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What is Bitcoin ETF?

Amandeep Sonewane | Mar. 15, 2019
What is Bitcoin ETF?

March 15, 2019, | AtoZ Markets - 'What is Bitcoin ETF?' has just one simple answer. It is investing in Bitcoin ETF stock meaning that investors do not get to worry about buying or storing. The release of the Bitcoin and Ripple futures coupled with the increase in the value of Bitcoin has caused more investors to search means of buying Bitcoin stock without investing directly in cryptocurrencies. It is then normal for questions like, “What is Bitcoin ETF,” its benefits, types, and concerns to a spike on the internet. In this article, we’ll focus on Bitcoin ETFs, types, benefits and concerns about Bitcoin ETFs.

What is an ETF?

ETF stands for an exchange-traded fund and it is a kind of investment fund where the price of assets like gold, oil, and stocks can be tracked. These kinds of assets can then be traded on exchanges, just like normal stocks. What this means is that investors have the option to trade their holdings in this ETF to other investors via the stock exchange.

The main feature about ETFs is that they are relatively cheaper compared to mutual funds. This is because ETFs are set up as passive index tracking funds. This gives investors access to different niche markets which are usually difficult to invest in.

What is Bitcoin ETF?

Bitcoin ETF is one where the fundamental asset is Bitcoin. This means that when an investor purchases Bitcoin ETF, he is indirectly investing in Bitcoin. This is because investor holding the Bitcoin ETF in their portfolio and Bitcoin ETF tracks the real-time price of Bitcoin. Thus, the difference is that when investors invest in Bitcoin ETF, they have the luxury of trading Bitcoins without the struggles of buying, selling and storing it.

Benefits of Bitcoin ETF

One of the major drawbacks to investing in Bitcoin is the complication surrounding it. However, with the arrival of Bitcoin ETF, the cryptocurrency will become open to a diverse set of investors. This means that investors who were willing to buy Bitcoin can now invest in Bitcoin the way they would do for mutual funds, pension funds, and bonds. As a result of the arrival of ETFs, the crypto market will have new entrants. It is then expected that Bitcoin ETFs will cause the value of Bitcoin to rise.

Types of Bitcoin ETFs

There are two basic types of Bitcoin ETFs:

  1. ETFs that physically holds Bitcoin, like, VanEck/SolidX which is supported by the Chicago Board Options Exchange (CBOE).
  2. ETFs that purchase Bitcoin derivatives. These kinds of ETFs are not based on actual Bitcoin holdings but on trading Bitcoin futures, options, swaps, money market instruments etc. Examples of Bitcoin derivative ETFs are the Direxion ETF and Proshares ETF.

Major Concerns for Bitcoin ETFs

ETFs are traded on exchanges, which means that they are traded in a way similar to public equities. The regulatory requirements to having a Bitcoin ETF approved are strict because being listed on an exchange lets anyone invest in them. When the SEC evaluates a proposed ETF, it is concerned with minimizing conflicts of interest, errors in tracking, manipulations, and that investment risks are reasonable and properly disclosed.

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Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ, nor should they be attributed to AtoZMarkets.