Introduction
The concept of Bitcoin ETF (Exchange-Traded Funds) emerged after investors and brokers noticed the high prices of bitcoin and other cryptos were becoming more popular. These are pools of bitcoin-related assets offered on brokerage exchanges to be traded as ETFs. The sole reason for these ETFs is to give retail investors who are not comfortable investing in cryptos access to them without actually owning them.
These Bitcoin exchange-traded funds are compromised of Bitcoin or assets related to Bitcoin’s price. Bitcoin’s price rose above several thousand dollars in a short period, due to which retail and average investors lost their opportunity to invest in Bitcoin directly. The Brokerages, responding to demand for investor access to Bitcoin began to build Bitcoin exchange-traded funds.
Types of Bitcoin ETF
There are two main types of bitcoin exchange-traded funds spot, futures
1. Spot bitcoin ETF
The bitcoin spot ETF is a type of exchange-traded fund that aims to provide investors with direct exposure to the current market price of bitcoin. “spot” means the immediate or current price of the underlying asset. There are a few spot bitcoin exchange-traded funds, such as the 21Shares Bitcoin Core ETP (CBTC), but these all exist outside of the U.S.
2. Futures bitcoin ETF
Futures ETFs do not hold actual bitcoin. they used Bitcoin futures contracts to gain exposure to the exchange. The futures contract allows investors to speculate and bet on the future price of the asset. It is designed to provide a leveraged or inverse exposure to Bitcoin’s price, allowing investors to amplify both gains and losses.
How to Buy Bitcoin?
You need to purchase and hold over Bitcoin. Then it would offer fractionalized shares of its holdings on an exchange, that could be traded like a traditional ETF. You can purchase through your broker or advisor and there are several Bitcoin exchange-traded funds that trade on exchanges such as the New York Stock Exchange ARCA and Nasdaq:
- Proshares Bitcoin Strategy ETF (BITO)
- Valkyrie Bitcoin Strategy ETF (BTF)
- VanEck Bitcoin Strategy ETF (XBTF)
- Global X Blockchain & Bitcoin Strategy ETF (BITS)
How to do Bitcoin ETFs Work
ETF (exchange-traded fund) is an investment fund that tracks the price of an underlying asset or an index. ETFs are available for several assets of industries, ranging from commodities and currencies. A Bitcoin would work the same way, and the price of one share of the exchange-traded fund would fluctuate with the price of Bitcoin. and the trading of cryptocurrency exchange, the ETF would trade on a market exchange like the (NYSE ) New York Stock Exchange or TSX
Bitcoin Vs Bitcoin ETFs:
When you buy your cryptos (Bitcoin) through the exchange, you can choose to have keys stored on that exchange if it offers that service. Whereas ETFs do not require you to own any cryptos, store keys safely, or move the keys back and forth between types of storage as you own shares of the fund which takes the risks of storing keys for you.
You know that with increasing demand the price of Bitcoin has spiked up, which hinders the average investors from buying cryptos. Whereas the price of Bitcoin exchange-traded funds has decreased in recent times so average investors find it hard to buy Bitcoin rather than ETFs. People find it easy to understand ETFs in place of dynamic Bitcoin.
Alternatives of Bitcoin ETFs
There are many different platforms to buy and sell cryptos like PayPal, Robinhood, and SoFi. Another alternative is to invest in public companies directly buying cryptos or investing in blockchain technology or crypto mining. Examples are Coinbase Global (COIN), MicroStrategy (MSTR),
Marathon Digital (MARA), and Hut 8 Mining (HUT). If you want indirect exposure, you can invest in sectors that participate in the cryptocurrency market on a smaller scale, such as PayPal, JP Morgan Chase, Microsoft, and Samsung.
Conclusion
ETFs provide a balance between traditional investment vehicles and the evolving cryptocurrency exchange market. It’s easy to trade shares and much more familiar like buying and selling stock through your brokerage.