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Bitcoin ETF, the first ETF dedicated to cryptocurrencies and provided by ProShares, a provider specializing in this type of financial product, recently made its debut. The fund will be listed on the NYSE (New York Stock Exchange) under BITO.
ETFs are unique financial instruments that offer investors greater security, protection and flexibility than any other instrument. Therefore, the potential of Bitcoin ETFs has gained popularity.
What is the Bitcoin ETF?
A bitcoin expectations ETF is an exchange-traded fund that allows exposure to bitcoin without purchasing the cryptocurrency directly. ETFs are regulated financial products and can represent a wide range of assets.
Investors can buy and sell fractions of the ETF, just like stocks. But unlike funds, ETF shares can bought and sold any time the market is open.
With a bitcoin futures ETF, investors have an alternative method of generating profits from movements in the price of bitcoin. Instead of replicating a series of assets, each bitcoin futures ETF is back by bitcoin futures contracts.
How does Bitcoin ETF Work?
Bitcoin futures are a derivative trading instrument in which two parties agree to buy or sell bitcoins at a preset price on a future date, usually traded on a commodity exchange. A derived is a term for any trading contract replicating an underlying asset’s cost.
In essence, the investor agrees to buy or sell bitcoins at a specific price and date. No matter what the asset’s actual price is on that day. When both parties need to fulfill the agreement, this date is known as the contract settlement date or expiration date.
When a bitcoin futures contract expires, the party that agree to buy bitcoin will have to do so, either paying cheaper or higher (since bitcoin is highly unlikely to be at the same price as when the contract was made).
How much a person will pay or receive depends on the fair price at the time and the value of each of the investment contracts they hold.
How does it Affect Cryptocurrencies?
The approval of the bitcoin ETF has affected the prices of all significant cryptocurrencies, driving them to higher prices than a few years ago. The approval of an ETF of the most popular and essential cryptocurrency in the market marks a historic event since it opens the doors to future ETFs of other cryptocurrencies, and a more significant number of investors can participate. A vital element of this cryptocurrency price push is that the United States Securities and Exchange Commission (SEC) approved the approval.
Despite the hype, this bitcoin ETF is down 30% so far in 2022, making it one of the ten worst performers when it comes to returns after a public listing. If you are an investor looking to expand your portfolio with different asset classes, ETFs are an excellent option to have good returns and balance your portfolio. However, not all ETFs are suitable for achieving financial goals.
Goals of Bitcoin ETFs
In their current form and the state that many investors desire, Bitcoin ETFs are design to allow more people to finance Bitcoin without the necessary cost and hassle of buying them. They reduce the need for security procedures and excessive funds while offering a family-like investment.
Although technically, you don’t have any crypto in your wallet, you do have security keys that you need to protect. If you purchase your cryptocurrency through an exchange, you can store your keys on that exchange if they offer this service.
However, wallets and contacts can be hack, and keys are stolen, meaning your cryptocurrency can be stolen. You can store your keys offline using a variety of methods. But none of these methods is 100% secure or guaranteed. With an ETF, you don’t have to own cryptocurrency, keep the keys safe, or move the keys between different types of storage you own shares of the fund, which bears the risk of keeping the keys for you.
One of the biggest hurdles for average investors is price. Bitcoin (BTC) set a record near $69,000 per BTC shortly after ETF Proshares Bitcoin was list on the New York Stock Exchange. However, the price started falling in recent months and reached almost $35,000. Therefore, retail investors may not have the assets to buy 1 BTC even with low prices. An ETF allows you to gain coverage to BTC within your budget, risk tolerance, and investment goals.
How to Invest in Bitcoin ETFs
If you want to invest in Bitcoin ETFs, you can buy them through your broker or advisor if they offer them. There are several Bitcoin ETFs list on exchanges such as the New York Stock Exchange ARCA and Nasdaq:
- Proshares Bitcoin Strategy ETF (BITO)
- Valkyrie Bitcoin (BTF) ETF Strategy
- VanEck Bitcoin Strategy ETF (XBTF)
- ETF Global X Blockchain and Bitcoin Strategy (BITS)
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