Bitcoin, the largest cryptocurrency in the world by market capitalization, is launching its first-ever ETF this week. The US Securities and Exchange Commission (SEC) has approved Bitcoin to release the ETF. This is a double celebration for the investors as Bitcoin hit the mark of $60,000. This ETF release will be a great historic moment in the cryptocurrency industry. This move from Bitcoin has made the crypto world expect more investors soon.
What is an Exchange-traded fund (ETF)?
ETF is a cluster of different financial security measures such as shares, bonds, money market instruments, etc. These ETFs will monitor the underlying asset of investors which means now investors can get more security for their money. This will be moderate to the mutual funds regarding the structure and the management. Similar to mutual funds, these ETFs allow users to invest in various other assets like bonds, stocks, commodities, currencies, etc. Even the user can trade it in a stock exchange.
ETFs are beneficial to those who focused exposure to a specific asset, region, industry, or currency at a reasonable cost. Here users do not have to research the specific industry they opt for. Since the cost of operation is low, it is useful for ‘buy & hold’ investors too. Also, it offers less volatility for an investor’s portfolio.
ETF is one of the booming financial products in the finance sector. So, now when you know what is ETF and its uses, you can start thinking of Bitcoin ETF.
Now let’s talk about bitcoin ETF working before moving into Bitcoin ETF’s uses and risks
Using Bitcoin ETF, without actually possessing a particular asset, you can diversify your investments. A bitcoin ETF will copy the price of Bitcoin. Without directly trading on Bitcoin which is a little complicated process, one can easily buy assets through ETFs. The holder of the ETF does not have to worry about the storage and the security procedure needed in cryptocurrency investors.
As I said earlier, a bitcoin ETF copy the price of the Bitcoin, there is no need for a middle man here and why can’t we just invest in Bitcoin and forget? Well, I will tell you the reason.
Here in ETF, you don’t have to bother about the security procedure involved in Bitcoin and cryptocurrency investments. Also, you don’t need any cryptocurrency exchange here but one can just buy and sell ETFs through our traditional exchanges and systems.
And the most important reason to invest in ETFs is the investor can short sell their shares of the ETF if they predict the low price of bitcoin in the future. This type of selling is not allowed in the traditional cryptocurrency market.
Even though the ETFs make the investment procedures easy, the popularity of digital coins and tokens is high. But an investor always thinks of the easy procedure rather than complicates study on something they don’t understand and in this way, ETFs are more useful.
The journey of Bitcoin EFT launch
The regulatory system of the US was a problem for the launch of bitcoin ETFs. The petition to launch the ETF, submitted by Cameron and Tyler Winklevoss, was rejected by the SEC in 2017. It was rejected because the SEC considers bitcoin is unregulated and susceptible to fraud. But the efforts to launch ETFs were not stopped. An exchange-traded product firm called Winklevoss IP LLP was established as the US Patent and trademark office awarded them a patent in 2018. Not only Winklevosses were putting effort into launching the ETFs but also many cryptocurrency enthusiasts were trying to launch bitcoin ETFs. An exchange called Cboe Global Markets (CBOE), which is responsible for bitcoin futures, believed that SEC will permit cryptocurrency ETFs too.
A fintech company, VanEck, and SolidX which is dealing with bitcoin projects had announced their plan of launching a bitcoin ETF Trust. This would have the institutional investors which could open for $200,000. To track the index of bitcoin trading desks, they designed XBTC. This idea is to convince SEC to take concern on funds linked to bitcoin.
According to the CEO of VanEck, Jan van Eck said that it is their priority to build something better than other company’s processes of making an ETF. Also, he announced that a powerful, bitcoin mirrored ETF will be launched which protects shareholders from the operational risk of Bitcoin.
Since there was a rumor that VanEck and ProShare are going to withdraw their appeal for the Ethereum future ETFs which made many think that this is because they want the appeal for bitcoin ETFs strong with SEC.
Before conclusion
Even though the SEC has not approved any cryptocurrency ETFs so far, the investors were optimistic about its launch. In 2018, the Commodities Futures Commission predicted that the bitcoin ETF launch would be 90% that year and this prediction is getting successful in the year 2021. The reason for the delay may be the moderated and regulated bitcoin futures across many global exchanges.
The SEC put the bitcoin ETF application before the public and a vast number of commenters supported the ETF launch. Depending on the early success of the bitcoin ETFs, the approval will be confirmed as both traditional as well as crypto investors would take part in it.
The launch of Bitcoin ETFs will boom the cryptocurrency market as this will fuel up the Bitcoin and other cryptocurrencies tied up with the bitcoin performance. Bitcoin has almost doubled since the late July low.
Eventually, the source from SEC said that investors were sending money with unregulated cryptocurrencies which have risk and security problems and now the regulations with ETFs can keep their assets safe.
The bitcoin ETF took a long to approve which had enough time to study its safety. The long wait of the investors since 2013 is coming to an end and the functionality of this would be checked to ensure everything is fine. We can expect a wider investment in the cryptocurrency market due to the listing of the bitcoin ETFs.
We wish all the success for all the investors for bitcoin ETFs.