ETF Returns

It seems inevitable that two of the hottest areas of the investment world would meet up sooner or later. However, there have been growing pains and problems in trying to launch the first bitcoin ETFs. The reason is that bitcoin, the largest cryptocurrency in the world by market cap , remains largely unregulated, and the U. Before we look at the potential benefits and risks of a bitcoin ETF, let's back up a step and go over what a bitcoin ETF is.

An ETF is an investment vehicle that tracks the performance of a particular asset or group of assets. ETFs allow investors to diversify their investments without actually owning the assets tracked by an ETF. For those individuals looking to focus only on gains and losses, ETFs provide a simpler alternative to buying and selling individual assets.

Further, because many traditional ETFs target larger baskets of names with something in common a focus on sustainability, for instance, or stocks representing the video game industry and related businesses , they allow investors to easily diversify their holdings. A bitcoin ETF is one that mimics the price of the most popular digital currency in the world. This allows investors to buy into the ETF without going through the complicated process of trading bitcoin itself. Moreover, because holders of the ETF won't be directly invested in bitcoin itself, they will not have to worry about the complex storage and security procedures required of cryptocurrency investors.

If a bitcoin ETF merely mirrors the price of the cryptocurrency itself, why bother with the middle man? Why not just invest in bitcoin directly? There are several reasons for this. First, as indicated above, investors don't have to bother with the security procedures associated with holding bitcoin and other cryptocurrencies.

There is another crucial benefit to focusing on a bitcoin ETF rather than on bitcoin itself. Because the ETF is an investment vehicle, investors would be able to short sell shares of the ETF if they believe that the price of bitcoin will go down in the future.

This is not something that can be done in the traditional cryptocurrency market. Perhaps most importantly, though, ETFs are much better understood across the investment world than cryptocurrencies, even as digital coins and tokens have become increasingly popular in recent years. An investor looking to get involved in the digital currency space but without the time necessary to learn about all of the ins and outs could focus on trading a vehicle he or she is likely to have a better understanding of already.

Firms looking to launch bitcoin ETFs have run into a difficult time with regulatory agencies so far. Cameron and Tyler Winklevoss, famous for their involvement in Facebook, Inc. The reason for the denial was that bitcoin is traded on exchanges which are largely unregulated, leaving it susceptible to fraud and manipulation.

The Winklevoss brothers did not give up their efforts, however; on June 19, , the U. The Winklevosses are not the only cryptocurrency enthusiasts looking to be the first to successfully launch a bitcoin ETF. Cboe Global Markets, Inc. Cboe also acquired Bats Global Markets, Inc. XBTC is designed to track an index related to a group of bitcoin trading desks. VanEck CEOJan van Eck explained to CoinDesk that he "believe[s] that collectively we will build something that may be better than other constructs currently making their way through the regulatory process.

A properly constructed physically-backed bitcoin ETF will be designed to provide exposure to the price of bitcoin, and an insurance component will help protect shareholders against the operational risks of sourcing and holding bitcoin. The SEC has also opened up bitcoin ETF applications to public comments, with the vast majority of commenters voicing their approval for the new product.

If and when the first bitcoin ETFs are launched, it's likely that they will see early success, as both cryptocurrency enthusiasts and traditional investors take part. In turn, the rise of bitcoin ETFs could also help to fuel gains in bitcoin as well, and, because many other digital currencies are closely tied to the performance of bitcoin, gains across the cryptocurrency market.

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The American regulator says that there is confusion surrounding Bitcoin Tracker One and Ether Tracker One.

It would further legitimize bitcoin and would allow several asset managers, currently precluded, to participate in the asset class. An ETF needs to require rules to prevent manipulative practices. For this, an exchange must have sharing agreements with significant markets for the underlying commodity, and those markets must be regulated. It should be a long process. It is structured as follows:.

What Is a Bitcoin ETF?

