Although the funds Bitcoin ETFs already exist in Canada, but US regulators have yet to approve a Bitcoin ETF form for the US market. Let’s see what an ETF is and what it means for Bitcoin.
Bitcoin and the crypto market have come a long way. Less than a decade ago, the technology was only used by a small community of tech enthusiasts, and the price of Bitcoin was the equivalent of 10,000 BTC for two pizzas.
But the last few years, we have seen many successful businesses built on top of the crypto industry. Among them, countless new projects have appeared and the market marked a special milestone with the birth of decentralized finance… The recognition of institutions with cryptocurrencies is also increasingly widespread. MicroStrategy has converted over $2 billion of their balance sheet into Bitcoin, and you can also buy the latest Tesla with the BTC you own.
But what pieces are still missing for Bitcoin to become a major asset in the global macroeconomic environment? One of these ways is by making it easy for institutions and traditional investors to access it. For many professionals, the best way to do that is through an ETF.
What is a Bitcoin ETF?
First, let’s look at the overview. An ETF is an exchange-traded fund – that is, an investment fund that tracks the price of an underlying asset. ETFs operate in many different industries and asset classes. For example, gold ETFs have been around for decades and these funds track the price of gold.
A Bitcoin ETF will work in a similar way – the price of the ETF will closely follow the price of Bitcoin.
ETFs are managed financial products. As such, they are traded on traditional markets like the NASDAQ or NYSE and not on a cryptocurrency exchange. However, this could change in the future as the border between traditional finance and the crypto industry continues to blur.
Why a Bitcoin ETF?
In fact, Bitcoin is not the easiest asset to trade. For example, custody can cause some serious headaches for a large institution. Anyway, Goldman Sachs won’t be able to just plug a hardware wallet into a laptop and comfortably transfer 2 billion Bitcoins into it. Large financial institutions do not operate in the same way as individual investors, and they need a complex regulatory framework, not to mention a financial system, to be able to participate in this sector.
This is why ETFs have to go a long way to being accepted and widening their base for potential investors. It can give traditional market traders financial exposure to Bitcoin and they don’t have to worry about other difficulties of owning the coin.
Bitcoin ETFs can also hold assets other than Bitcoin. For example, a Bitcoin ETF may contain a basket of assets, such as Bitcoin, Ethereum, Tesla shares, gold, etc. This can diversify the benefits for investors.
Bitcoin ETF Brief Overview
In general, when people talk about Bitcoin ETFs, they are usually talking about ETFs in the US market. However, equity ETFs exist in many different markets. For example, the first Bitcoin ETF was launched on the Canadian stock exchange. The fund’s name is the Purpose Bitcoin ETF and it trades on the Toronto Stock Exchange, under the ticker BTCC.
Even so, most eyes are on US regulators, as it is the largest financial market in the world. Having U.S. Bitcoin ETFs could help Bitcoin solidify its recognition as an investment asset.
In fact, there have been several attempts to launch a Bitcoin ETF in the United States. But as of March 2021, all of them have been rejected by the US Securities and Exchange Commission (SEC).
Why does this committee continue to reject ETF applications? They often criticize the volatility, unregulated nature of the Bitcoin market, and their apparent responsibility for market manipulation. All of which caused the SEC to reject ETF applications. While this may be true to some extent, it has also been true of many financial markets that are hosting other ETFs.
In addition, much of the financial system necessary for Bitcoin to become a legitimate macro-asset was built during the eventual bear market. Just a few years ago, if MicroStrategy wanted to buy billions of Bitcoins, this would have been extremely difficult to do. Now, however, both the infrastructure and the liquidity of Bitcoin are prepared and ready for such large investments.
This continued maturation of the Bitcoin market will likely alter regulatory bodies and eventually pave the way for a Bitcoin ETF to come into existence in the United States. It’s hard to say when that will happen – but sooner rather than later.
Should you invest in a Bitcoin ETF?
Is a Bitcoin ETF the Right Financial Instrument for You to Invest in Bitcoin? If you are an individual investor who wants to protect your savings against the possibility of fiat currency inflation, you can choose to buy Bitcoin.
After all, Bitcoin brings about the democratization of finance. In fact, for each person, Bitcoin can bring many different values. But having direct control of your savings is a powerful thing. Not to mention there are plenty of ways for you to profit through yield mining or lending in Bitcoin.
With that said, there are advantages to investing in a Bitcoin ETF. So, if you are interested in investing in Bitcoin, then an ETF could be a good choice as well.
See more: Long-term Crypto Investment for Newbies
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