Just as US regulators approved this new class of financial product, there has been speculation about a new game called Bitcoin ETF! Experts believe that these spot ETFs will give people a way to invest in Bitcoin through a brokerage for the first time. Big names like BlackRock and Fidelity have been given permission to launch spot Bitcoin exchange-traded funds (ETFs) that track the price of Bitcoin.
On January 10, Wall Street’s top cop, the Securities and Exchange Commission (SEC), approved 11 Bitcoin ETFs. This will make tracking the Bitcoin price easier and more accessible to more people! Let’s learn about the basics of ETFs.
Introduction to Bitcoin ETF
We can think of a Bitcoin ETF as a basket containing Bitcoin. When someone purchases ETF shares, they are investing in the performance of Bitcoin without owning the cryptocurrency directly. These ETFs track the price of Bitcoin and provide existing investors with convenient exposure to fluctuations in Bitcoin’s value through the stock market. ETFs are rightly called a bridge between traditional finance and cryptocurrency.
So how does a spot Bitcoin ETF work?
Let’s imagine a Bitcoin ETF as a virtual piggy bank that holds Bitcoin instead of regular coins. When you buy shares of this piggy bank (ETF) on the stock market, you get a piece of Bitcoin inside. For example, if we have $100 worth of Bitcoin in our piggy bank and we own 10% of the stock, our investment is equivalent to having $10 worth of Bitcoin in the entire bunch.
In this way, we can track the value of Bitcoin without actually owning it and having access to the technology to store it. It allows investing in Bitcoin through a stock brokerage account, making it more friendly to existing investors. ETFs can be easily traded on stock exchanges.
Can ETFs Affect Bitcoin Price?
The recent ETF approval marks a positive development for the cryptocurrency market after nearly two years of difficulties as the price of Bitcoin plummeted and major cryptocurrency companies came under scrutiny. The cryptocurrency industry has been anticipating the approval of an ETF for months. Accordingly, the price of Bitcoin has surged 70% since October 2023. Experts believed that Bitcoin ETFs would increase interest in Bitcoin.
Bitcoin hit a low of $16,000 in November 2022 following the unfortunate FTX outage. But some analysts have expressed some optimism, saying ETFs could attract $50 billion to $100 billion this year alone. This could potentially push the price of Bitcoin to $100,000. Many who are cautious about their predictions say ETFs could help stabilize the market by expanding the use of cryptocurrencies to a wider audience.
How does this ETF work?
These ETFs are expected to be listed on Nasdaq, NYSE, and CBOE. Their assets include actual Bitcoin purchased on cryptocurrency exchanges and held through intermediaries such as Coinbase Global (COIN.O). This product tracks the Bitcoin benchmark. Issuers plan to charge fees of 0.20% to 0.8%, well below the overall ETF market average.
Is owning a Bitcoin ETF the same as owning Bitcoin?
These days, the game-changing Bitcoin ETF is in the spotlight! However, it is completely different from owning Bitcoin directly. Spot Bitcoin ETFs allow investors to gain exposure to the price of Bitcoin without the difficulties of owning Bitcoin directly. This means you don’t have to create cryptocurrency wallets and accounts through exchanges, which are not completely secure and are often prone to hacking.
ETFs, by contrast, are listed on highly regulated stock exchanges and can be accessed through individual investors’ existing brokerage accounts. These are very strictly supervised! The ETF structure is believed to make Bitcoin more accessible to institutional investors as well. The Spot Bitcoin ETF is a huge win for the cryptocurrency industry for all the good reasons.
Advantages and disadvantages of ETFs
| Advantages | disadvantage |
| It simplifies investing and makes Bitcoin more accessible without having to purchase the currency directly. | This means we don’t actually own any Bitcoin! |
| Regulatory and security advantages compared to direct cryptocurrency investment | Management and operating costs are included. |
| Provides market integration and liquidity. | Unlike cryptocurrency markets, which operate 24/7, Bitcoin ETFs are limited to the timing of stock market operations. |
| Investing in a Bitcoin ETF allows for diversification within your investment portfolio. Some of them may enjoy tax efficiencies! | This only tracks Bitcoin price and cannot be used for other cryptocurrencies! |
Which do you like better? Bitcoin or Bitcoin ETF?
It’s like choosing two completely different courses of action to repay your profits!
Investing in Bitcoin means purchasing Bitcoin directly and storing it in your wallet. This method provides ownership and control over the asset. However, the volatility of Bitcoin’s value may imply risks associated with this investment approach. You must also protect and manage your private keys responsibly!
On the other hand, Bitcoin ETF is a financial foundation that tracks the price of Bitcoin. Investing in a Bitcoin ETF does not give you direct ownership of the cryptocurrency; rather, you own shares of the ETF that holds Bitcoin on your behalf. It may be more convenient for those who prefer traditional investment methods and want exposure to Bitcoin without dealing with complex storage and security issues!
You can see that both methods have their advantages! Investing in Bitcoin gives you direct ownership and control over the currency. It is suitable for those who feel comfortable managing their private keys safely. The ETF approach is suitable for those who prefer a traditional investment approach and the additional security due to the strict regulations surrounding the stock market.
Closing Thoughts
The emergence of Bitcoin ETF was a turning point in the cryptocurrency industry! This is a pure example of the convergence of digital currencies and traditional investment frameworks. This is helpful for people who want to access Bitcoin without getting caught up in the complexity. In the ever-evolving cryptocurrency market space, it is important to keep all the details in mind before choosing “your” kind of investment option!