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Bitcoin ETFs: Everything You Should Know

January 25, 2024

Quick Summary

Recently, news has been circulating around the world, causing a change in the ever-changing world of the crypto market with regard to Bitcoin ETFs. The news concerns that the US SEC finally approved the Bitcoin ETFs in the United States.

This blog pertains to explaining what Bitcoin ETFs are, what their pros and cons are, how to invest in Bitcoin ETFs and an overview of the approval of Bitcoin ETFs. So, let’s get started!

Table of Contents

    Approval of the Bitcoin ETFs

    The US-listed Bitcoin exchange-traded funds (ETFs) have received approval from the US Securities and Exchange Commission (SEC). Despite warnings from regulators and investor advocates about the risks involved, the US SEC approved 11 applications from BlackRock, Ark Investments, Fidelity, Invesco, VanEck, and other companies to start exchange-traded funds (ETFs) that would follow the most prominent and oldest cryptocurrency in the world.

    The assets of the Bitcoin ETFs, which will be listed on the NYSE, Nasdaq, and Chicago Board Options Exchange (CBOE), will consist of actual Bitcoin that investors have bought from cryptocurrency exchanges and stored with custodians such as Coinbase. The products follow a benchmark for Bitcoin that different exchanges or organizations supply.

    Investors should be aware that directly purchasing Bitcoin or its units is not the same as buying a Bitcoin ETF. Investors can receive exposure to the digital asset class through Bitcoin ETFs without having to deal with the hassles and hazards associated with buying Bitcoin directly. Investors will be protected from the untransparent cryptocurrency exchange system.

    List of Approved Bitcoin ETFs

    Here is the list of 11 approved Bitcoin ETFs by the US SEC, along with the Ticker and their expense ratio:

    list of approved bitcoin etfs

    Now that you’re aware of the approval by US SEC on Bitcoin ETFs let’s understand what Bitcoin ETF actually means.

    What are Bitcoin ETFs?

    Publicly traded investment funds known as bitcoin exchange-traded funds (ETFs) allow investors to invest in bitcoin (BTC) without actually holding the cryptocurrency.

    ETFs are traded on conventional securities exchanges like the New York Stock Exchange and Nasdaq, in contrast to cryptocurrencies, which are exchanged on cryptocurrency exchanges.

    You are not really buying Bitcoin when you invest in an exchange-traded fund (ETF). Instead, you are purchasing stock in a fund that owns bitcoin.

    The goal of this regulated investment vehicle is to remove the technological barriers associated with investing in cryptocurrency by enabling traditional investors to track changes in the price of bitcoin more easily without having to purchase and store the virtual currency physically.

    How Does it work?

    Bitcoin exchange-traded funds (ETFs) operate similarly to conventional exchange-traded funds that you may be acquainted with. The underlying asset is acquired by the ETF issuer, which is usually an asset management firm, and is then safely stored with a custodian. Subsequently, it offers shares to its fund, giving investors access to the fund’s base asset.

    The financial institution purchases, stores, and safeguards Bitcoin on behalf of the ETF’s investors in exchange for an annual fund management fee.

    Investing in an exchange-traded fund (ETF) for bitcoin is similar to purchasing shares in a bitcoin pool. In order to meet demand, new ETF shares are created through this method.

    On the other hand, your shares are redeemed when you sell them, which modifies the overall quantity of ETFs in circulation.

    Pros of Bitcoin ETF

    • The act of diversification

    Multiple assets are allowed to be held by an exchange-traded fund. An ETF that tracks Bitcoin, for example, would include equities of Facebook in addition to this digital asset. Ultimately, investors have the opportunity to diversify their holdings and control risk thanks to the availability of a wide range of assets. Furthermore, investing in a Bitcoin ETF would enable investors to diversify their current equity portfolios by trading this digital token on a regulated market exchange.

    • Greater Convenience

    Without having to understand how Bitcoin operates, investing in virtual money through exchange-traded funds gives you leverage over the price of this commodity. Furthermore, you are not required to register on a cryptocurrency exchange website or take on the risks associated with direct Bitcoin ownership.

    However, users have the option to store their virtual currency in a digital wallet, which guarantees the security of their assets. However, you also lose your virtual asset investments if the hard drive fails, gets infected with a virus, or even forgets your wallet password.

    However, investing in this virtual asset is made easier with a Bitcoin ETF.

    • Tax Efficiency

    Since this digital currency is completely decentralized, it is not governed by any organization. Consequently, the majority of tax pension funds do not permit the acquisition of this virtual currency. Nonetheless, a Bitcoin ETF that trades on conventional exchanges would probably be governed by tax authorities and hence qualified for tax efficiency.

