An Exchange-traded Fund (ETF) is a publicly traded investment vehicle, like a stock, that closely tracks the value of its underlying asset, for instance, that of Bitcoin, or an entire index, like the S&P 500.
ETFs are a convenient way for investors to gain exposure to a specific asset or basket of assets at once with minimal complexity.
A Bitcoin ETF functions in much the same way as any other ETF out there. Investors would buy shares in the ETF through the same brokerage they use to purchase and trade their favorite stocks.
The USA Securities Exchange Commission (SEC) has time and time again rejected proposals for U.S-based ETFs. So far, companies such as VanEck, SkyBridge Capital, Bitwise, the Winklevoss twins (owners of the Gemini cryptocurrency exchange), and others have filed for ETFs. However, many are led to believe that the approval of a USA-based ETF is merely a question of when. Especially considering that the crypto markets are maturing and gaining quite a substantial amount of attention from serious parties and the recent approval of two ETF’s in Canada.
How come the SEC hasn’t approved a Bitcoin ETF yet?
The primary argument for the last several years on behalf of the SEC as to their continuous rejection of Bitcoin ETFs is that Bitcoins price is subject to market manipulation and that the crypto market in and of itself is one that is ridden with widespread manipulation and malpractice.
How would the approval of a USA-based Bitcoin ETF impact the crypto markets?
Positively. The approval of an ETF by a body like the SEC would represent a huge milestone and major step towards presenting Bitcoin as an investment in a light of legitimacy, leading traditional investors and traders to view it as a trusty and established asset. This would of course result in a major attraction of attention to the market and consequently greater valuations.
Benefits and drawbacks of investing in ETFs.
For the non-tech savvy individual, a major advantage of dipping into an ETF would be in that there would be no need to dick around with the occasionally complex and sometimes intimidating process of accesing a centralized cryptocurrency exchange, managing crypto wallets, and maneuvering the technical aspects of handling and holding Bitcoin such as private keys, addresses, block explorers, and so on. The aforementioned aspects can confuse and scare newcomer investors to the crypto market away. Buying a Bitcoin ETF through an online broker would strip the need of having to self-store ones crypto safely. There are other benefits, such as clearer tax guidance and implications for traditional financial products. But, to be frank, the no need for tech-heavy thought can be seen as the major benefit of dipping into an ETF from the perspective of an individual. Also, you do not need to be an accredited investor to purchase an ETF, they are available to anyone. They can also be shorted.
Out of the drawbacks, most notably ETF’s can only be purchased and sold during normal market trading hours vs crypto markets which operate 24/7. There are management fees and know-your-customer (KYC) procedures that one would be required to pass vs simply buying Bitcoin using a relatively or fully anonymous way.
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