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What Are Bitcoin ETFs? Bitcoin Exchange Traded Funds Explained

Bitcoin-Exchange-Traded-Funds-ETF

This Bitcoin article best explains in detail everything you need to know about Bitcoin Exchange Traded Funds (ETFs). If today’s the first time that you have come across the term Bitcoin ETFs, then, this ETFs tutorial is for you. Here, we’ll go through all the ins and outs of Bitcoin Exchange Traded Funds.

There are huge distinctions between Bitcoin (BTC) and Bitcoin exchange-traded funds. Don’t be confused about these two names. This post mainly exists to give you knowledge concerning the flagship crypto Bitcoin (BTC) itself and Bitcoin (ETFs).

Directly investing in Bitcoin can sometimes become tricky and difficult to do. Getting access to Bitcoin ETFs would broaden your portfolio and give you more options to invest in.

What Are Bitcoin Exchange Traded Funds (ETFs)?

ETF is an abbreviation for exchange-traded funds. Bitcoin exchange-traded funds are crypto-financial tools in function. Moreover, Bitcoin ETFs occupy an essential threshold when it comes to Bitcoin usage. Bitcoin ETFs are specially designed to monitor and track the value of Bitcoin (BTC) in the crypto market.

Bitcoin ETFs will mainly mimic the price of the most popular crypto asset, Bitcoin. In doing this, the ETFs mainly trade the tracked BTC value via traditional market exchanges and not any existing crypto exchanges. The Bitcoin ETFs do all these and enable investors to openly invest in Bitcoin (BTC) effortlessly by facing zero crypto exchange difficulties.

Also, one of the real facts about Bitcoin exchange-traded funds is that it gives access to anyone to trade a large number and different forms of securities directly. The Bitcoin ETFs work the same as other securities and commodities. However, with the ETFs, the funds entirely take the ownership of underlying assets and options users’ to invest only for a piece of the tracked value.

However, this means that investors get extreme exposure to the actual Bitcoin’s value by dealing with Bitcoin exchange-traded funds. Instead, the ETFs do not permit investors to take complete ownership of the real Bitcoin in circulation.

Bitcoin ETFs have largely become the hottest topic within the crypto space for so many years. In particular, the ETFs sensation commenced when the Winklevoss twins filed a crypto document dubbed “Coin Bitcoin ETF” to the US Securities and Exchange Commission (SEC) and got rejected back in 2013.

As a result, many believe that the existence of the bitcoin ETF could introduce a greater deal in the world of digital investment. In turn, the crypto community further believes that ETFs can even bring maturity and more stability to the crypto market.

Do Bitcoin ETFs Really Exist?

The short answer to this question is “No.” As of now, there is no presence of Bitcoin exchange-traded funds. The ETFs have not yet gotten approval from the US Securities and Exchange Commission (SEC). This is because the SEC considers the crypto market and mainly Bitcoin as an unregulated tech in nature.

As a result, the US SEC has consistently blocked lots of Bitcoin exchange-traded funds proposal documents over time. Nonetheless, despite how Bitcoin ETFs haven’t obtained approval, publicly-traded funds invest their money in Bitcoin.

Many are eagerly preparing as they are waiting for the Bitcoin ETFs to get approval

How Do Bitcoin ETFs Work?


As we have already discussed above, ETFs play a key role in the crypto investment universe. It can scale high in function based on how it tracks popular crypto like Bitcoin. In today’s crypto community, Bitcoin ETFs work openly and are available for various forms of assets and trades. It is starting from assets to digital currencies.

In fact, Bitcoin ETFs operate similarly to how a share of an exchange-traded fund fluctuates with Bitcoin (BTC) price. This means that the ETFs always increase in value whenever Bitcoin’s value also surges and vice versa.

Mostly, the Bitcoin traded fund works on market exchanges like NYSE or TSX instead of trading on open-source cryptocurrency exchanges. This makes Bitcoin ETFs a more popular technology in the crypto market. Unfortunately, though, the US Securities and Exchange Commission seems not happy with its operation.

Bitcoin ETFs exist as a pipeline that holds and drives most Bitcoin investment within the crypto space. However, aside from being an anchor available for most assets, Bitcoin ETFs have pros and cons. To prove fairness, let’s dive deep and dissect its arrears of pros and cons.