    Cons of Bitcoin ETF

    • Restricts Bitcoin Ownership

    Bitcoin is an ideal protection against conventional currencies, governments, and rising prices. Because there is no regulating agency for this digital currency, users can avoid the hazards connected to the financial system. Because Bitcoin users stay anonymous thanks to the blockchain, this virtual currency can provide investors and users with privacy protection.

    However, the government regulates this exchange-traded fund for digital money, taking away some of the advantages that Bitcoin users enjoy, such as privacy.

    • ETF errors

    In an effort to diversify the portfolio, exchange-traded funds (ETFs) may have numerous holdings in addition to tracking the price of an underlying asset. Nevertheless, this implies that the exchange-traded fund’s value might not precisely represent a 50% increase in Bitcoin’s cost because of its other assets. As a result, even though an ETF gives the price of Bitcoin leverage, it could not be a reliable indicator of that price.

    • Trading restrictions for cryptocurrencies

    It is possible to exchange Bitcoin for other cryptocurrencies, including Litecoin, Ethereum, XRP, and more. Since a Bitcoin ETF is merely an investment fund that monitors the price of Bitcoin and not a cryptocurrency, it is not permitted to trade for other cryptocurrencies.

    pros & cons of bitcoin etfs

    How to invest in Bitcoin ETFs?

    how to invest in bitcoin etfs

    Here is your step-by-step guide to investing in Bitcoin ETFs:

    1. You require a Brokerage Account

    The first step is to have a brokerage account. You can open a new brokerage account through renowned brokerage investment companies such as Blockroad or Robinhood. Either you can access these apps using the available applications or directly operate them using their web portals. You will be required to verify your key details(which is commonly known as KYC or Know Your Customer). Fill in all the required information and submit the documents; once KYC is completed, you can proceed with the login process.

    2. Fund your Brokerage account

    Now that you have opened a new brokerage account for investing in Bitcoin ETFs. All you have to do is fund your brokerage account, and it can be done once you link your bank account. You can also make the wire transfer, use a check to support it or make the transfers with the help of another broker.

    3. Research well on the available Bitcoin ETFs

    It is the most crucial step, where you conduct thorough research on the available Bitcoin ETFs along with the expense ratio and issuer of the concerned ETF. The expense ratio depicts the fee that is charged by the one who is issuing and managing the ETF, as it is capable of impacting the ROI(Return on Investment) ratio.

    4. Select the Bitcoin ETF you prefer

    Once you have researched well, you are now ready to select the Bitcoin ETF you prefer for investment. Keep in mind that you have to choose the one that aligns well with your goals and requirements.

    5. Place your order

    Now that you have selected your preferred ETF, all you have to do is place your order to buy the one using the funds available in your account. It requires you to insert the symbol of the ticker you have decided to invest in, along with the number of shares you are looking to purchase.

    After completing the above steps, review your order details to ensure that all the information you’ve entered is correct; once checked, you can proceed by submitting the order. The brokerage will further execute your order, and then the bought shares will be added to your portfolio.

    6. Keep an eye out for your investment

    Once you have invested in a Bitcoin ETF, keep a detailed eye on the investments you’ve made. It helps you better understand the market, manage your assets, and lead you in the right direction.

    Bitcoin ETFs Vs Bitcoin Investment

    There are several critical differences between holding Bitcoin ETFs and Bitcoin. They differ in operation, regulatory frameworks, management, volatility, and risk tolerance. Below are a few vital differences after comparing all of the parameters as mentioned above:

    bitcoin etfs vs bitcoin investment

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    An innovative approach for investors to have exposure to Bitcoin without actually owning the cryptocurrency is through Bitcoin ETFs. They do, however, carry a unique set of dangers, just like any investment. Never forget that a Bitcoin ETF’s value is determined by the price of Bitcoin, which is subject to extreme volatility.

    Prior to purchasing a Bitcoin ETF, you should always conduct independent research or speak with a financial professional. It will be interesting to see how Bitcoin ETFs and their regulatory environment—which is controlled by organizations like the Exchange Commission—develop as the cryptocurrency sector keeps growing.

    FAQs on Bitcoin ETFs

    • Is it possible to invest in Bitcoin ETFs without opening a new brokerage account?

      No, opening a brokerage account is a must when it comes to investing in Bitcoin ETFs.

    • Are Bitcoin ETFs safe investments?

      All kinds of investments have certain risks, and Bitcoin ETFs are no different. However, keeping an eye out for market trends and news can help you with some financial risks.