Sunday October 24th 2021
Investing in crypto – know how!
This is how Bitcoin ETFs work
By Charlotte Raskopf
A new Bitcoin ETF, which is linked to the price development of Bitcoin and has been trading in New York since this week, is triggering crypto fever. The so-called Bito fund takes off right at the start. This is what investors should know about the new investment.
Why are Bitcoin ETFs such an important topic of conversation right now?
BitcoinETFs are on everyone’s lips, because yesterday the first Bitcoin index fund launched on the New York Stock Exchange. The US Securities and Exchange Commission has not prevented the start this time. This is an important sign, because so far the authority has rejected all applications or has not yet decided on them. Three more Bitcoin ETFs could be launched later this month. In view of this outlook, the Bitcoin price has recently risen sharply.
What are Bitcoin ETFs anyway?
With Bitcoin ETFs, investors can bet on the price of the cryptocurrency without having to buy and store Bitcoin themselves. The first ETF that has now been approved is one that invests in Bitcoin futures and not in Bitcoin itself – which is also the reason why the US Securities and Exchange Commission is more open than before. Bitcoin ETFs have not yet existed in the USA, but in other countries such as Canada.
How do they work
The new Bitcoin ETFs will probably not refer to the current price of the underlying, but to Bitcoin futures, i.e. the future value of the currency. The ETF depicts futures transactions in which a buyer undertakes to accept goods at a certain time and at a certain price. The ETF basically contains cash and a derivative that makes the cash increase or decrease with the Bitcoin price, thus reflecting the performance. It is quite possible that the ETF cannot keep up with rapid price developments such as a brief rally.
Who is offering these ETFs?
The provider whose ETF has now been launched is Proshares. The American provider of exchange-traded specialty products had already made an attempt to start an Ether ETF. The ETF operates under the ticker BITO. Other hot candidates are the Invesco and Valkyrie ETFs.
What are the advantages and disadvantages of investing in the new Bitcoin ETF?
One advantage is security: if you buy Bitcoin directly yourself, you can be hacked or lose the necessary password, and thus also the Bitcoin itself. This makes the ETF attractive: Here investors do not have to worry about custody. According to Bloomberg, twelve million shares worth $ 480 million were traded in the new ETF in the first two hours on Tuesday alone. A big disadvantage: you also pay for the simpler investment, the ETF is expensive. The fees are lower when investors invest in Bitcoin directly. Then they also benefit directly from profits.
Why are ETFs having such a big effect on the crypto market?
Bitcoin ETFs could give a whole new group of investors access to cryptocurrencies, including private investors as well as investors and pension funds. Because so far it has been too risky for many to store crypto assets themselves. ETFs offer convenient access – which is also approved and controlled by the US Securities and Exchange Commission.
This article first appeared at Capital.de.