What is an ETF and why is it important?
The term ETF has been getting thrown around a lot recently, with many people speculating what a Bitcoin ETF approval would mean for cryptocurrency. While I’m sure that long term traders are familiar with ETFs, it seems that many people are only hearing about it through the news and aren’t really sure what an ETF is or how it will affect the cryptocurrency space for good or bad. Here is a quick rundown of how ETFs work:
ETF stands for “Exchange-Traded Fund”, and essentially works as a security that tracks assets. They can be traded just like regular stock on an exchange. Some traditional ETFs that we see today are oil futures, gold, or foreign currency. ETFs can also be an entire industry, such as financial companies, energy companies, and biotech. There is always an underlying asset to the ETF, and the creation of an ETF allows for a tangible asset to be treated as a stock, whereas traditional stocks are simply shares of a company.
For a Bitcoin ETF to be approved, there are both positives and negatives involved with the decision. The most obvious positive is that there is going to be a huge amount of liquidity added to the market, allowing Bitcoin prices to somewhat stabilize and grow at a sustainable rate. Additionally, approval for a Bitcoin ETF would give it a certain level of legitimacy, allowing more people that are skeptical about the value of Bitcoin peace of mind towards its real-world value. However, many are concerned that a Bitcoin ETF will mean that too many larger institutions will become involved, removing the volatility of the Bitcoin price and making day trading profits harder to achieve.
Regardless of the positive or negative effects of a Bitcoin ETF approval, the news around it has been huge and will continue to bring more attention to Bitcoin and peak the interest of potential investors. Keep an eye out over the next few months on future SEC rulings regarding our ETF approval.
