You may have heard about an upcoming Bitcoin ETF (exchange-traded fund) that will be launched on the CBOE (Chicago Board Options Exchange). This is a big deal for Bitcoin lovers everywhere. But what is an ETF, how does it work, and why does this one matter?
Let us discuss Bitcoin, Bitcoin ETF, and its future.
What exactly is Bitcoin?
Bitcoin is widely recognized as the world’s first cryptocurrency, released as open-source software in 2009. It is best characterized as digital money that only exists electronically.
Bitcoin is decentralized, which means that the quantity of bitcoin in circulation is not controlled by a central issuing body or political entity. The Bitcoin platform, on the other hand, is very far from chaotic.
The entire procedure is straightforward and well-organized: Bitcoin holders can send and receive bitcoins over a peer-to-peer network. The “blockchain,” often known as a huge ledger, keeps track of these transactions.
Every bitcoin transaction is recorded on this ledger. Each “block” on the blockchain is mainly composed of an encrypted Merkle Tree-based data structure. This would be very important for identifying file corruption or fraud. The blockchain protects the remainder of something like the ledger if a relevant document in a chain is corrupted or fraudulent.
Rather than depending on something like a government to generate new currency, Bitcoin’s blockchain software controls when and how many bitcoins are created. It also maintains track of bitcoins and guarantees that transactions are completed correctly.
There are around 17 million bitcoins in circulation right now. The quantity of bitcoins is restricted by design because there is no central regulating body or government in charge of it. The entire amount of bitcoins that would ever be generated is limited to 21 million.
This limit enhances the possibility that Bitcoin will have scalability issues. Because Bitcoin is hardly separated ( users may send as little as 0.00000001 bitcoins), scalability isn’t a problem. The number 21 million is chosen at random.
Bitcoin is thought to have been created as little more than a deflationary currency to counteract the government’s more use of inflation as a kind of hidden tax to redistribute earned wealth. Many individuals credit Bitcoin with liberating the people by removing transitory politicians’ money issuing abilities.
What Is a Bitcoin ETF?
A bitcoin exchange-traded fund (ETF) allows investors to acquire exposure towards the digital asset without purchasing or trading it directly on something like a cryptocurrency exchange.
A bitcoin ETF seems to be an exchange-traded fund that follows the price among the most popular cryptocurrency & allows traders to make money by selling it on a stock market at any time during the day. They can indeed be cash-settled or physically settled, which means that when investors quit, they will get either fiat dollars or genuine bitcoin.
ETFs are conventional financial products that are regulated and may be purchased using a variety of retail-friendly mobile trading applications, such as Robinhood, Trading212, TD Ameritrade, & Fidelity. The most popular ones follow major stock indexes like the S& P 500 Index, as well as other conventional assets & commodities like natural gas and oil.
Because the Winklevoss twins’ “COIN” bitcoin ETF was rejected by the U.S. Securities & Exchange Board (SEC) in 2013, bitcoin ETFs have become a hot subject in the crypto community.
A bitcoin ETF was generally expected to bring about a new generation of institutional investors into the crypto industry, providing the market much-needed maturity & stability.
Development & News of Bitcoin ETF
Notwithstanding hundreds of applications from various firms, including a 2nd Winklevoss Twin ETF during 2018, one was from Bitwise, five via Direxion, two from GraniteShares, and so many more; the SEC has furthermore to accept a bitcoin ETF.
The SEC’s major justifications for these repeated denials have been because the bitcoin market has become too volatile, under-regulated, and easily manipulated.
Things are almost certain to change, as even the Ontario Securities Commission (OSC), Canada’s financial regulator, just authorized the world’s top two bitcoin ETFs in rapid succession.
Physically settled ETFs Purpose Bitcoin ETF (BTCC) and Evolve Bitcoin ETF (EBIT) together have sought to be somehow listed upon that Toronto Stock Exchange. The index provider for something like the Purpose ETF is TradeBlock, a CoinDesk affiliate.
