
For instance, bitcoins are typically stored in a wallet and if for any reason you ever lose the password to that wallet, your bitcoin is lost forever. But thanks to bitcoin ETFs, you never have to worry about losing the password or private keys to your wallet, as there isn’t one in the first place. More so, it simplifies the process of investing in bitcoin. Whether you have been trading bitcoin for a while or you’re new to this industry, rest assured that you’ll make the most of your investment with bitcoin ETFs.
Another cool thing we like about ETFs is that they are designed in such a way that they can hold more than one asset. For example, bitcoin ETFs could feature other assets like Facebook stocks, Apple stocks, and more. This is intentionally designed to provide investors with an opportunity to mitigate risks. Thanks to this singular fact, investors can diversify their portfolios. Also, by trading on a verified and regulated market exchange like the NYSE and TSX, a bitcoin ETF provides investors with the opportunity to diversify their current equity portfolio.
Considering the fact that bitcoin is decentralized and unregulated, most of the world’s most recognized tax havens and pension funds don’t allow for bitcoin purchases. On the flip side, a bitcoin ETF trading on traditional exchanges would most likely be regulated by the SEC. Thanks to this move, bitcoin ETFs will become eligible for tax efficiency.
Why we don’t like Bitcoin ETFs
While bitcoin ETFs have tons of remarkable advantages you definitely don’t want to miss out on, like every other type of investment option out there, bitcoin ETFs have their not-so-cool side. Read on for some disadvantages of bitcoin ETFs.
If you don’t like to deal with fees, then Bitcoin ETFs aren’t for you. For the most part, trading bitcoin ETFs attract management fees. And this doesn’t come to us as a surprise, especially considering the convenience they provide to investors. Considering this fact, it’s easy to see that holding a significant amount of shares in a bitcoin ETF will result in high management fees over time.
ETF and inaccuracy
When trading an ETF, there are a lot of inaccuracies to worry about. While this has been greatly improved on, we still come across cases of inaccuracies now and then. As you already know, ETFs help tracks the price of multiple assets and indexes. The not-so-cool aspect is that a bitcoin ETF can have multiple holdings in an attempt to diversify the portfolio.
What we are driving at with this explanation is that a 50% surge in the value of bitcoin may not be accurately reflected in the value of exchange-traded funds and the reason is because of the other holdings in the mix. So even though a bitcoin ETF provides leverage to bitcoin’s price, it may not accurately track price. So before investing in a bitcoin ETF, keep this in mind.
Limits to crypto trading
If you have been in the crypto space for a while, it won’t come to you as a surprise to learn that bitcoin can be traded for other cryptocurrencies like XRP, Ethereum, BNB, Litecoin, and more. On the flip side, you can’t trade a bitcoin ETF with other crypto assets and that’s because a bitcoin ETF isn’t a cryptocurrency, rather it is simply an investment fund used to track the price of the number one cryptocurrency by market cap.
Lack of bitcoin ownership
Since bitcoin was launched in 2009 by Satoshi Nakamoto, it has grown to a point where it is now being used as a hedge against central banks, equities, and fiats. Thanks to being independent of any control by central banks and governments, bitcoin provides a brilliant way to mitigate risks that come with the financial system.
Another thing that the crypto community has come to love about bitcoin is that it helps protect investors and users and that’s thanks to the privacy it provides via its robust blockchain network. On the flip side, a bitcoin ETF is regulated by the government. To this end, you won’t enjoy all of the benefits highlighted above.
Do bitcoin ETFs exist?
As of the time of putting together this post, there aren’t any known bitcoin ETFs. And this doesn’t surprise us one bit especially considering the unregulated nature of bitcoin and the cryptocurrency market. Also, regulators are still of the opinion that the bitcoin market can be easily manipulated by investors with large holdings. In the last couple of years, the U.S Securities and Exchange Commission (SEC) has blocked several proposals for bitcoin ETFs and they did that based on the fact that the bitcoin market is grossly unregulated.
But while there isn’t a bitcoin ETF at the moment, there are many publicly traded funds that invest their money in bitcoin. Another brilliant way anyone can invest in bitcoin without actually purchasing it is to invest in cryptocurrency and blockchain companies that provide leverage to the cryptocurrency market.
Why are investors clamoring for Bitcoin ETFs?
