Bitcoin ETF is a pool of assets related to bitcoin that are traded as ETFs on traditional exchanges by brokerages.
The goal of these ETFs is to give small investors and investors who don’t feel comfortable investing in cryptocurrencies a way to invest in cryptocurrencies without actually owning them.
KEY POINTS
- A Bitcoin ETF is linked to Bitcoin futures contracts, so investors can get access to Bitcoin without trading it.
- When cryptocurrency investors buy a Bitcoin ETF, they don’t have to worry about complicated storage and security issues.
- ProShares, which makes specialized exchange-traded products, started trading its Bitcoin Strategy Fund ETF on Oct. 19, 2021. It was the first Bitcoin ETF to trade in the U.S.
- Fans and investors of cryptocurrencies are still interested in an ETF made of bitcoin instead of a derivative.
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What is the Bitcoin ETF?
A Bitcoin ETF is an exchange-traded fund that is made up of bitcoin or assets that are tied to the price of bitcoin. They are not traded on a cryptocurrency exchange, but on a regular exchange.
In theory, the company buys bitcoin, securitizes it, and then sells or trades it on an exchange. But the Security and Exchange Commission keeps turning down these ideas. There is no cryptocurrency ETF that directly tracks a coin.
At the moment, Bitcoin ETFs are backed by Bitcoin futures contracts that are traded on the Chicago Mercantile Exchange.
The first idea for a Bitcoin ETF came about soon after investors and brokers noticed that bitcoin prices were going up and that the cryptocurrency was becoming more popular.
Most importantly, it seemed like buying and selling bitcoin could be a way to make money.
As Bitcoin’s price went above a few thousand dollars, regular investors lost the chance to buy Bitcoin directly.
Because investors wanted access to Bitcoin, brokers started making Bitcoin exchange-traded funds.
The Winklevoss brothers were the first to apply for approval with the Securities and Exchange Commission (SEC) in 2013.
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How to Profit From the Bitcoin ETFs
If you want to invest in Bitcoin ETFs, you can buy them from your broker or financial advisor, if they sell them.
It’s important to keep in mind that these ETFs are not all made up of Bitcoin futures. Most of the time, they invest in traditional securities, but when it fits the fund’s strategy, they also hold Bitcoin futures contracts.
For example, the Proshares Bitcoin Strategy Fund is only supposed to hold Bitcoin futures contracts when the positions are making money.
If not, it can hold securities from companies that have something to do with Bitcoin and money market instruments. Using reverse repurchase agreements, it can also borrow money.
A Bitcoin ETF is an exchange-traded fund that tracks the price of Bitcoin through spot markets, derivatives, or Bitcoin ownership. It is a very risky investment, so you should talk to a professional before you buy one.
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