What Is a Bitcoin Exchange-Traded Fund (ETF)?
A bitcoin exchange-traded fund (ETF) allows investors to obtain exposure to the digital currency without having to buy or sell it directly on a cryptocurrency exchange.
A bitcoin ETF is an exchange-traded fund that monitors the price of the most popular cryptocurrency and allows traders to buy and sell it on a stock exchange at any time during the day. They can be cash-settled or physically-settled, which means that when investors exit, they will receive either fiat dollars or genuine bitcoin.
ETFs are classic financial products that are regulated and may be purchased through a variety of retail-friendly mobile trading apps, such as Robinhood, Trading212, TD Ameritrade, and Fidelity. The most popular ones follow major stock indexes like the S&P 500 Index, as well as other traditional assets and commodities like oil and gold.
Since the Winklevoss twins' “COIN” bitcoin ETF was rejected by the US Securities and Exchange Commission (SEC) in 2013, bitcoin ETFs have been a hot issue in the crypto industry. A bitcoin ETF was generally expected to usher in a new wave of institutional investment into the crypto industry, offering the market much-needed maturity and stability. Despite hundreds of applications from various businesses, including a second Winklevoss Twin ETF in 2018, one from Bitwise, five from Direxion, two from GraniteShares, and many more, the SEC has yet to approve a bitcoin ETF.
The SEC's main justifications for these repeated rejections have been that the bitcoin market is too volatile, under-regulated, and easily manipulated.
Things may be about to change, as the Ontario Securities Commission (OSC), Canada's financial regulator, just approved the world's first two bitcoin ETFs in quick succession. Physically settled ETFs Purpose Bitcoin ETF (BTCC) and Evolve Bitcoin ETF (EBIT) have both requested to be listed on the Toronto Stock Exchange. The index provider for the Purpose ETF is TradeBlock, a CoinDesk subsidiary.
With the introduction of a bitcoin ETF in North America, many expect the SEC to follow suit in the United States soon, particularly if Gary Gensler, a former commissioner of the Commodity and Futures Commission (CFTC) and MIT blockchain tutor, is confirmed by the US Senate to replace former SEC Chairman Jay Clayton.
Mike Novogratz, CEO of Galaxy Digital and a former colleague of Gensler at Goldman Sachs in the late 1990s, predicts an ETF this year.
“Gary taught a blockchain and crypto class at MIT. He knows exactly what he's talking about. Isn't he a progressive? And progressives in general are going after... the rent collectors. Crypto isn't a rent collector... Crypto is attempting to disrupt the rent collectors.”
Eric Balchunas, a Bloomberg Senior ETF analyst, tweeted his support for the new bitcoin ETFs, saying, "The US generally follows shortly after." A positive indicator for the Bitcoin ETF in the United States.”
Sui Chung, CEO of CF Benchmarks, predicts that the SEC will be pressured to follow suit. “Now that the OSC has stated that if a product is well-constructed, the crypto market is mature enough for these types of financial products, the industry's focus will undoubtedly go south of the border to the United States.”
Who can invest in exchange-traded funds (ETFs), and how do you trade them?
ETFs can be purchased by anyone who isn't an accredited investor. Anyone can put money into them.
To begin investing in ETFs, simply open an online brokerage account or download one of the many mobile trading apps available. You'll be able to purchase and sell a variety of ETFs that track a variety of markets from there.
What are the advantages and disadvantages of trading ETFs?
While it may seem illogical to invest in a bitcoin ETF rather than acquire bitcoin directly, there are a number of benefits to doing so, including:
- There's no need to go through the hassle of storing cryptocurrency safely on your own.
- Purchasing an ETF through an online broker is much safer, faster, and less prone to outages than purchasing digital assets directly from a cryptocurrency exchange.
- Traditional financial products have considerably clearer tax implications and guidance than digital assets.
- Because stock exchanges are more liquid than cryptocurrency exchanges, buying and selling ETFs is significantly easier.
However, there are a lot of drawbacks to investing in a bitcoin ETF rather than purchasing the currency directly.
- ETFs can only be bought and sold during market trading hours, but crypto marketplaces are open 24 hours a day, seven days a week. This implies that if the price of bitcoin drops dramatically, you may have to wait several hours before you can sell and acquire more.
- Keeping your own bitcoin is free, but ETFs incur administration fees.
Know-your-customer (KYC) checks are required when purchasing ETFs, whereas bitcoin can be purchased anonymously using peer-to-peer exchanges.
- ETFs necessitate putting your faith in third-party custodians.
This information is is for informational purposes only and should not be construed as investment advice. Nothing in this post should be construed as a solicitation, suggestion, offer, or endorsement to acquire or sell any cryptocurrency asset. Trading in any financial market has risk, and it is possible to lose money. Before investing any money, one should always conduct thorough research and seek professional advice.
