Bitcoin ETFs: What They Are And How To Use Them
Bitcoin ETFs are finally here! Experienced investors might be very interested in this new investment tool. What is BTC and what is a Bitcoin ETF? How does it all work? Let’s learn how you can invest in them in this article.
What is an ETF?
An ETF stands for “exchange-traded fund” and in fact it’s not something new to the market. Players from the financial world have known about this feature since 1993. The ETF suits different types of investors, it’s a convenient tool that many like to use. Why? It has less risks than other financial options, and opening a position does not require a big investment.
An ETF is a security that consists of various financial tools such as bonds and futures contracts, for example. It trades on traditional exchanges just like stocks. It can also be fixed on the price of one asset, like Bitcoin. Basically, an ETF allows traders to diversify their portfolio effortlessly.
Since this tool works pretty much as stocks, it’s open to margin trading and to the short positions. ETFs are traded at the current market price, so not only investors but also traders are interested in them.
What is a Bitcoin ETF?
What will happen if we mix the best-performing crypto asset, and such a convenient tool like an ETF? It would be a very interesting combination!
Simply put, a Bitcoin ETF is a stock index. The main purpose of a stock index is to create an indicator with which investors could understand the general direction and “speed” of assets’ movement. It monitors BTC by using futures contracts, and because of that you are able to open buy and sell positions with it.
If you want to have Bitcoin in your portfolio without actually buying it on crypto exchange, then an ETF is a perfect solution.
Pros and cons of Bitcoin ETF
As any investment tool Bitcoin ETFs have their advantages and disadvantages. We’ve listed some of them below.
- Bitcoin ETF is a safer and easier investment tool than the actual crypto. You don’t have to be an expert in cryptocurrencies and know how they work, instead you can just buy an ETF. Moreover, it’s regulated by the authorities and that provides us with more security.
- Bitcoin is a quite new asset which is not tied to traditional financial tools. Although Bitcoin is considered to be a risky investment, traders like to make variety in their portfolio with it. However, Bitcoin ETFs are a more secure option to diversify it, because unlike the crypto market, traditional one is far more liquid.
- With ETFs you have an opportunity to trade on traditional exchanges. No cryptocurrency exchanges needed. If traders think that Bitcoin is going down, they can just quickly sell their ETF.
- Usually Bitcoin ETFs require a fee.
- You cannot use Bitcoin that is frozen in an ETF.
- Trading sessions are the only opportunity to buy or sell an ETF.
- ETFs may not be very accurate, due to crypto volatility it’s hard to track market index.
What Bitcoin ETFs are out there
We’ve listed a few Bitcoin ETFs that are now available on the market.
The Bitwise 10 Private Index Fund. It offers ten cryptocurrencies, not only BTC, and is audited annually. Fund commission 2.5%.
Purpose Bitcoin ETF. This Canadian fund went live in 2021. In the first week, it raised about $500 million in investments. Fund commission 1%.
BTCetc Physical Bitcoin ETC. This Bitcoin ETF is registered in Germany where it complies with regulations. The commission is 2% and the minimum purchase amount is 1,000,000,000
Evolve Bitcoin ETF. Launched on the Toronto Stock Exchange just after BTCC. Commission 1% (in the first week it was 0.75% to attract investors).
CI Galaxy Bitcoin ETF. It was launched in Canada on the Toronto Stock Exchange. The commission on it has been reduced to 0.4% in an attempt to attract interest.
How to buy ETFs
If you are thinking about purchasing ETFs, then you should have access to marketplaces where it’s possible to trade an ETF. Most likely for that you’ll need a bank account in a specific country and a licensed broker. But since the ETF is quite similar to ordinary stocks, every investor has an opportunity to buy them.
Another way is to use a trading platform that provides access to many markets.
The Crypto Universe and the world of traditional finance are blending more and more. No one knows where this goes, because we’re just at the beginning of the merging process. However, many investors keep a close watch on it and learn about new trends.
The easiest way to buy or exchange coins is to use SimpleSwap services.
SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.
Originally published on Publish0x blog.