All You Need to Know about Bitcoin ETF
Author : CoinMarketSIG
All You Need to Know about Bitcoin ETF
After years of speculation about the Bitcoin ETF , the US Securities and Exchange Commission has finally introduced the first bitcoin-based fund, and four more are set to be launched soon. US regulators have introduced a new bitcoin-based exchange-traded fund that allows individuals to invest in cryptocurrency companies.
exchange-traded fund in financial market
The US Security and Exchange Commission has approved the Bitcoin Fund that investors can invest in shares of companies operating on a blockchain basis.
The exchange-traded fund (ETF) was approved on Tuesday and consists of companies that make most of their earnings from bitcoin. According to the stock exchange commission, companies can operate in mining, lending and bitcoin trading. This ETF is traded under the symbol BTCR on the US Stock Exchange.
The US Securities and Exchange Commission has been considering offering the Bitcoin ETF for years, but the Bitcoin ETF was finally approved years later and four more bitcoin-based ETFs are set to launch soon.
The first bitcoin ETFs are not traded on the basis of bitcoin prices, but are more exposed to companies that acquire a significant portion of their shares in bitcoin. But the stock exchange commission plans to launch four more bitcoin-based funds in the next 45 days, which are fully exposed to the currency.
There is a lot of speculation about the approval of the bitcoin net ETF, and according to a senior analyst from Bloomberg, news from the stock exchange commission shows that the fund will be launched in a few weeks.
The approval or news of the approval of the Bitcoin Net Fund could increase the price of this currency, and now the market value of Bitcoin has reached one thousand billion dollars.
The decision of the US Stock Exchange Commission to launch a bitcoin fund was very long and Canada approved this fund before the US. A company called PURPOSE BTC ETF was founded in February and currently has $1.5 billion in assets under management and will be injected into the bitcoin fund if approved.
PURPOSE BTC ETF company
Two other companies were launched for the Bitcoin ETF in 2021, and it looks like now is the time for Bitcoin to hit the US stock market.
Bitcoin ETF philosophy
The entry of more and more investment companies and the wealthy, the legal status of bitcoin as an asset and the consequent rise in bitcoin prices; These can be the benefits of a Bitcoin ETF. On the other side of the coin, this phenomenon has its own challenges and disadvantages.
An exchange-traded fund, or ETF for short, is a fund in which one or more assets are available and individuals can invest in the assets of their choice by purchasing shares in that fund.
ETF stocks are traded through the stock exchange and traded like a common stock; Therefore, it is official and in accordance with the rules of the stock exchange of a country. Today, there are ETFs for very important and practical assets such as gold and oil, and they are traded daily on the stock exchanges of different countries of the world.
Investors who buy an ETF stake can invest in it without having to go through complicated buying processes and without experiencing the risk of holding an asset. For instance, if you buy an ETF of gold, you have invested in gold without having any real gold.
What is a Bitcoin ETF?
Simply put, a bitcoin ETF is a fund that contains a large amount of real bitcoins or is tied to the bitcoin futures market (depending on the type of fund). Individuals and legal entities can trade Bitcoin ETF shares as a share on the stock exchange. The fund’s stock price goes up and down based on the price of bitcoin.
Bitcoin ETF shares are traded on exchanges instead of digital currency exchanges. Obviously, transactions take place only at a time when a country’s stock exchange is open.
There are generally two types of exchange traded funds for bitcoin:
Physical ETF: This type of fund is fully supported with real bitcoin; The big risk is that it is very difficult to maintain real bitcoins (in large volumes).
ETF Futures: This type of fund is not directly supported by Bitcoin; Rather, it uses the futures market. A full description of futures contracts is not included in this article; But just know that real bitcoin is not stored in it and only with the price of bitcoin the stock value goes up and down. Bitcoin ETFs that are to be accepted in the United States are of this type.
Bitcoin ETF in the Us Securities and Exchange Commission
Why not to buy Bitcoin itself?
