Top Things Investors Need To Know About Bitcoin ETFs
by Arnab Dey Investing Published on: 04 April 2022 Last Updated on: 07 November 2024
Bitcoin exchange-traded funds or crypto ETFs have long been awaited by crypto investors for years. It was just recently that the first Bitcoin and Ether ETFs were launched in Canada, Brazil, and Dubai.
Europe saw its first similar product in December 2019. Despite the development in other countries, the United States still has not launched its own Bitcoin ETF despite an application for a Bitcoin ETF in 2013.
Checked Top Things Investors Need To Know About Bitcoin ETFs:
1. Definition of an ETF
An ETF is a regulated financial instrument that works on this principle. The fund provider is the owner of the underlying assets, creates a fund to monitor their performance, and sells fund shares to investors. A portion of the ETF is owned by shareholders; however, they do not own the underlying fund assets.
The price of an ETF monitors the value of underlying assets. For example, a crypto ETF would track the value of the crypto that is represented within the ETF.
This also works similar to the price of a stock exchange ETF, oil ETF, or gold ETF, which monitors the value of a stock index, value of oil, or the value of oil, respectively.
An ETF works similarly to stocks where it can trade on different exchanges around the world. Trading of ETFs by investors happens through their brokerage accounts.
An investor is not required to deal directly with the asset as an ETF has its value pegged to the underlying asset’s value. An ETF tracking is perfect for investors who want to make a gold investment but do not want to deal with the asset physically.
2. Bitcoin ETF Defined
A Bitcoin is a financial instrument that can be traded and tracked the value of Bitcoin. Traditional exchanges list Bitcoin ETFs where purchasing and selling of the ETF happens.
Actual coins are purchased from the market by the company that wants to create a Bitcoin ETF or any other crypto ETF. These coins will be used as reserves which work similarly to buying stocks to include in a traditional shares ETF.
A fund will be created that represents the Bitcoin value it holds in its charge and will be listed for trading on the stock exchange, making it available to traders and investors.
An average investor will find it easier to invest in a Bitcoin ETF compared to investing with the digital currency itself. It is confusing to undergo the whole process of purchasing Bitcoins in cryptocurrency exchanges and then finally storing these. Investors who are not tech-savvy might find it riskier when this happens.
Engaging with Bitcoin ETF investments does not totally remove the risks involved. Investors should take note that investing directly or through an ETF with cryptocurrencies is still risky because of their volatility.
Crypto ETFs work makes them more appealing. Crypto ETFs work similarly to any other traditional asset-backed ETF. Investors are not required to have a complex understanding of cryptocurrencies and blockchain.
However, it is still best for investors to learn more about the markets they want to engage in. Immediate Edge shows more information regarding crypto trading.
Anyone can trade in a crypto ETF as long as one has or can create a brokerage account. This cannot be materialized in the United States as there has been no Bitcoin ETF launched.
On the contrary, investors in various countries such as Dubai, Switzerland, Canada, and Brazil can find this a reality.
One can trade in crypto ETF by starting with signing into one’s brokerage account, selecting the symbol for trading Bitcoin ETF, and buying or selling the asset.
3. Possible Reasons why SEC rejects applications for Bitcoin ETF in the United States
The SEC has received various Bitcoin ETF applications since 2013. Most of these have been filed by trusted Wall Street firms. However, the SEC does not object to the applications because of the companies that file them. Rather the SEC based its decision on the market.
It has only been at least a decade since the Bitcoin market has existed. Its total $1 trillion value is minute compared to other markets such as company equity, treasury bonds, or gold.
Moreover, these markets have existed for such a long time that the SEC has a basis for creating policies that will protect investors.
Bitcoin is still in its baby stages with unproven technology. Regulators and investors still find it complex to understand.
One of the biggest hurdles that applicants of Bitcoin ETF have to overcome in order to gain approval from the SEC is to show sufficient evidence about the maturity of the Bitcoin market and that it is free from market manipulations.
Exchanges outside the jurisdiction of the SEC report most of the trading volume, which makes it a difficulty that needs to be addressed.
The SEC cannot effectively monitor what happens in Bitcoin ETF trading if the companies that engage with it are not under the umbrella of the regulating body. In addition, the SEC highlights different cases of scams and fraud within the crypto industry.
The SEC has also pointed out that there is a lack of transparency and liquidity within the crypto market as well.
When an investor analyses the actions done by the SEC regarding the Bitcoin ETFs, one will see that the SEC does not target the companies involved with the application.
Rather, the SEC is concerned about the crypto market. The SEC will most likely give its approval to these Bitcoin ETF applications once the market reaches maturity as per the guidelines of the commission.
Conclusion
Investors have numerous approaches to how they can invest in the cryptocurrency market. However, not all of them are convenient for average investors, especially this Bitcoin ETF.
However, the moment the SEC gives the nod to the first Bitcoin ETF in the United States, this would signal a new era in the world of cryptocurrencies.
Many anticipate this product as investors will appreciate the flexibility and convenience Bitcoin ETFs offer.
Although the US still has not realized this, Bitcoin ETFs are available in other countries. Its development will be a process investors would follow.
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