Bitcoin ETF Definition

Bitcoin exchange-traded funds ( ETFs ) are pools of bitcoin-related assets offered on traditional exchanges by brokerages to be traded as ETFs. The purpose behind these ETFs is to give retail investors and investors not comfortable investing in cryptocurrencies access to them without actually owning them .

Learn more about Bitcoin ETFs, how they work, and what ‘s available.

Key Takeaways

  • A Bitcoin ETF is linked to Bitcoin futures contracts, allowing investors access to Bitcoin without trading it. 
  • Investing in a Bitcoin ETF cuts complex storage and security issues for cryptocurrency investors.
  • ProShares, a provider of specialized exchange-traded products, began trading its Bitcoin Strategy Fund ETF on Oct. 19, 2021, marking the first Bitcoin ETF to trade in the U.S.
  • Cryptocurrency fans and investors are still interested in an ETF comprised of bitcoin, as opposed to a derivative.

What Is a Bitcoin ETF ?

A Bitcoin ETF is an exchange-traded fund comprised of bitcoin or assets related to Bitcoin ‘s price. They are traded on a traditional switch over rather of a cryptocurrency exchange. Theoretically, bitcoin is purchased by the company, securitized, and sold or traded on an switch over. however, the Security and Exchange Commission continues to reject these proposals ; there is no cryptocurrency ETF immediately representing an underlie mint .

presently, the underlying assets within Bitcoin ETFs are linked to Bitcoin futures contracts traded on the Chicago Mercantile Exchange .

The first base concept for a Bitcoin ETF emerged shortly after investors and brokers noticed that bitcoin prices were trending up and the cryptocurrency was becoming more popular. Most importantly, there appeared to be an opportunity to generate returns from buying and selling bitcoin .

As Bitcoin ‘s price rose above respective thousand dollars, retail and average investors lost the opportunity to invest in Bitcoin directly. Brokerages, responding to demand for investor access to Bitcoin, began to design Bitcoin exchange-traded funds. Applications with the Securities and Exchange Commission ( SEC ) for approval started in 2013 with the Winklevoss brothers .

Understanding Bitcoin ETFs

In an exchange-traded fund that tracks stocks, the stocks are purchased by the fund. These are the fund ‘s holdings, and the ship’s company that bought them offers fractionalized shares on exchanges, which trade closely 24 hours per day, seven days per workweek .

A Bitcoin ETF, following this structure, would need to purchase and hold bitcoin. It would then offer fractionalized shares of its holdings on an exchange, which could be traded similar to a traditional ETF.

The SEC has not approved any Bitcoin ETFs for funds that hold bitcoin. alternatively, it has approved Bitcoin ETFs linked to Bitcoin futures contracts that trade on the Chicago Mercantile Exchange ( CME ). A futures condense is a standardize contract where two parties agree to exchange a specific measure of assets on a specific day for a finical price. A Bitcoin futures condense is an agreement between two parties for the substitute of a condense unit of bitcoin—in this casing, one condense unit of measurement is 5 BTC .

The fund creates shares with prices based on the current price of one compress whole and offers it on an exchange for trade wind. The first official Bitcoin-linked ETF was the Proshares Bitcoin Strategy ETF ( BITO ), approved by the SEC in October 2021 and listed on the New York Stock Exchange.

Goals of Bitcoin ETFs

In their stream form—and the phase desired by many investors—Bitcoin ETFs are designed to allow more people to invest in Bitcoin without the necessary expenses and hassles of buying them. They eliminate the necessitate for security system procedures and excessive funds while providing a conversant investment type .

security

While you do n’t technically have cryptocurrency in your wallet, you have security keys that you need to safeguard. If you buy your cryptocurrency through an exchange, you can choose to have your keys stored on that central if it offers that service .

however, wallets and exchanges can be hacked and keys stolen—which means your cryptocurrency can be stolen. You can store your keys offline using several methods, but none of these methods are 100 % secure or guaranteed. An exchange traded fund does n’t require you to own any cryptocurrency, memory keys safely, or move the key back and forth between different types of storage—you own shares of the fund, which takes the risks of storing keys for you.

You can store your keys in a ” hot wallet “ ( connected to the internet ) or “ cold storage “ ( an offline method acting ). Each has its own benefits .

high Prices

One of the most meaning obstacles for average investors is price. Bitcoin ( BTC ) set a criminal record high of close up to $ 69,000 per BTC soon after the Proshares Bitcoin ETF was listed on the NYSE. Over the newfangled few months, its monetary value began to drop, hitting close to $ 35,000. so, even at low prices, retail investors may not have the assets to purchase 1 BTC. An exchange traded fund allows you to gain exposure to BTC within your budget, risk tolerance, and investing goals .

ETFs are Better Understood

possibly most importantly, ETFs are much better understand across the investment world than cryptocurrencies. even as digital coins and tokens become increasingly democratic, they are becoming more complex. then if you ‘re only interested in becoming involved in digital currency investing, an ETF lets you focus on trading an asset you already understand rather than learning about blockchain, mining, decentralized exchanges, distributed ledgers, key storage, and cryptocurrency .

How to Invest in Bitcoin ETFs

If you ‘re looking to invest in Bitcoin ETFs, you can purchase them through your agent or adviser if they offer them. There are respective Bitcoin ETFs that trade on exchanges such as the New York Stock Exchange ARCA and Nasdaq :

  • Proshares Bitcoin Strategy ETF (BITO)
  • Valkyrie Bitcoin Strategy ETF (BTF)
  • VanEck Bitcoin Strategy ETF (XBTF)
  • Global X Blockchain & Bitcoin Strategy ETF (BITS)

On April 6, 2022, the SEC approved the Teucrium Bitcoin Futures Fund ( BCFU ), so the number of approve Bitcoin ETFs continues to grow. It ‘s important to note that these ETFs are not wholly comprised of Bitcoin futures. For the most part, they invest in traditional securities, holding Bitcoin futures contracts when it meets the store ‘s scheme. For exemplar, the Proshares Bitcoin Strategy Fund is designed to hold Bitcoin futures contracts only when positions are profitable. otherwise, it can hold securities of Bitcoin-related companies and money market instruments. It can besides borrow using reversion redemption agreements.

Should You Buy a Bitcoin ETF?

A Bitcoin ETF is an exchange-traded fund that tracks the monetary value of Bitcoin, either through spot markets, derivatives, or Bitcoin ownership. It is a identical bad investing, so it ‘s best to consult a professional adviser before buying one .

What’s the Best ETF for Bitcoin?

Whle there are respective Bitcoin ETFs available, they are all based on the prices of Bitcoin futures contracts. It ‘s best to consult a master adviser before purchasing a Bitcoin ETF .

CAn You Buy a Bitcoin ETF?

There are respective Bitcoin ETFs available to investors for deal. ProShares Bitcoin Strategy Fund, Valkyrie ’ s Bitcoin Strategy ETF, and Van Eck ’ s Bitcoin Strategy ETF are a few examples .
Investing in cryptocurrencies and early Initial Coin Offerings ( “ ICOs ” ) is highly bad and bad, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each person ‘s site is unique, a qualify professional should constantly be consulted before making any fiscal decisions. Investopedia makes no representations or warranties as to the accuracy or seasonableness of the information contained herein. As of the date this article was written, the generator does not own Bitcoin ETFs .

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