With the introduction of something like a bitcoin ETF in North America, numerous individuals expect the SEC to follow this example inside the United States soon, particularly if Gary Gensler, a recently departed commissioner of the Commodity as well as Futures Commission (CFTC) & MIT blockchain tutor, is confirmed and used By the Senate to replace former SEC Chairman Jay Clayton.
“I think we’ll have an ETF this year,” says Mike Novogratz, CEO of Galaxy Digital & Gensler’s former Goldman Sachs colleague throughout the late 1990s.
“Gary explained a blockchain including a crypto class at MIT. He knows exactly what he’s talking about. Isn’t he a progressive? And progressives, in general, are going after… the rent collectors. Crypto isn’t a rent collector… The rent takers are being disrupted by cryptocurrency.”
A Bloomberg Senior ETF analyst, Eric Balchunas, tweeted his confidence in the new bitcoin ETFs, adding, “The United States generally follows quickly after.” “A positive indication for the Bitcoin ETF in the United States.”
Sui Chung, CEO of C.F. Benchmarks, predicts that the SEC will indeed be pressured to follow suit. “That now the OSC has stated that just because a product is well-constructed, the crypto market is mature enough for some sorts of financial products, the industry’s focus will eventually go southern states to the United States.”
Asset manager ProShares signaled plans to launch a Bitcoin futures exchange-traded fund as soon as Monday (Oct,18). According to a filing, this action would end an eight-year wait for security tracking the cryptocurrency on the U.S. stock market.– Source Economic Times
How Does It Work?
An exchange-traded fund (ETF) is a form of investment that monitors the value of underlying security and index. ETFs are now accessible for a variety of assets & industries, including commodities as well as currencies.
A Bitcoin ETF would function similarly, with the price of one share of something like the exchange-traded fund fluctuating in lockstep with the price of bitcoin. If bitcoin’s value rises, so too does the ETF’s, & vice versa. However, rather than trading on something like a cryptocurrency exchange, the ETF would trade on a stock exchange such as the NYSE and TSX.
You may also like to read: Penny Stocks & Penny Stock ETF | 3 Best Penny Stock ETFs for Investment
Who can invest in exchange-traded funds (ETFs), and how do you trade them?
ETFs can be purchased by anybody who isn’t an accredited investor. Anyone may put money into them.
To start investing in ETFs, open an online brokerage account and download one of the many mobile trading applications available. You’ll be able to purchase and sell a variety of ETFs that follow a variety of markets from and where it.
What are the advantages and disadvantages of trading ETFs?
While it may seem paradoxical to invest in a bitcoin ETF rather than acquire bitcoin directly, there seem to be several benefits to doing so, including:
● There’s no need to go through the hassle of storing cryptocurrency safely on your own.
● Acquiring an ETF through an online broker is safer, quicker, and less prone to outages than purchasing digital assets directly from such cryptocurrency exchange.
● Traditional financial products have considerably clearer tax consequences & guidance than digital assets.
● Because stock exchanges are much more liquid than cryptocurrency exchanges, buying and selling ETFs is considerably easier.
Unfortunately, there seem to be a lot of drawbacks to investing in a bitcoin ETF rather than purchasing the Commodity directly.
● ETFs may only be purchased and sold during market trading hours, but crypto marketplaces are open 24 hours a day, seven days a week. This implies that even if the price of bitcoin drops dramatically, you may have to wait several hours before you can sell and purchase more.
● Keeping your bitcoin is free, but ETFs require administration fees.
● Know-your-customer (KYC) checks are required when purchasing ETFs, whereas bitcoin may be purchased discreetly using peer-to-peer exchanges.
● You must trust 3rd administrators when investing in ETFs.
Do Bitcoin Exchange-Traded Funds (ETFs) Exist?
There are currently no bitcoin ETFs available. It’s mainly due to the unregulated structure of bitcoin and the cryptocurrency market, which makes it easier for investors with huge holdings to influence the bitcoin market.
