Gaining exposure to the cryptocurrency industry can be achieved in various ways. Some prefer to invest directly, whereas others favor intermediary vehicles. For that latter group, Bitcoin ETFs can prove worthwhile, as this trading vehicle keeps gaining traction.
Table of contents
- What Is A Bitcoin ETF Exactly?
- A Bitcoin ETF Is Regulated
- Solving The Custody Problem
- The Bitcoin ETF Efforts To Date
- Is It Worth Investing In?
- Is It Better Than Buying Bitcoin?
- Closing Thoughts
What Is A Bitcoin ETF Exactly?
For those who are unfamiliar with ETFs – Exchange-Traded Funds – they are a regulated investment vehicle that can provide exposure to specific assets or indexes. In Bitcoin’s case, that vehicle is a bit different. Officially, there is no Bitcoin ETF in the United States, even though such a vehicle is accessible in Canada. Other countries remain on the fence about making regulatory decisions regarding this approach, yet progress will be eventually.
For those who want to gain exposure to Bitcoin, investing in the asset directly is often an unfavorable approach. To buy Bitcoin, one must find a reputable exchange, complete a verification process, and expose certain payment information. Although this applies to stock trading as well, many traders don’t openly trust the cryptocurrency industry on the same level.
Attracting those users to Bitcoin will often require intermediary solutions, such as a Bitcoin ETF. It still provides exposure to the price changes of Bitcoin – either positively or negatively – without having to worry about buying and selling manually. Instead, one can simply gain or remove exposure to the ETF, depending on the overarching market conditions.
It is safe to say that a Bitcoin ETF will be of great value to institutional traders and speculators. For the average consumer, Exchange-Traded Funds do not offer much excitement, as they aren’t always accessible to non-qualified investors. To attract the “big money”, the cryptocurrency industry will need to provide institutional-grade exposure solutions.
A Bitcoin ETF Is Regulated
To many onlookers, it still appears as if the cryptocurrency industry doesn’t adhere to regulatory measures. That is far from the case, as every service provider needs to obtain financial licenses to operate. Moreover, all companies need to implement the same security checks as traditional institutions do. That means verifying user identities, preventing money laundering, and so forth. There are many more regulatory requirements in the cryptocurrency world than most people give it credit for.
That being said, a Bitcoin ETF would drive this point home harder. As every Exchange-Traded Fund is fully regulated before it can be listed on major platforms such as NASDAQ or NYSE, it creates an aura of legitimacy. Even though Bitcoin is legitimate by default, many people need this “extra assurance” before making a financial commitment.
If a Bitcoin ETF were ever to gain widespread traction, it could turn many heads in the direction of cryptocurrencies. Getting such a vehicle approved by authorities is a different matter; however, Numerous attempts have been launched over the years, yet the SEC continues to reject them all whether that situation will change soon or not remains undetermined at this stage.
Solving The Custody Problem
One of the main “issues” a Bitcoin ETF can address is the custody aspect of digital assets. Users who buy Bitcoin directly need to store their funds in a wallet. Using an exchange is not a viable long-term option, as there are better cold wallet and hardware solutions on the market today. However, these extra steps create an “extra step” most people aren’t willing to take.
A Bitcoin ETF can prove useful in this regard as well. It negates the need for custody or storage solutions, as investors do not have access to BTC itself. When dealing with larger institutions handling a lot more money, intermediary vehicles like an ETF will prove essential. It is not necessarily a solution for all publicly traded companies, as a fair few of them buy Bitcoin directly to create their own Treasury.
As Bitcoin ETFs remove multiple “headaches” from the equation, they are viable tools to expand the investor base. Many people want price exposure without the hassle, making an Exchange-Traded Fund more than an appealing option. It is now a matter of getting such investment vehicles approved in the United States and other regions. For decisions like these, the whole world looks to the US to set the tone, unfortunately.
The Bitcoin ETF Efforts To Date
As mentioned earlier, there have been numerous attempts to create a Bitcoin ETF in the United States. Despite seeking approval by the SEC, no company has been successful in its endeavors. The US is a key market for Exchange-Traded Funds activity, making a foothold in this region essential. It is also the biggest hurdle to overcome for service providers, as roughly a dozen attempts have failed so far.
