Just as the U.S. regulators approve this new breed of financial product, speculations have been in place about the new game the Bitcoin ETF is! Experts believe that these spot ETFs will empower people with a way to invest in Bitcoin through their brokerage for the first time. Big names like BlackRock and Fidelity have been granted permission to launch the spot Bitcoin Exchange Traded Funds (ETFs), whose value tracks the price of Bitcoin.
On January 10, Wall Street’s top cop, the Securities and Exchange Commission (SEC) approved 11 Bitcoin ETFs. These will track the price of Bitcoin and make it accessible for more people easily! Let us get to the basics of ETFs.
Introduction To Bitcoin ETF
We can consider the Bitcoin ETF as a basket that holds Bitcoin. When someone buys shares of the ETF, he is investing in the performance of Bitcoin without directly owning the cryptocurrency. These ETFs track Bitcoin’s price and make it convenient for traditional investors to gain exposure to Bitcoin’s value fluctuations through the stock market. ETFs are rightly called the bridge between traditional finance and the crypto arena.
So How Does Spot Bitcoin ETF Work?
Let us imagine a Bitcoin ETF as a virtual piggy bank that has Bitcoin instead of regular coins. When one buys shares of this piggy bank (ETF) on the stock market, he is gaining a piece of the Bitcoin inside. For example, if we have Bitcoin worth $100 in a piggy bank, and we own 10% of the shares, our investment is like having $10 worth of Bitcoin from the entire bunch.
This way, we can track the value of Bitcoin without getting into the technicalities of actually owning and storing the Bitcoin. It makes Bitcoin investment possible through the stock brokerage account, thus making it more familiar to traditional investors. ETFs can be easily traded on stock exchanges.
Can ETFs Affect the Price of Bitcoin?
After almost two years of struggles when the price of Bitcoin crashed and major crypto firms were put under scrutiny, the latest ETF approval is a positive development in the crypto market. The crypto space has been anticipating the green light for ETFs for many months. Hence, the price of Bitcoin surged by 70% since October 2023. Experts believed that Bitcoin ETFs would drive up the interest in Bitcoin.
Bitcoin saw a low of $16,000 in November 2022 after the unfortunate FTX disruption. However, some analysts showed some optimism by quoting that ETFs could draw $50 billion to $100 billion this year alone! It could potentially drive the price of Bitcoin as high as $100,000. Many others who have been cautious in predictions say that ETFs might help in stabilising the market by broadening the use of cryptocurrencies among a wider audience.
How will these ETFs work?
These ETFs are expected to be listed on Nasdaq, NYSE and the CBOE. their assets will have physical bitcoin purchased from crypto exchanges and held via mediators like Coinbase Global (COIN.O). These products track a Bitcoin benchmark. Issuers plan to charge fees from 0.20% to 0.8%, well below the broader ETF market average.
Is owning A Bitcoin ETF the same as owning Bitcoin?
Bitcoin ETF, a game-changer, is all in the limelight these days! However, it is totally different from owning a Bitcoin directly. A spot Bitcoin ETF allows investors to gain exposure to the price of Bitcoin without any complications of owning Bitcoin directly. This means you are saved from creating crypto wallets and accounts with exchanges which are not even fully secure and often prone to hacks.
In contrast, ETFs are listed on tightly regulated stock exchanges and are accessible through retail investors’ existing brokerage accounts. These are very keenly supervised! ETF structure is believed to boost the accessibility of Bitcoin for institutional investors too. Spot Bitcoin ETF could be called a big win for the crypto industry for all good reasons.
Pros and Cons of ETFs
| Pros | Cons |
| Simplified investment and accessibility to Bitcoin without purchasing the currency directly. | It means we don’t actually own Bitcoin! |
| Regulatory and security benefits in comparison to direct crypto investments | They come with a management fee and operational costs |
| They provide market integration and liquidity | Unlike the crypto market which is 24×7, Bitcoin ETFs are limited to the stock market’s operational timings |
| Investing in Bitcoin ETF allows for diversification within investment portfolios. Some of them are eligible for tax efficiency! | They only track Bitcoin’s price and cannot be used for other cryptocurrencies! |
Which is better? Bitcoin or Bitcoin ETF?
It is like choosing two entirely different courses of action to redeem profits!
Investing in Bitcoin means directly purchasing it and holding it in your wallet. This method provides ownership and control over the assets. However, the volatility in Bitcoin’s value could hint at the risks associated with this way of investment. One also needs to secure and manage the private keys responsibly!
On the other hand, a Bitcoin ETF is a financial base that tracks the price of Bitcoin. Investing in a Bitcoin ETF does not give the direct ownership of the cryptocurrency, instead one owns shares in the ETF, which holds bitcoin on a person’s behalf. It can be more convenient for those who prefer traditional methods of investment and want exposure to Bitcoin without dealing with the complications of storage and security!
We can see that both methods have their own benefits! Bitcoin investment gives one direct ownership and control over the currency. It is suitable for those who are comfortable in managing the private keys safely. While the ETF method is good for those who prefer traditional investment approaches and additional security due to strict regulations surrounding the stock markets.
Closing Thoughts
The advent of Bitcoin ETFs has marked a turning point in the crypto space! It is a sheer example of the fusion of digital currencies with traditional investment frameworks. They come as a boon for those who wish to access Bitcoin without getting into the complexities. With the constantly evolving crypto market space, it is essential to keep every minute detail in mind before choosing “your” kind of investment options!
The post appeared first on Coinpedia
