Understanding Bitcoin ETF
What is ETF?
To understand Bitcoin ETF, you need to first know what ETF is and how it works. An ETF stands for Exchange Traded Fund. Think of it as a Mutual fund but unlike Mutual funds, ETF can be traded on your normal day exchange that is why you can think of it as a Fund that can be traded on Exchange hence the name Exchange Traded Fund.
This Fund costs a fraction of what you will have to pay for in Mutual Funds and it can help diversify your portfolio. Basically, it is a cheaper investment.
What is Bitcoin ETF?
Bitcoin has seen remarkable success and has made a stable place for itself in the cryptocurrency industry. So it is natural that there are people who want to bring this Giant to more people. That is where Bitcoin ETF comes in.
Bitcoin ETF will replicate the price of Bitcoin and allow traditional traders to invest in Bitcoin without actually having to learn about Crypto exchanges, wallets, transaction fees, blockchain, and also fear of their account being hacked or their Bitcoin being stolen.
Types of Bitcoin ETFs
Bitcoin ETF will track the price of Bitcoin just like ETF tracks the price of different classes like Gold. But there are as of now 2 different types of Bitcoin ETFs.
Bitcoin Futures ETF
The Bitcoin ETF which was launched on October 19, 2021, by Proshares is a Futures ETF. It is the first Bitcoin ETF to be traded in the US What this means is that it is not physically backed by Bitcoin and like other Futures funds, It will track the future price of Bitcoin and one has to decide if the price of Bitcoin will go up or down.
Bitcoin Spot ETF
Bitcoin Spot ETF will be backed by Bitcoin, and the price will be directly tied to the Bitcoin spot price at that time. There have been many proposals to bring this to the Exchange, and some countries have adopted Bitcoin Spot ETF but the Securities and Exchange Commission in the US (SEC) has denied all the proposals by far of any Bitcoin Spot ETF.
Why not directly invest in Bitcoin?
Good question, but as we discussed. It can be very confusing for your traditional investors to understand and manage all the different tools and aspects of buying, storing, and trading Bitcoin and cryptocurrencies. ETFs are a known concept and investors have trust in the already well-understood system and SEC.
How to Buy Bitcoin ETF in India?
Some Advantages of Bitcoin ETF
Bitcoin ETF will allow investors access to the growing asset class and since the current ETF is a futures Bitcoin ETF so the investors can short-sell their shares if they believe the prices of their assets will eventually go down. This is a great advantage as you cannot perform the same action if you were to invest directly in Bitcoin. It can also help you diversify your portfolio especially if you are looking for a small investment in a new sector. Bitcoin has become a very well-known thing and has reached heights people did not expect a few years ago so Bitcoin ETFs become a great first Bitcoin investment if you are a traditional investor. This is thought to eventually lead to more growth in Bitcoin and allow people to be more familiar with Bitcoin which was previously considered a convoluted and complicated digital currency.
Wrapping Up
So this brings us to the end of this article. We tried to explain Bitcoin ETFs as effectively and easily as we to help you understand better but we still advise that if you are an interested investor or want to know more about this then you should do a good share of your own research.
