Lately, we’ve seen different news stories about countries adopting ETFs. The most recent being that Bitcoin ETFs are set to launch in India. After being opposed by the US SEC on countless occasions, the launch of ETFs was a refreshing breakthrough reflecting just how far cryptocurrency has come.
ETFs are Exchange Traded Funds, they are securities that can be bought or sold on a stock exchange. They track a vast range of asset classes from traditional investments to alternative assets like commodities or currencies.
A Bitcoin ETF tracks Bitcoin’s performance or in simpler words, is an exchange-traded fund linked to Bitcoin. The ETFs, however, do not track Bitcoin’s spot price but track its future price (Bitcoins’ futures). The launch of the Bitcoin ETF has proved to be advantageous for the crypto space. Here are a few reasons why:
The launch of the Bitcoin ETFs shows that the adoption of cryptocurrency is getting higher. Cryptocurrency is getting more mainstream and can now be seen as an alternative investment option.
2) It gives everyone (including those who hesitate to trade the actual Cryptocurrency- Bitcoin) an opportunity to enjoy the interest accrued from holding a valuable asset.
3) The publicity of the Bitcoin ETFs will create more public awareness for Bitcoin and cryptocurrency at large.
4) The arrival of the Bitcoin ETFs gives cryptocurrencies more legitimacy and helps ratify crypto’s relevance in today’s economy.
By trading Bitcoin ETFs, investors can enjoy bearers’ interest without going through the complex procedure of trading, storing, and securing Bitcoin itself. It also reduces investors’ vulnerability to the price volatility of Bitcoin itself.
How It Started
Bitcoin ETFs were first launched in October 2021 when Proshares started publicly trading its Bitcoin Strategy ETFs on Wall Street on October 19, 2021. Amassing close to $1 billion in total volume during the first 24 hours and with a current worth of $1.4 billion in AUM, the Bitcoin ETF has proved to be potentially beneficial, both to investors, organizations, and third parties. According to Bloomberg’s data, ProShares’ Bitcoin Strategy ETF, trading under the ticker BITO, jumped more than 3% at the start of trading and within just 20 minutes, about 6.4 million shares of BITO worth around $264 million had been traded.
Three days after the launch of the Proshares’ Bitcoin Strategy ETF, Valkyrie Bitcoin Strategy ETF (BTF, $25.01) was launched. Owned by Leah Wald, Valkyrie is a Tennessee-based alternative asset manager with years of traditional and digital asset management, who already offers trusts for various cryptocurrencies, including Bitcoin, Polkadot, Algorand, and others but has BTF as its first cryptocurrency ETF. Although it didn’t record as much revenue as Proshares did, it, however, has accumulated a little less than $60 million in AUM.
There is a list of other Bitcoin ETFs but this is how it all started. Speculations around the Bitcoin ETFs are still being considered. For example, there have been questions whether:
Increased demand for Bitcoin ETFs can push Bitcoin to new ATHs
2) Bitcoin ETFs that track Bitcoin’s spot price and are convertible to real cryptocurrencies can emerge.
Although the Bitcoin Futures ETFs have no direct impact on price, records show that BTC spiked above $63,000 shortly after the ProShares ETF began trading. It fell back to $62,500, then climbed to just shy of $64,500 later. Bitcoin Futures mean that you are not directly buying and selling the Bitcoin. You are betting on the potential for your shares of the ETF to be worth more later.
What Critics Are Saying About Bitcoin ETFs
Investors critic the Bitcoin ETFs though on several grounds, some of them being:
The High Expense Ratio: Bitcoin ETFs come with a higher operating expense. For example, BITO’s expense ratio is 0.95% meaning that you pay an operating expense of $95 for every $10,000 you invest in the fund.
The Time For Trading: Unlike the actual market of cryptocurrency, the funds are subject to trading hours of exchanges where they are listed.
The Tradable Negotiations: Critics say, it would be better if they can also be traded for other cryptos instead of only being able to buy and sell them like stocks.
There’s a whole new world of possibilities posed by Cryptocurrency and the Blockchain space. While this is great, I’m more interested in how the crypto market will be influenced when a great number of people become aware of it through the publicity of the Bitcoin ETFs. There’s only one way to find out though: by observing the market.
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