An exchange-traded fund (ETF) is an investment fund that is traded on stock exchanges, like stocks. An ETF holds underlying assets in the form of stocks, commodities, or bonds, and the trades are made in a way to keep the trading process close to its net value.
ETFs are similar to mutual funds, but like ordinary stocks, they are listed on exchanges, and ETF shares trade every day. If you are an individual investor, ETF could prove to be one of the best investment choices for you. ETF offers several benefits that could be used to reap benefits.
Even though cryptocurrencies are volatile, still investing in cryptocurrencies is always considered as one of the most profitable investments. Cryptocurrency investments had made many rich in the past. The inherent property of constantly changing value makes cryptocurrency an attractive investment asset.
ETF and cryptocurrencies in combine could be a great combo when it comes to investment opportunities. As ETF are growing in popularity, there are ongoing discussions about ETF that tracks Bitcoin. It might sound so easy, but there are a lot of challenges in launching Bitcoin ETFs.
The fact that Bitcoin is decentralized in nature and some central authority cannot control it is something that is not much welcomed by governments. All over the world, bitcoin and cryptocurrencies, in general, are not properly regulated. So the governments are hesitant to allow Bitcoin ETFs. In the US, the Securities and Exchange Commission (SEC) is yet to allow Bitcoin ETFs, despite certain attempts being made from different groups.
How Does a Bitcoin ETF Work?
As we discussed earlier, an ETF is a type of investment that tracks the performance of particular assets or a group of the asset. ETF is one of the best forms of investment when it comes to diversification. You can easily diversify your holdings if you are using ETFs.
When it comes to Bitcoin, the buying and selling of it is not a simple process. Users have to go through some steps to get started using bitcoin for transactions. A Bitcoin ETF is one that will replicate the price of Bitcoin. This will mean that instead of investors investing in the Bitcoin directly, they could invest in ETF with Bitcoin as an underlying asset. In this way, the investors won’t have to go through the trading process of Bitcoin that includes having a digital wallet, security, and storage requirements.
Investing in Bitcoin vs. investing in ETF
You must be wondering if Bitcoin ETF mirrors the price of the actual Bitcoin then why there is a need for a Bitcoin ETF. This is because several reasons make Bitcoin ETF more suitable then investing in Bitcoin directly.
When it comes to cryptocurrency investments, they are dealt at separate exchanges, and certain requirements are needed like opening up an account, holding a wallet and then performing transactions using public and private keys. On the other hand, Bitcoin ETFs could easily be traded on traditional exchanges, and it is easy to buy them. There are not so many security requirements.
Another reason Bitcoin ETF is more suitable to investors is the fact that ETF being an investment vehicle, investors always have the opportunity to short sell shares in case they see that value of Bitcoin is dropping or going to drop in future. When it comes to the cryptocurrency market, it cannot be done.
Investing in Cryptocurrencies is Risky
When it comes to cryptocurrency investments, it is not easy for everyone to just jump into investments directly. There are a lot of things that are needed to be taken care of. Yes, the cryptocurrency had made several people rich in the past, but at the same time, people who invested without any research or studying the market has also lost a lot of money. The point of discussion here is when it comes to investing in Bitcoin ETFs it is far easy as the general audience already has a better understanding of ETF. It will be more suitable to invest in Bitcoin ETFs as compared to investing directly in Bitcoins.
The Road to Bitcoin ETF Approval
There are a lot of attempts made in the recent past to launch Bitcoin ETFs, but as of writing this, the requests have not been successful. In 2017 a strong petition was made by Cameron and Tyler Winklevoss, famous for their involvement in Facebook and Gemini digital currency, to launch Bitcoin ETF but it was turned down by SEC. The reason was stated as the bitcoin is traded on unregulated exchanges it will be risky and will be prone to frauds.
The main drawback that leads to rejection is issues of volatility, unregulated exchanges, and security issues. As long as these issues are taken care of, it will be difficult to launch Bitcoin ETFs. Certain attempts have been made in the past, and only time will tell how the events turn out to be.
Bitcoin ETF Approval?
“We’re closer than we’ve ever been.” to bitcoin ETF approval, says Bitwise head of research.
October 13th was considered an important date regarding the decision of regulating Bitcoin ETFs, but once again the Securities and Exchange Commission declined to approve the long-awaited decision. Once again, the main reasons were stated as fraud and manipulation when it comes to the trading of underlying assets in ETF.
Although the researchers behind the project are still hopeful, it seems like it is difficult that we will see Bitcoin ETFs anytime soon.
In the recent past, the price of Bitcoin has once again surged to one of the highest values of all time. This factor could be considered both good and bad, as, on one hand, it proves that the volatility factor of Bitcoin is still intact and on the other hand it shows that Bitcoin still has the potential to continue as an asset opportunity in the long run. Although the SEC has not approved any digital currency ETFs, the investors and research groups are optimistic and looking forward to great things in the future.