The Securities and Exchange Commission (SEC) of the United States has rejected multiple proposals for bitcoin ETFs, claiming that perhaps the industry is uncontrolled.
Although there is no bitcoin exchange-traded fund (ETF), there seem to be publicly listed funds that invest in bitcoin. Unlike bitcoin ETFs, which purchase bitcoin shortly, shares in those funds reflect a pool of money invested in bitcoin.
Investing in crypto seems to be another method to get exposure to bitcoin without having to buy it. Investing in cryptocurrency & blockchain firms, which give leverage to the crypto market, is another way to acquire bitcoin exposure without actually owning it.
Why are investors interested in a bitcoin ETF?
Bitcoin investment might be difficult. However, a bitcoin ETF would provide investors with convenient access to the cryptocurrency world. There seem to be several reasons why is it that a bitcoin ETF might make cryptocurrency investing easier.
To begin with, bitcoin might be difficult to keep and protect. Several times, investors have been unable to access about there bitcoin because they have forgotten their passwords (sometimes with millions of dollars on the line). According to Chainalysis, cryptocurrency research and software solutions provider, about 18% of bitcoin may be lost and otherwise stuck throughout inaccessible wallets.
Another factor to consider is that ETFs may be traded directly from an investor’s current brokerage account. Purchasing a bitcoin ETF eliminates such a need to learn a new (and perhaps difficult) cryptocurrency trading platform.
There are a variety of other forms of investments in cryptocurrencies.
Cryptocurrency still is a young technology that really should be treated with prudence. However, whether you’re interested in crypto and think you have room in your portfolio for something a bit more exciting, so here are a few options:
- Using cryptocurrency directly. Bitcoin is growing more popular, and you can even purchase on Amazon with it. Bitcoin, ether, and tethering are just a few of the many cryptocurrencies available.
Arguably the most popular and well-known cryptocurrency, however, this does not mean it is a secure bet. When introducing a new investment to your portfolio, that’s a good idea to proceed with care.
- Investing in cryptocurrencies. You can indeed invest in renewable energy of money if you don’t want to learn a new type of currency. Coinbase, a prominent cryptocurrency exchange, decided to go public in April 2021, allowing investors to purchase its stock.
Though there is currently no bitcoin ETF, there seem to be blockchain ETFs. Blockchain is the underlying technology that powers cryptocurrencies, and many firms are working to develop & implement it. There are also several exchange-traded funds (ETFs) comprised of those firms that can provide investors considerable exposure to crypto technology without having to invest directly throughout the currencies themselves.
Regulation of Bitcoin ETFs
Throughout the U.s, there are currently no bitcoin ETFs that have been authorized. The SEC announced on June 16 that it is postponing its judgment on whether it will authorize a bitcoin ETF. The SEC has received several proposals for review, including the first attempt in 2013, although there have been several more since then.
The commission has made its worries about possible manipulation and fraud involved in the establishment of a bitcoin ETF public.
Foreign exchanges do not even appear to have had the same concerns about the SEC’s bitcoin ETFs. Numerous crypto products are already being authorized in Europe and Canada.
Big Benefits of a Bitcoin Futures ETF
Benefit #1 The Institutionalization of Bitcoin
Another of the major benefits of the futures market would be that it eliminates the expense and trouble of holding the underlying Commodity, making it much easier to acquire and sell that Commodity, especially for speculators (an essential component of just about any market!).
Of course, buying and trading bitcoin is already quite simple. Anyone can establish a Coinbase account in seconds and begin trading bitcoin — or indeed any cryptocurrency for that matter — immediately.
Unfortunately, you won’t be able to keep bitcoin in your Schwab account. You can’t trade it on any of your major exchanges. Furthermore, most model portfolio software does not allow you to include a bitcoin allocation, conduct a thorough risk analysis, or even include everything into the monthly portfolio reports you give to your customers.
