Have you ever thought of trading Bitcoin without actually owning one? Yes, Bitcoin ETFs let you trade Bitcoin without the need to buy or sell any BTC on any Cryptocurrency exchange
But what exactly is Bitcoin ETF or How does it work? This article will help you understand everything about Bitcoin ETFs
An ETF or Exchange Traded Fund is an investment fund that tracks the price of an asset such as gold, oil or stocks. ETFs allow traders to diversify their investments even without owning any assets.
Did You Know? : The first ETF, S&P 500 ETF was launched in 1993 and the popularity has been increasing since then as it allows investors to invest in a basket of assets at once.
Bitcoin ETFs work the same way as any other ETFs. In a Bitcoin ETF, the price of one share of an ETF will change with the price of Bitcoin. If Bitcoin increases in price so does the value of the ETF and vice versa.
A Bitcoin ETF holder is indirectly purchasing Bitcoin without actually owning any. But one thing to be noted here is instead of trading on Crypto exchanges, ETF is traded on traditional market exchanges like New York Stock Exchange
How Many Bitcoin ETFs Available Today?
Still, there are no investable bitcoin ETF on U.S. exchanges, but there are exchange-traded funds in which investors can invest like bitcoin financial products available on ‘European exchanges’ and an over-the-counter ‘Bitcoin Trust’.
XBT Provider
Investors can buy and sell XBT Provider Bitcoin ETNs (exchange-traded notes) on the Nasdaq Stockholm stock exchange in Euros or Swedish krona. They offer both retail and institutional investors to gain regulated exposure to bitcoin and Ether. Investors need to pay a 2.5 percent annual fee for holding the Bitcoin One Trackers.
The Bitcoin Investment Trust
Grayscale Investments’ Bitcoin Investment Trust offers Investors to purchase shares in the OTC traded investment fund that will hold bitcoin as an underlying asset on behalf of its investors. Investors need to pay a two percent annual fee for holding shares in the Bitcoin Investment Trust.
Blockchain ETFs
There are a number of blockchain ETFs that invest in blockchain stocks on behalf of their investors. Some of the blockchain ETFs in the market are the Amplify Transformational Data Sharing ETF (NYSEARCA: BLOK), Reality Shares Nasdaq NexGen Economy ETF (NASDAQ: BLCN) and the Innovation Shares NextGen Protocol ETF (NYSEARCA: KOIN)
Advantages
- Convenience : Bitcoin ETF allows you to track the price of Bitcoin without the need to know the working of Bitcoin, signing up Crypto exchanges
- Diversification : An ETF allows you to hold multiple assets. For example : Bitcoin ETF can consist of Bitcoin, Apple stocks, Tesla stocks and more. Giving investors an opportunity to reduce the risk by diversifying investments
- Tax Effective : As Bitcoin is unregulated and decentralized, the world’s tax havens and pension funds don’t support Bitcoin. Meanwhile Bitcoin ETF trade on traditional exchanges that are regulated by the SEC and are tax effective.
Disadvantage
- Management fees : ETFs charge management fees for the service they provide. Hence, owning some shares in ETFs can have you charged a large amount of management fees.
- Inaccuracy : As ETFs hold other assets too, the increase in Bitcoin price may not be accurately affected on ETFs
- Restriction on other Crypto trading: Bitcoin ETF is just an investment fund tracking the price of Bitcoin but not a cryptocurrency, hence its not eligible for trading any other Cryptocurrency
- No Bitcoin Ownership : Bitcoin ETFs are regulated by government, therefore it limits you with any benefits from Bitcoin
What Future Does Bitcoin ETFs Hold?
For years the SEC ( Securities Exchange & Commission ) has been against Bitcoin ETFs on the ground that the market is unregulated. But SEC Commissioner, Haster Pierce is of the opinion that the market is ready for a Bitcoin ETF and also she does not agree with other team members on the disapproval of the Bitcoin ETF.
As the Bitcoin market is growing, the Crypto community hopes that the SEC will soon approve Bitcoin ETF on the US exchanges. But only time can reveal the truth!
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