Cryptonomics: A Dive Into Bitcoin ETFs

Bitcoin ETF is a legitimate form of investment that cuts out the complex issues and security procedures many people face when dealing with cryptocurrencies. Nevertheless, it is yet to break into the US financial market.

By
Utulu Hope
on
March 28, 2021
Category:
Cryptonomics

Introduction

Bitcoin and cryptocurrency have become the talk of the town. Years ago, only a small number of individuals adopted Bitcoin. At that time, the value was relatively low as over 5000 BTCs could purchase a mere 3 to 4 hamburgers if not less. Compare that to today's world where institutional investors are now clamoring for cryptocurrencies. Recently, MicroStrategy converted a considerable amount of its balance sheet into Bitcoin (over $3 billion). Even Tesla, the futuristic electric car company, has approved the use of BTCs to make purchases.

However, with all these interesting facts about Bitcoin, something is missing. How can many people in the economy embrace it? How can more individuals be exposed to this haven asset? One answer, according to many, is the use of an ETF. In this article, we will explain what an ETF means and its relationship with Bitcoin.

What is a Bitcoin ETF?

Understanding the meaning of an ETF gives an excellent head start to what Bitcoin ETF is. The term ETF is an abbreviation for an exchange-traded fund. It is an investment fund that tracks the price of a fundamental asset. It exists in many industries and various types of assets. For instance, gold ETFs have been in existence for a long time, tracking the price of gold.

Just like the gold ETF, a Bitcoin ETF works in a similar way by tracking the price of Bitcoin. What more, ETFs are financially regulated products. They can be traded on conventional markets like NASDAQ, Dow Jones, and S&P 500, unlike regular cryptocurrencies that can only be sold on a crypto exchange. As such, the border between the two financial gateways remains sour.

How Does a Bitcoin ETF Work?

Bitcoin ETFs allow traders to adjust their investments even when they do not own these assets. For investors whose sole target is to make a profit and avoid losses, ETFs make it easier and simpler to buy and sell individual assets. Many ETFs target a large market in a specific niche. Because of this, they allow investors to modify their holdings easily.

Anyone can invest in a Bitcoin ETF without facing the trouble or stress of trading Bitcoin usually. In addition, those who own a Bitcoin ETF do not invest in Bitcoin directly. Therefore, they will not have to face the same complex storage and security procedures other cryptocurrency investors face.

Benefits of a Bitcoin ETF

Now, it is evident that Bitcoin is an asset that could be a bit complicated. You do not expect large organizations to make BTC transactions like regular traders. For instance, Goldman Sachs will not just plug a hardware wallet and transfer some huge amount of BTC into it. Large firms need a complex regulatory framework to carry out these types of transactions.

A Bitcoin ETF is very effective in this scenario. It gives traditional markets price information about an asset without having to worry about the process of owning them physically. Moreover, a Bitcoin ETF is not restricted to just Bitcoin. It can hold other assets, like Gold, Ethereum, Tesla stocks, and so on. Therefore, investors have a variety of assets to choose from.

Significance of Bitcoin ETFs in US Markets

When people discuss Bitcoin ETFs, one thing that comes to mind is the US market. However, the US market will not be the first to adopt the use of ETFs. The first Bitcoin ETF, called the "Purpose Bitcoin ETF", was initiated on the Canadian stock market. Regardless, the US market is the world's biggest financial market. A US Bitcoin ETF would further strengthen Bitcoin's adoption as a form of investment.

Many attempts have been made to launch a Bitcoin ETF in the US market, but all have faltered due to actions of the Securities and Exchange Commission (SEC). The US SEC gave various reasons for declining attempts to create a Bitcoin ETF in its financial market. Some of the issues cited by the US SEC include Bitcoin's volatility and unregulated nature, including its liability to market manipulation. Though these factors seem plausible, how about other markets that have ETFs?

The capacity for Bitcoin to be a macro asset class was greatly helped by the advancement in blockchain technology. Years ago, large firms could not buy billion dollars worth of Bitcoin easily. Now, there is enough infrastructure and liquidity to carry out extensive operations. With this, regulatory bodies may eventually align with Bitcoin markets' maturity and pave the way to create a US Bitcoin ETF. How this will happen is still unknown. However, we can stay positive that it is closer than expected.

Opinion: Invest in Bitcoin or Bitcoin ETFs?

We believe that you are better off just investing in Bitcoin. If you are someone who wants to save money and protect it against the devaluation of traditional currencies, Bitcoin may be the way to go. As indicated above, there are many benefits of investing in Bitcoin ETFs. Depending on what Bitcoin means to you, you can either invest directly or adopt the use of ETFs if you find them attractive.

Closing Remarks

A Bitcoin ETF plays a crucial role in financial markets. From not facing the complex procedures investors pass through when making cryptocurrency transactions to not being restricted to the use of crypto exchanges, Bitcoin ETFs are crucial. However, the US SEC still has issues bringing it to the US markets, sighting some apparent inadequacies. Many other markets have embraced the use of Bitcoin ETFs with its uniqueness of diversification of assets. We can only keep our fingers crossed as we anticipate when this innovation will find its way into the most significant financial market in the world.

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Utulu Hope

UC Hope is a passionate fan of crypto who could weave the latest event into sparks of inspiration and information. He leaves no stone unturned to get to the core of a story. Aside from writing, he spends his hours poring over algorithms and protocols, preparing for a future career as a computer programmer.