Yes, there are also many fintech start-ups working to deal with this problem. Still, cryptocurrency resides almost entirely outside the practice management solutions for the vast bulk of financial advisers.
That’s a major problem because people want bitcoin, and they also want assistance managing it. They aren’t experts in the field of finance. And that is why they enlisted the help of a financial counselor to begin with.
Financial advisers do have much stability; they function as that of the professional guide with both the facts and figures that customers can rely on now to make the best choices on their behalf.
Benefit #2: A Less Difficult Path to Price Discovery
As things are, bitcoin exchanges are… let’s call this one an “adventure.” Crypto is essentially an over-the-counter market, meaning that the optimal price for a coin can and should vary from one exchange to another exchange. Because there’s no such thing as a national best bid/best offer mechanism.
Furthermore, investing directly in bitcoin on something like a crypto exchange exposes investors to a larger risk of unscrupulous actors manipulating bitcoin’s price to your harm.
There are certain investor safeguards, but they vary from exchange to exchange. There are lots of opportunities for anything to go wrong between placing your deal and receiving your currency.
Most people are unaware that CME bitcoin futures contracts, which underlie the majority of existing ETF registrations, are index-based and track the CME CF Bitcoin Reference Rate. In essence, that benchmark creates a consolidated tape for bitcoin, similar to how big exchanges generate a “ticker tape” for stock prices, to allow for trading not only on a principal listing exchange but also on other trading platforms.
The benchmark takes an excessive amount of bitcoin prices of each of the five exchanges, divided into 12 five-minute pieces, and weights them according to volume.
The use of median prices helps to remove outliers (a deterrent for price manipulation). Throughout the trading day, the index rate is released once per hour.
This consolidated tape strategy has the advantage of reducing the idiosyncratic risk of market stress events or failure from a single exchange.
This also discourages pricing collusion by requiring might well malevolent actors — or even exchanges themselves — to succeed in their manipulative efforts throughout many exchanges rather than just one but five at the same time, and for a longer period long enough to attract the attention of security experts and authorities.
Benefit #3: Futures Regulation Is A Defined Area
Cryptocurrency marketplaces are generally unregulated, which is one of its main selling features for some people. Coins operate in a decentralized marketplace that seems to be uncontrollable by any government or regulatory regime.
Whenever you engage in an uncontrolled market, however, you run the danger of not just bad players acting poorly or market stress events spiraling out of control, but also that new regulation may be implemented at any time, totally upending how you interact with just that market.
The Commodity Futures Trading Commission, but on the other hand, has already established the regulations for bitcoin futures contracts. Trading within those contracts is governed by the same regulations as trading in just about any other futures contract, including surveillance, position limits, risk disclosures, and so on.
Furthermore, as a condition of futures contracts continuing to list on the market, the CME seems to have its reporting obligations and monitoring activity. Even the taxation of bitcoin futures has been clarified.
We know the game’s rules with bitcoin futures, and the penalties of violating them are telegraphed well enough in advance. We also have precedence, such as what happened with the U.S. Oil Fund (USO) in the spring of 2020, in places where the implications may still be hazy — such as when bitcoin futures ETFs run afoul of accountability restrictions.
Knowing what is possible and also being able to schedule for everything is, in my opinion, better than entering a market in which the regulatory landscape is still a large question mark.
Soon, a bitcoin futures ETF will be available. While that structure may not be what so many issuers or investors were looking for, the concept has a lot of potentials. The benefits of a bitcoin futures ETF may have been enough to balance the disadvantages if you trade with your eyes wide open regarding the possible hazards.
UPDATE- Oct. 18, 2021
The value of Bitcoin on Monday shot past the $62,000 mark in anticipation of the expected launch in the beginning of the US Bitcoin futures exchange traded fund (ETF) according to the report of the news organization Bloomberg. Prior to that, Bitcoin crossed the $60,000-mark on the 15th of October in the very first instance since April which was $64,870.