In order for a Bitcoin ETF to be approved, the SEC will require a slew of assurances that the cryptocurrency’s market is sufficiently mature and not subject to manipulation from money laundering and other illegal activities, which may be difficult for them to provide. The first bitcoin exchange-traded fund in the United States was approved recently by the Securities and Exchange Commission. But, unlike traditional ETFs that track all kinds of asset classes, this fund will track a derivative product — Bitcoin futures — and not the underlying asset itself.
The BITO ETF is designed to track the price movements of bitcoin, as measured by the coin market cap 24-hour Time Weighted Average Price. It’s a huge milestone for cryptocurrency trading because it makes it easy for everyday investors to get exposure to Bitcoin in their 401(k)s or other investment accounts.
Here’s a rundown of what you need to know about the Bitcoin futures ETF.
Bitcoins ETF Definition
A bitcoin ETF (Exchange-traded fund) is an investment vehicle that tracks the price of bitcoin, similar to an exchange-traded fund that tracks various stocks or bonds. Some Bitcoin ETFs will physically hold the asset, while others will use derivatives to gain exposure to bitcoin.
Why is Bitcoin ETF Lucrative for Investors?
Investing in bitcoin itself can be tricky. Instead, an ETF bitcoin investment would give investors easy access to the cryptocurrency market. It would also add a new way of investing to portfolios. Currently, there are no legal ways for U.S citizens to invest directly in Bitcoin; this has led some investors to take matters into their own hands.
Regulators are always wary of giving the green light to investments that expose people’s retirement savings or other assets to volatile cryptocurrencies. There are also concerns about inadequate liquidity in Bitcoin markets and potential fraud and manipulation in crypto trading. Bitcoin ETFs could solve many of these problems by allowing retail investors to gain exposure to cryptocurrency without worrying about buying, storing and safekeeping it themselves.
Bitcoin ETF Regulation
The process has been long, especially since the first attempt to create a bitcoin ETF back in 2013, and there has been a handful since. Often, this is how it goes with new asset classes. Regulators need time to get comfortable with new products and how they fit into existing regulations. It’s fair to say that most regulators are still getting up to speed on cryptocurrencies.
Several cryptocurrency products have received regulatory approvals in Europe and Canada, compared to the SEC’s rejection of bitcoin ETF proposals.
You may invest in cryptocurrency by:
- Investing directly in cryptocurrency
- Venturing into crypto-related investments
To Sum it Up
You can manage your investments more effectively with ETFs. Unlike actively managed investments, ETFs allow investors to accurately predict the investment return because they hold assets to track a benchmark or index. As a result, returns are not dependent on the skill of an active manager.
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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
