The Bitcoin Exchange Traded Fund (ETF) is a big deal – many believe it can open the floodgates for large institutional investor investments. The Winklevoss brothers first applied for an exchange-traded Bitcoin fund around eight years ago, which was rejected by the Securities and Exchange Commission (SEC) in 2017, so this has been a long time coming.
It was a long way to go to get the Bitcoin ETF approved, in part due to concerns about price volatility and the potential for price manipulation in the unregulated cryptocurrency ecosystem. In addition, the SEC was reluctant to approve an ETF based on the untested cryptocurrency market. However, the anticipation ended on October 19, when the ProShares Bitcoin Strategy ETF landed on the New York Stock Exchange (NYSE).
The ProShares Bitcoin Strategy ETF started trading on the NYSE under the ticker BITO. As the first futures-based Bitcoin ETF, BITO debuted with the highest natural trading volume on the first day of $ 1 billion at a starting price of $ 40.88. According to TradingView, BITO closed the day at $ 41.94, up 4.8%.
Exchange Traded Funds (ETFs) are regulated financial products and can represent different types of assets, from individual commodities or stocks to the S&P 500. ETFs offer an alternative way of making profits from the price development of the underlying asset without actually owning it.
ETFs can be bought or sold like regular stocks or mutual funds, but unlike mutual funds, they usually have a lower cost to enter the market. Also, unlike mutual funds, their price fluctuates throughout the day, whereas mutual funds can only be bought or sold at the closing market price.
Likewise, the Bitcoin ETF is a regulated financial product that represents the number one cryptocurrency, Bitcoin.
While BITO is the first to hit the market, we might see other crypto ETFs in the future. The Bitcoin ETF allows investors to get involved in Bitcoin without actually buying the cryptocurrency. It tracks the price changes of Bitcoin and can be traded on traditional exchanges like NYSE and TSX instead of cryptocurrency exchanges. Investors can buy and sell the shares of Bitcoin ETF during trading hours of the day. With ProShares ETF, the price of the ETF is based on the futures contracts linked to the cryptocurrency.
- Convenience: When investors buy a Bitcoin ETF, they can take advantage of the price of Bitcoin without having to look into how the leading cryptocurrency works. You don’t have to take the risk of owning Bitcoin directly. A Bitcoin ETF simplifies the process of investing in Bitcoin by eliminating the need to manage the public and private keys of Bitcoin wallets. Investors with no technical knowledge can buy Bitcoin ETFs and make a profit from the price changes.
- Diversification: Each ETF can hold more than one asset. Investors can diversify their portfolios by minimizing the risks involved. Similarly, Bitcoin ETF allows investors to diversify their existing portfolios.
- Tax efficiency: Cryptocurrencies, along with Bitcoin, are unregulated and decentralized. Much of the world’s tax havens and pension funds do not allow Bitcoin purchases. However, trading Bitcoin ETFs on traditional exchanges would likely be SEC regulated and tax efficient.
- Lack of Bitcoin Ownership: Bitcoin acts as a hedge against central banks, stocks, and fiat currencies. It paves the way to mitigate risks associated with the traditional financial system. The other benefits of Bitcoin, such as voting rights, high security, peer-to-peer transactions, and key holder rights, are lost when investors use its ETFs.
- Restricted crypto trading: Bitcoin can be traded against other cryptocurrencies like Ether, Ripple, Litecoin and more. However, a Bitcoin ETF cannot be traded in any other cryptocurrency as it is just a mutual fund that tracks the Bitcoin price.
- Centralization of Bitcoin: Bitcoin ETFs contradict one of the core principles of Bitcoin, decentralization. Bitcoin was designed to enable decentralization, but in order to buy, hold, and secure a Bitcoin ETF, investors must rely on centralized units.
- ETF inaccuracy: Although the ETF tracks the price of an underlying asset, there may be inaccuracies as it may hold other assets. This means that a 50% increase in Bitcoin price due to the other holdings may not be accurately reflected in the value of the Exchange Traded Fund. A Bitcoin ETF may or may not take advantage of Bitcoin’s exact price changes.
Bitcoin’s price hit an all-time high of $ 66,974 two days after the ProShares Bitcoin Strategy ETF was launched on the NYSE. The recent price hike appears to be fueled by the successful debut of the Bitcoin ETF. The first day of the new fund on the NYSE raised more than $ 570 million in assets with a trading volume of around $ 1 billion, making it one of the most successful launches of all time.
The leading cryptocurrency has bounced back from more than six months of decline. Bitcoin price is around $ 63,000 in October, according to CoinMarketCap. Bitcoin’s previous all-time high of $ 64,888 was recorded in mid-April and more than half of its value was lost in consecutive months. Several more Bitcoin futures-based ETFs could hit the US market in the coming weeks, increasing the potential for US crypto investors to get involved in the crypto market.