While investing in bitcoin can be pretty confusing and complicated, especially if you’re just getting started. That said, you can get a soft landing if you opt for bitcoin ETF as it gives investors easy access to the world of crypto trading. Let us tell you right away that there are many reasons why a bitcoin ETF would make a simpler and hassle-free investment than actually investing in cryptocurrency.
For the most part, bitcoin itself can be pretty challenging to store and secure. And yes, we have read many scary stories of investors losing access to their bitcoin simply because they forgot their passwords. According to available data from Chainalysis, nearly 18% of bitcoin may be lost or saved in inaccessible wallets.
Another cool thing about ETFs is that they can be traded directly from existing brokerage accounts. This means you don’t need to go through all of the bureaucracies of signing up on an exchange before you can trade bitcoin. More so, investing in a bitcoin ETF will save you all of the extra hours/months or years of learning the ropes of cryptocurrency trading.
Bitcoin ETF and regulation
At the moment, there aren’t any approved or regulated bitcoin ETFs in the U.S. In a very strong statement in June, the Securities and Exchange Commission stated that it is further delaying its resolve to approve bitcoin ETF, citing the nonregulation of the bitcoin space. And yes, this isn’t the only proposal the commission has received for consideration. The very first attempt was made in 2013 and there have been several others since then. The commission has been very vocal about its fear regarding the potential manipulation and fraud that will come on the heels of any bitcoin ETF approval.
On the flip side, foreign exchanges aren’t worried about the SEC’s resolve not to approve any Bitcoin ETFs. And good enough we have seen many crypto products already approved in Europe and Canada in the last couple of years.
Other cryptocurrency investment options you should know
Even though the buzz about cryptocurrency kicked off in 2009 with the launch of bitcoin, you’ll agree that the crypto space is relatively new and has a long way to go. To this end, you must approach cryptocurrency investment with caution. Nevertheless, if you’re still hyped about cryptocurrency and don’t want to miss out on the many opportunities this space holds, you’re welcome to explore some of the cryptocurrency investment options we will highlight shortly.
Invest in cryptocurrency directly
With the massive adoption we are currently experiencing in the crypto space, top assets like bitcoin are now becoming means of payment on several online platforms. Today, you can use crypto assets like bitcoin, Ethereum, ADA, Tether, and others to pay for goods and services on several platforms. Besides using bitcoin and other cryptocurrencies for payment of goods and services, you can also add these assets to your wallet and wait for their value to increase. And in case you want to see your profit rise swiftly, you can trade crypto futures.
But while the thought of investing in cryptocurrency leaves you with goosebumps, always remember that these digital assets aren’t without their peculiar risks. To this end, we always encourage investors to do their due diligence, improve their knowledge and exercise caution when adding any new digital asset to their portfolio.
If you want a more detailed article on how you can invest in cryptocurrencies, you’ll not be disappointed to check out this guide for everything you need to know about investing in cryptocurrency.
Other crypto-related investment
If you don’t want to go through the hassles of directly investing in cryptocurrency, because of the many risks associated with this space, we are happy to inform you that you can still invest in the future of money without thinking of all of the risks inherent in the crypto space. For instance, you can invest in Coinbase shares as the company went public in April 2021. Considering that Coinbase is one of the major cryptocurrency exchanges, it’s exciting to know that investors can now buy some of the company’s shares.
Even though there aren’t any bitcoin ETFs at the moment, there are blockchain ETFs. For starters, blockchain is the most important technology that powers cryptocurrencies, and good enough there are tons of companies out there who are heavily involved in the development and utilization of the technology. Let us quickly add that there are several ETFs directly made up of these companies. These ETFs will give investors the exposure they need to navigate the crypto space without necessarily investing in the currencies.
In a nutshell
A bitcoin ETF will change the phase of investment if we ever get one approved. And because a bitcoin ETF makes it easy for anyone to get into cryptocurrency trading, we will see a massive increase in the current market cap of the bitcoin and crypto space in general. More so, the issue surrounding bitcoin and crypto regulations will be sorted, making the space more welcoming to new investors looking to get a piece of the pie.
And as we stated earlier, bitcoin ETFs aren’t the only way to invest in bitcoin and cryptocurrencies and that’s because there are several exciting investment opportunities in this space. But before you jump on any investment opportunity, we urge you to do your due diligence.