Advantages of Bitcoin ETFs

● Convenience

Trading with Bitcoin exchange-traded funds is somewhat more helpful than you think. Unlike how you need to have deep knowledge about how Bitcoin works before trading, Bitcoin ETFs provide leverage to Bitcoin’s price.

With Bitcoin Exchange Traded Funds, anyone can invest without facing any crypto exchange login problems. Even more, no one takes the risks of owning bitcoin directly whenever you invest in Bitcoin ETFs.  

● Diversification

In short, Bitcoin ETFs are not available for only one single asset. What this said, it holds different assets. So, for instance, Bitcoin ETFs could have a complete threshold of digital assets like Bitcoin, Apple stocks, Facebook stocks, and more others.

This ultimately helps investors to minimize any risk associated with their investments and also diversify their crypto portfolios.

● Tax Efficiency

Based on our research and conclusions, Bitcoin Exchange Traded Funds are maybe tax-efficient. However, even with a wide range of events, the US SEC would regulate Bitcoin exchange-traded funds. This could happen because of how Bitcoin ETFs depend solely on popular exchanges when trading.

Disadvantages of Bitcoin ETFs

● Management Fees

It is vital to note that Bitcoin Exchanges Trading Funds will always charge you a management fee for trading. Apart from this, the ETFs exactly charge fees as a result of the comfort it gives. So this gives some idea that the ETFs could set a high management fee whenever traders hold massive shares in Bitcoin ETFs. 

● ETF Inaccuracy

Accuracy is also one of the primary features when it comes to Bitcoin ETF usage. Since the ETF tracks and mostly mimics Bitcoin price, there is an existing thought that it will have multiple holdings to expand the world’s crypto portfolio. 

However, a scenario suggests that about a 50% increase in Bitcoin price could not reflect more accurately in the value of the ETFs. Prior, this is because the exchange-traded funds hold several other securities aside from Bitcoin.

Also, another factor is that since Bitcoin ETFs give Bitcoin price leverage, they may or may not correctly track the Bitcoin price.

● Limits to Cryptocurrency Trading

However, unlike how traders trade bitcoins for other digital assets like Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and more others, Bitcoin ETFs only exist for trading bitcoin and other bitcoin-related investments. Honestly, this is because Bitcoin ETFs are not crypto. Instead, it is simply an investment fund protocol that specifically monitors bitcoin price.

● Lack of Bitcoin Ownership

As Bitcoin exists with no one being the owner of it, Bitcoin ETFs would be controlled mainly by the government.

FAQ

Can ETFs Hold Bitcoin (BTC)?

Yes, any Bitcoin-based ETFs can directly hold and track Bitcoin prices. With this, all futures-based BTC ETFs also monitor and track all designated bitcoin futures contracts. To add more to this article, all the existing futures contracts are also tracked by their associated futures-based ETFs.

What Are the Best ETFs For Bitcoin?

As the crypto community is anticipatedly waiting for the SEC approval of Bitcoin ETFs, investors can channel their investment in other top cryptos ETFs that are already in the market. However, investors can invest in Amplify Transformational Data Sharing ET and Reality Shares Nasdaq NexGen Economy ETF.

Not only this alone, but Bitcoin enthusiasts can invest in First Trust Indxx Innovative Transaction & Process ETF and Purpose Bitcoin ETF as well.

Conclusion

In summary, Bitcoin ETFs are funds that generally track the value of Bitcoin. It trades the tracked Bitcoin (BTC) value mainly on a traditional market and not on crypto exchanges.

Moreover, one of the Bitcoin ETFs functions is that investors would be able to invest in Bitcoin without passing through crypto exchange difficulties. By doing this, it provides leverage to BTC price alongside.

We strongly believe that upon reading this article, you now know what Bitcoin Exchange Traded Fund (ETF) is and it specifically works. Prioritize reading this again if you still have doubts about Bitcoin ETFs.

Collins Adane is a writer who follows the crypto industry closely. He loves fish stew and Real Madrid. He believes in cryptocurrency’s potential to transform the money landscape in his native country Ghana.