An exchange traded fund ETF is an investment vehicle that lets prospective investors enter the market without risk, as they do not buy the asset itself but just a basket of securities. An ETF tracks the movement of the investment, in this case Bitcoin, but it does not require the investor to buy the cryptocurrency. It is a passive form of investment. It mitigates risks while still allowing investors to experience profits and cryptocurrency trading. ETFs are usually used by investors for diversification strategies and risk-hedging. Mariela is a former investment banking analyst and has been a cryptocurrency writer with LeapRate and Asktraders for the past two years. Bitcoin is extremely volatile, and the cryptocurrency market is not under any uniform strict regulation as of now. This can prevent new investors from entering the market.

How to Invest in a Bitcoin ETF

Even so, inwe did not see a single bitcoin ETF receive approval from the U. Securities Exchange Commission. An exchange-traded fund, commonly known as an ETF, is a type of investment fund that tracks the price of an underlying asset, such as gold, oil, an index or a basket of stocks. It is traded on exchanges in the same way as stocks. That means that any investors — retail or institutional — can buy and sell holdings in an ETF to other market participants over the stock exchange.

ETFs are usually cheaper than mutual funds as they are usually set up as passive index tracking etfs trading in bitcoin, and they allow investors — even private investors — to gain access to asset classes and niche markets in which it would otherwise be difficult to invest.

A Bitcoin ETFsuch as the one proposed by the Winklevoss twins, would have the digital currency bitcoin as an underlying asset. That etfs trading in bitcoin that by purchasing a bitcoin ETF, an investor would be indirectly purchasing bitcoin, as he or she would be holding the bitcoin ETF in a portfolio as opposed to the actual digital currency.

However, as the Etfs trading in bitcoin would closely track the price of bitcoin, for the investor it should make little difference whether he or she is holding a bitcoin ETF or the actual digital currency. The main difference between buying a bitcoin ETF versus bitcoin itself would be that investors would be purchasing a regulated investment vehicle that they can buy and sell on exchanges instead of having to buy and securely read article bitcoin.

While there is currently no investable bitcoin ETF on U. Investors can purchase shares in the over-the-counter traded investment fund that holds bitcoin as an underlying asset on behalf of its shareholders. Investors are charged a two percent annual management fee for holding shares in the Bitcoin Investment Trust. Moreover, there are also a number of blockchain ETFs that invest in blockchain stocks on behalf of their investors.

A bitcoin ETF is seen as the holy grail learn more here bitcoin as an asset class by many investors. The ease of purchasing a bitcoin ETF would expose the asset class to several new types of investors with deep pockets that were previously not able to invest in bitcoin, such as mutual funds and pension funds, for example. The approval of a publicly traded bitcoin ETF would also very likely boost the price of bitcoin to new highs as the above-mentioned institutional investors, as well as private investors who are not very versed in technology, would now be able to freely invest in the digital currency through the ETF.

In fact, that is what happened in the early s etfs trading in bitcoin the ETF market opened up gold investing to private investors and the price of gold subsequently experienced a tremendous rally that peaked in A similar scenario would be expected to happen to bitcoin, where new highs, well above its most recent all-time high, would be highly likely. This would especially be the case if mutual funds, pension funds, and private banks would jump onto the bitcoin investing bandwagon.

Given the strong demand for the high returns that bitcoin could potentially offer, this would be likely. This is the case not only because a major U.

With Commissioner Peirce now on its side, the cryptocurrency community is more confident than ever that there will be a Bitcoin ETF on US exchanges in the near future. As the bitcoin market matures and the transparency surrounding its trading activities increases as well the security measures of leading digital currency exchanges, it is not far-fetched to assume that a bitcoin ETF will eventually become listed on a major U.

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ETFs allow investors to gain exposure to assets without the inconvenience of actually owning those assets. VanEck CEOJan van Eck explained to CoinDesk that he "believe[s] that collectively we will build something that may be better than other constructs currently making their way through the regulatory process. Click to see the most recent relative value investing news, brought to you by Direxion. Sign Up. Related Articles. Make Medium yours. We must recognize that there is always the potential for manipulation, but the question the SEC should ask is if bitcoin is more subject to such behavior and if its markets are harder to surveil than other approved underlying assets. Since there are now multiple regulated futures markets for bitcoin in the U. Cboe Global Yrading, Inc.

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