The Basics of Bitcoin Exchange-Traded Funds

The Basics of Bitcoin Exchange-Traded Funds

It was just a matter of time until two of the most exciting investing sectors came together. The prospect of an exchange-traded fund (ETF) that tracks bitcoins is the most prominent option for this type of relationship for cryptocurrency fans and investors interested in capitalizing on the massive trend of ETFs.

However, launching the first bitcoin ETFs has been fraught with difficulties. The Commission (SEC) is also wary of allowing a cryptocurrency ETF, which is brand new and mostly untested, to reach the general public. If you want to know more about the regulations of bitcoin and other cryptocurrencies, click here.

A Brief Guide to the Bitcoin ETF Process

Let’s take a step back and review what kind of a bitcoins ETF is or how it works before diving into the positive advantages and hazards.

One of the most common types of exchange-traded funds is the exchange-traded fund (ETF). The use of exchange-traded funds (ETFs) enables investors to diversify their portfolios without holding the assets. ETFs are easier to acquire and sell individual holdings for investors who want to concentrate solely on gains and losses.

Traditional ETFs make it simple for investors to diversify their portfolios since they often invest in baskets of companies with a similar theme—such as sustainability or equities from the video game sector and related businesses.

An ETF that tracks the price of bitcoin, the most widely used digital money globally, is called a bitcoin ETF. In this way, investors can invest in the ETF without going through the time-consuming and complex trading process.

Best Thing to Do: Invest in Bitcoin

What’s the point of having a bitcoin ETF if it simply reflects the cryptocurrency’s price? What’s the point of making a Bitcoin investment if you can buy it? It is for a variety of reasons.

For starters, as previously said, holding bitcoin does not require investors to worry about security processes. Instead of investing in bitcoin directly, you can do so in a bitcoin ETF and reap additional benefits.

Investors who predict the price of gold will fall in the future can short sell the ETF’s shares because it is an investment instrument. The standard cryptocurrency market does not allow for such a transaction.

Even if digital coins and certificates become increasingly popular, ETFs are still considerably better understood by investors than cryptocurrencies.

For a newcomer to the digital currency market, instead of learning the ins and breakaways of something very complex, they can focus on trading an established vehicle.

The Road to the Approval of a Bitcoin ETF

Regulators have been a stumbling block for companies seeking to launch bitcoin ETFs. A bitcoin ETF proposed by Cameron & Tyler Winklevoss, well-known for their engagement in Facebook (FB) and their Gemini digital money exchange, was rejected by the Securities and Exchange Commission (SEC) in 2017 under the name of the Winklevoss Bitcoin Trust.

The decision was because bitcoins are traded on primarily unregulated exchanges, making them vulnerable to fraud.

The Winklevoss twins persevered despite the odds against them. They were granted a patent for exchange-traded goods by the US United states Patent And trademark on June 19, 2018, through Winklevoss IP LLP. The Winklevosses aren’t the only ones hoping to create a bitcoin exchange-traded fund first.

The exchange that introduced bitcoin futures, Cboe Global Growth (CBOE), thought the SEC would also allow digital currency-related ETFs. The Wilks ETF that they would offer, Bats Global Markets, was also acquired by Cboe.


The Verdict

While no digital currency ETFs have been approved by the SEC to far, investors generally remain upbeat. There is a “90 per cent” possibility that a bitcoin ETF gets approval by the Commodity Derivatives Trading Commission (CFTC) in 2018. The reason for the move may be because “There has been a cooling in crypto markets, and regulators have seen the lack of excitement for bitcoin futures on several international exchanges.

The projections for 2018 seem to hold for the year 2021. The SEC also allowed the public to comment on bitcoin ETF applications, with most readers expressing their approval for the said new product.

Because many digital currencies links to bitcoin’s profitability, the introduction of bitcoin ETFs could help propel gains in the cryptocurrency market as a whole.