Exchange-traded Funds or ETFs are well-known financial products that follow the price of other financial assets.
Any financial asset like stocks, commodities, currencies, and even cryptocurrencies can be the underlying asset for an ETF.
A Bitcoin ETF will follow the price of Bitcoin, allowing investors and traders to invest in the Bitcoin market without holding the actual asset.
Bitcoin ETFs, especially the spot ones, are considered quite important and influential for the cryptocurrency market as they will open the doors to a whole new market.
Aside from this, traders and investors don’t need to worry about the security of their assets as they are not holding the actual underlying asset.
Exchange-traded Funds or ETFs are well-known financial products that follow the price of other financial assets. Any financial asset like stocks, commodities, currencies, and even cryptocurrencies can be the underlying asset for an ETF. Investors can then buy, sell, or trade ETFs on a regular stock exchange.
A Bitcoin ETF will follow the price of Bitcoin, allowing investors and traders to invest in the Bitcoin market without holding the actual asset. This is quite beneficial for the cryptocurrency market as the hassle of storing cryptocurrencies is one of the reasons that is keeping traditional traders and investors from joining the novel and young cryptocurrency market.
At the moment, various Bitcoin ETFs are available in different regions of the world. Bitcoin ETFs come with their own benefits and limitations and knowing about them will help you to make a more informed investment decision.
In this article, you will learn about Bitcoin ETFs and how they work. You will also get to know some of the top Bitcoin ETFs in the world and their benefits and limitations.
Now, let’s take a closer look at Bitcoin ETFs to see how they really work!
Before getting into Bitcoin ETFs, let’s quickly see what an ETF or Exchange-traded Fund is.
An ETF generally follows the price of another financial asset or product; examples can be a commodity like gold, a currency like the US dollar, a stock like Marathon Digital, an index like S&P 500, or even a cryptocurrency like Bitcoin.
ETFs can include any number of financial assets or products, allowing you to get exposure to a diverse set of markets through one single investment. ETFs are available on regular stock exchanges and you can easily buy, sell, or trade them in open stock markets.
Now, what a Bitcoin ETF does should be quite clear. It tracks the price of Bitcoin and can be traded on a regular stock exchange along with other traditional financial assets. A Bitcoin spot ETF will track the spot price of Bitcoin while a Bitcoin futures ETF will be built on the futures contracts and derivatives.
Bitcoin ETFs, especially the spot ones, are considered quite important and influential for the cryptocurrency market as they will open the doors to a whole new market.
The technical part of cryptocurrencies has made many keep their distance from the crypto market despite their interest. Bitcoin ETFs will offer traditional traders a solution to get exposure to the Bitcoin market without the headache of dealing with storage and other technical details. They are already familiar with ETFs and how they work so there will be no hassle.
When you buy Bitcoin, you are directly investing in the Bitcoin market. You can buy Bitcoin from a trusted centralized cryptocurrency exchange like DIFX. You can simply use your credit or debit card to buy Bitcoin or place a market order on the DIFX spot exchange.
In this method, you are keeping your bitcoins and can withdraw them to a cold storage or personal wallet. For this, you should at least know the basics of crypto wallets, public addresses, private keys, and transaction fees.
With a Bitcoin ETF, all of this will be out of the picture and will be taken care of by the financial institution or fund that is offering the Bitcoin ETF. The fund will buy bitcoins and offer its shares on a stock exchange and the price of each share will be linked to the price of Bitcoin (assuming that it’s a spot ETF).
As a customer, all you need to do is buy, sell, or trade your chosen Bitcoin ETF the same way you trade other stocks. In this method, you are investing in the Bitcoin market without holding the actual cryptocurrency.
Probably the best benefit of a Bitcoin ETF is its accessibility through a well-regulated platform. As the regulatory landscape of cryptocurrencies remains unclear, a Bitcoin ETF can assure investors, especially the institutional ones, that they’re investing in a product that is regulated properly.
Aside from this, traders and investors don’t need to worry about the security of their assets as they are not holding the actual underlying asset. This will also open the doors to all investors with any level of technical knowledge to be able to get exposure to the Bitcoin market as ETFs are already well-recognized.
On the other hand, Bitcoin ETFs come with their own limitations.
The first one would be higher fees. The fund will charge an additional fee for taking care of all the technical work. So the first thing you should note is that this accessibility comes with a cost and it may not be a cheap one.
It is also worth mentioning that with Bitcoin ETFs, you won’t enjoy the benefits Bitcoin is offering over traditional financial systems as you are not holding any Bitcoin yourself. You will only be able to get exposure to its price fluctuations.
Here are some of the top Bitcoin ETFs that are currently available for trading on the stock market.