To some people, it may seem unclear as to why the SEC keeps refuting these efforts. With so many providers attempting to make this happen, there must be good reasons to reject all applications. Unfortunately, this isn’t something one can quickly fix with Bitcoin. For the SEC, the constant volatility and potential liability of market manipulation remain pressing problems. Volatility will never go away, and market manipulation tends to affect all financial vehicles, making this reasoning a bit odd.
The first Bitcoin ETF to gain regulatory approval can be found on the Toronto Stock Exchange. Under the BTCC ticker, users can gain exposure to BTC through the Purpose Bitcoin ETF. It is a viable trading vehicle that currently trades at CA$12.88 per share. The ETF has gained momentum recently, as it was trading near CA$10 per share about a year ago.
With growing institutional interest in Bitcoin over the past few years, it is a matter of time until more ETFs – or similar options – hit the market. Whether that will be in the United States or anywhere else is difficult to determine. Those who actively seek exposure to the world’s leading cryptocurrency will find a way, as acquiring Bitcoin has become a lot more straightforward.
Is It Worth Investing In?
One of the essential aspects of those who have access to a Bitcoin ETF is figuring out whether the option is worthwhile. Similar to buying Bitcoin directly, the answer to that question will never be straightforward. To some, it will seem like a worthwhile investment vehicle, whereas others prefer to ignore it. Every investment opportunity has benefits and drawbacks to consider carefully.
One has to fully understand the consequences of investing in a Bitcoin ETF before making any decisions. Going down this route will expose one’s portfolio to the price volatility Bitcoin has become notorious for. There will be wild price fluctuations regularly, either for better or worse. When the market is bullish, those changes can prove beneficial to Bitcoin ETF investors, although a bear market is a very different creature.
Those who are risk-averse regarding finance may not see much merit in the ETF option at this time, ore ven in the future. Unlike other markets, Bitcoin’s price changes 24/7/365, even if one may only trade the ETF itself during stock market hours. No one knows what to expect from the Bitcoin price in the short or long term, thus analyzing the risks and rewards is crucial.
Moreover, not every ETF will let investors exit or enter positions when they want to. Carefully review the terms and conditions when opting for a service provider, as there may be certain restrictions and requirements to contend with. If funds need to remain invested for a certain period, be aware the value of your investment will undergo significant changes along the way.
Is It Better Than Buying Bitcoin?
That will be the tough question for people to find an answer to. On the surface, a Bitcoin ETF- when it becomes accessible – is easier to invest into, as it removes the need for dealing with exchanges and identity verification. It is the better option from a convenience standpoint, yet it also limits users as to what they can do or achieve with their investment.
The biggest downside to investing in a Bitcoin ETF is how you will never control the Bitcoin amount itself. Everything is handled by the ETF provider, giving users little to no control over what they are investing in. This will not be a problem for every investor, yet it can prevent some people from taking the plunge.
Moreover, one cannot diversify a portfolio through a Bitcoin ETF. More specifically, it is impossible to use this vehicle to acquire alternative cryptocurrencies or stablecoins, should the user prefer these options. All they can do is hold the ETF shares and hope the price goes up. It is a viable long-term approach, but this option will not be ideal for those seeking short-term riches.
Ultimately, it all comes down to what you expect from your investment in a Bitcoin ETF. If passive exposure to the Bitcoin price without friction or the ability to control funds is appealing, a Bitcoin ETF will prove worthwhile. For everyone else, the better option will be to purchase Bitcoin – or other cryptocurrencies – directly through traditional means. Options include using exchanges, brokers, OTC desks, peer-to-peer marketplaces, or ATMs.
The concept of Bitcoin ETFs has proven to be intriguing for some time now. Unfortunately, very little progress has been made in the United States. It is not for lack of trying or companies trying to convince the SEC this investment vehicle can be worthwhile. Whether the SEC will change its mind in the future remains uncertain. Volatility will never go away in this industry, as that is part of its appeal.
Providing Bitcoin exposure to institutional investors in a regulated manner can spark more significant interest in cryptocurrencies. Although institutional clients are already seeking exposure to bitcoin, not all of them will go through traditional means to do so. A Bitcoin ETF is a worthwhile option, but it may take years for it to be approved in specific regions. The future on this front looks a bit uncertain, but things can always turn around on a dime.
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