What is a Bitcoin ETF? It appears that the union of two of the most popular sectors of the investment space is inevitable.
There has been word going around the block concerning publicly traded bitcoin ETFs possibly being back on the table following the introduction of regulated bitcoin futures contracts on the CBOE and CME. That being said, in 2018, we did not witness a single bitcoin ETF getting approval from the United States’ Securities Exchange Commission. And so, the bitcoin industry has now got an outspoken ally in the SEC, Hester Peirce, who wishes to see a bitcoin ETF being approved sooner rather than later. Several bitcoin advocates believe that she may fuel the final push that is necessary for the SEC to allow bitcoin ETFs to trade on the U.S. exchange.
What Is an ETF?
An ETF (exchange-traded fund), is a kind of investment fund which tracks the price of an asset, like gold, an index, oil or a basket of stocks. The trading of ETFs occurs on exchanges in a similar process as stocks; Meaning that any investors (institutional or retail) may purchase and sell ETF holdings to other market partakers over the stock exchange.
ETFs are usually less pricy compared to mutual funds because they are frequently set up like passive index tracking funds; They allow investors to gain access to niche markets and asset classes in which it would otherwise be tough to invest.
What is a Bitcoin ETF?
So now in simple terms, a Bitcoin ETF is an ETF with Bitcoin as the underlying asset. This means that when you buy a Bitcoin ETF, you are buying the cryptocurrency, although indirectly. Reason being that you are holding the Bitcoin ETF within your portfolio and so this ETF tracks the actual price of BTC. Therefore, the main difference is that when investing in Bitcoin ETFs, you have the perks of trading Bitcoins without the hassles of buying and storing it.
Here is my opinion on some of the benefits Bitcoin ETFs will bring.
Increase in liquidity
Using the ETF ecosystem, a bitcoin ETF would ultimately aid in the increase of liquidity within the cryptocurrency market.
BTC ETFs will encourage the much-needed decrease in volatility. Even though this will increase the price of bitcoin, it will also open up adoption for personal transactions and retail. After all, volatility may be the main thing holding back this adoption.
With Bitcoin ETFs in the picture, this would mean that the current fee charges for traders and investors will become more transparent; better still the fees may even be reduced in some cases.
This includes fresh Fintec start-ups as well; the regulatory difficulty will be greatly reduced because of a regulated ETF; as compared to how it is at present with just raw bitcoin.
Respect for bitcoin
With a regulated ETF by Bitcoin’s side, things will be looking up for mass adoption in the long hall. Because a regulated ETF will make bitcoin more respectable and as a result, more and more people will want in.
ETFs exist for essentially all other financial commodities and assets such as; copper, gold, any subset of bonds or stocks you can think of and so on. Obstructing an ETF is like attempting to stop a rising tide, then it WILL happen. The question is when will the market be mature enough for the regulators to feel contented.
For cryptocurrency investors and enthusiasts looking to capitalise on the rising popularity of exchange-traded funds (ETFs); the opportunity of an ETF that tracks bitcoin has to be the best opportunity for this kind of connection. However, the growing pains and issues in trying to launch the first bitcoin ETF remain.