One of the main questions that can be asked about the Bitcoin Exchange Fund is exactly what advantage the Bitcoin ETF has for the investor that makes someone buy the stock exchange instead of buying the Bitcoin itself. It may be better for a typical investor to buy his own bitcoin; yet for wealthy individuals or investment firms, buying an ETF share is a tremendous opportunity; For the following reasons:
Legal recognition of the ETF
A Bitcoin ETF is recognized by regulators. If you are a large organization and you are worried about buying Bitcoin directly for legal reasons, you can invest in its stock exchange to be covered and supported by legislators. In the United States, for example, the Securities and Exchange Commission (SEC) is directly responsible for protecting ETF investors from multiple market risks.
It is also possible to inherit an ETF under securities laws, which is a unique advantage for those who are worried about the fate of their bitcoins after death.
making investment and maintenance easy
For someone who has worked in the stock market, entering the world of digital currencies seems complicated. Such a person can buy the fund’s share as a normal share in the stock market to invest in Bitcoin.
If you are a wealthy person and you want to buy a lot of bitcoins, you may be worried about keeping the bitcoins safe as well as the liquidity challenge. In this case, it might make sense to buy an ETF share instead of the real bitcoin.
Discount or tax exemption
In most countries, ETFs include tax exemptions or rebates. For the investor who has a lot of bitcoins, it is dangerous to fall into the hands of the tax authorities and may prefer to buy the ETF instead of the real bitcoin.
Segment diversification of the investment portfolio
In a stock exchange, in addition to bitcoin, it may be invested in other assets such as corporate stocks or gold; Therefore, a person holding a share of an ETF can benefit from all the assets in the fund at the same time.
In fact, investing in an ETF is one of the best ways to help you get the idea: “Don’t put all your eggs in one basket.”
What effect does Bitcoin ETF acceptance have on the price of bitcoin?
The adoption of the ETF for Bitcoin (especially in the United States as the world’s largest capital market) has always been cited as one of the factors that can push the price of the king of digital currencies to the “moon”.
From 2013 to 2021, the US Stock Exchange Commission rejected several requests from large companies to establish a Bitcoin Exchange Fund. However, now (late 2021) as we update this article, expectations are over.
Rumors about the acceptance of the first bitcoin ETF in the United States have affected the market and brought the price of bitcoin close to its historical peak.
Perhaps after the launch of the first Bitcoin ETF, the market will fall in the short term according to the “buy with rumors and sell with news” strategy. In the long run however, the chances of big investors and rich people coming in are high, and that could mean injecting millions of dollars into the market.
Institutional investors, with the help of ITIFs, invest legally in bitcoins and no longer have to worry about laws, regulations, inheritance, and the safe storage of bitcoins.
But this was one side of the coin, and he also considered the other side of the coin, which could change the future of bitcoin in the long run. We go to the bitter part of the matter; Risks and disadvantages of this fund.
Potential Disadvantages of Bitcoin ETFs
Many members of the Bitcoin community believe that the ETF is not only useless for Bitcoin, but could also threaten the future of this digital currency. They usually give the following reasons for their claim:
Centralism
Over time, a centralized Bitcoin fund scheme could threaten the main purpose of bitcoin: decentralization. Proponents of bitcoin advocacy believe that bitcoin ETFs will increase the focus and monopoly of this asset. According to them, it is dangerous for monopoly mutual funds to own a large part of bitcoins.
The Centralism of ETF
Bitcoin ownership is not real
In a stock exchange fund, the shareholders each own a portion of that fund; But obviously they will not be the real owners of the bitcoins they have invested in. In fact, according to Bitcoin rules, someone owns their bitcoins who have a private key or wallet support words; Something that does not happen in the Bitcoin ETF.
The issue of Forks
When a Hard Fork occurs in a bitcoin network (like a bitcoincache Hard Fork), we have to trust the fund about the distribution of the new digital currency from the fork.
Whilst each ETF fund will have many customers and investors; it will be the fund manager who will make the basic decisions, for example about forged coins.
Privacy risk
The privacy of bitcoin holders is another concern of bitcoins. To operate on the stock exchange, individuals are identified and traders’ personal information is recorded; Something that can reduce bitcoin privacy and give governments more control over bitcoin holders.
In conclusion
Admission to a stock exchange, or bitcoin alliance, would legally give the king of digital currencies a better deal and possibly open the door to a new wave of big investors.
Although this is generally considered positive for price, in the long run it may push bitcoin into focus. For start-ups such as bitcoin, which are decentralized in nature, it is not yet possible to say with certainty how effective the ETF will be.
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