Bitcoin ETFs: What to Know
After many years, Bitcoin appeared on the New York Stock Exchange. On October 19, the first exchange-traded fund linked to Bitcoin made its debut. This ETF does not directly invest in the digital coin, but it is based on future contracts to the cryptocurrency. The ETF (BITO) is a milestone for crypto. Now everyday investors can expose their portfolios to digital currencies without dealing with digital wallets or online exchanges. If you want to understand more about Bitcoin ETFs, keep reading.
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Bitcoin ETFs Definition
An exchange-traded fund, or ETF, is a type of investment that tracks an underlying asset’s price, such as oil, gold, an index, or stocks. As you may have guessed, a Bitcoin ETF is an investment fund that tracks the price of those digital coins.
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These ETFs are traded on regulated exchanges in the same manner as stocks. An investor can sell or buy a holding in an ETF to other investors on the stock exchange. An ETF is cheaper than a traditional mutual fund. It is considered a passive index-tracking fund. As a result, investors now have access to niche markets and asset classes that were once blocked from the general public.
Bitcoin ETFs now combine the best of these two popular investment options. It allows investors to be exposed to Bitcoin with the ease of ETF investing. These funds operate like any other ETF, but they focus on the popular cryptocurrency.
Many Bitcoin advocates have waited for an ETF based on digital currency. Since October 2021, three funds have now tracked the prices of Bitcoin. However, this could be just the beginning for investors. Business Insider estimates that there could be more than a half dozen new Bitcoin ETFs in the future. After years of rejections from the SEC, the investment tide turned in cryptocurrency’s favor.
While these are not spot ETFs, those options could hit the market later in the year. Spot ETFs are often considered the “holy grail” for investor acceptance on the exchanges. For now, the SEC has taken the easier route with ETFs based on Bitcoin futures.
Why Do You Want a Bitcoin ETF?
Any type of investment can be complicated, but investing in crypto can be challenging and volatile. A Bitcoin ETF gives investors access to the world of cryptocurrency. There are several reasons why investors should consider a Bitcoin ETF for their portfolios. Consider these points for your investment strategy.
First, cryptocurrency can be difficult to secure and store. Over the past decade, you have heard about horror stories where investors could not access their accounts simply because they forgot the password. In some cases, these accounts had millions of dollars in them, leaving the owners without any access. According to a few reports, about 18% of digital currency is stuck in an inaccessible wallet. There are no concerns about properly storing the digital coins with an ETF, making a simplified process for crypto investors.
Another plus for a Bitcoin ETF is that it can be traded from an existing brokerage account. Many mainstream crypto exchanges have made it possible to sell and buy digital assets, but ETFs are now available through those more traditional investment avenues. In the past, access to Bitcoin was limited by regulatory complications. Today, their ETFs are traded under strict oversight in mainstream exchanges.
There is no doubt that investing in Bitcoin carries plenty of risk for a portfolio. ETFs can help to diversify risk. Now investors can find funds that allow traditional commodities, stocks, and other investments. That gives investors more options for risk management while still having access to the crypto market.
Related: How to Sell Your Cryptocurrencies
Regulation of Bitcoin ETFs
In 2013, the first attempt to create a Bitcoin ETF was made, but it did not succeed. There were concerns about potential fraud and manipulation resulting from the approval. These concerns are still an issue today. For that reason, the SEC has not approved any ETFs that directly hold cryptocurrency. While the markets in the U.S. do not allow trading of these types of crypto ETFs, they are actively traded in Canada and Europe.
Other Options To Invest in Cryptocurrency
Cryptocurrency is still new, and any investor should approach these opportunities with a bit of caution. If you are excited about these new Bitcoin ETFs and want to add more to your portfolio, here are a couple of ways to invest.
Think about investing directly in crypto. Bitcoin is becoming more accepted; even Amazon allows it as a form of payment. However, there are other digital currencies to add to your portfolio. Yes, Bitcoin is the most established and prominent of all the players, but it is not always a safe bet. Take a look at those other coins. You never want to invest more than 10% of the portfolio in these coins. The cryptocurrency market is very volatile, and there is always a chance for a crash.
If you want a more diversified portfolio, crypto-related investments are another option. With that, you can invest in the future of the money. Coinbase is a major crypt exchange that went public in April 2021. That means you can buy stock in this company. There are also blockchain ETFs. With that, you can invest in the technology behind popular cryptos. Several ETFs give investors more exposure to technology without investing directly in these digital currencies.
Bitcoin ETFs Are the Future
With these ETFs, you can start to diversify your portfolio. While there are no ETFs that directly hold cryptocurrencies, those options should be coming shortly. For now, Bitcoin ETFs allow investors to invest in the future of digital currency, allowing them to access the world of cryptocurrency.
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