Beginning of 2021 has been quite promising for the Bitcoin as it records its all time high in market value and possibilities rise in obtaining the green light for Bitcoin ETFs from the regulators.
Bitcoin ETFs would bridge, exchange-traded funds (ETFs) a traditional form of investment tool with the largest crypto asset (by market value) in the market, which is Bitcoin. This grants the investors the opportunity to invest in the price of Bitcoin in a market that they are already familiar with.
Over the years, there was high level of concerns by the regulatory authorities on permitting the launch of Bitcoin ETFs. One reason is that the cryptocurrency market being unregulated and the asset being highly volatile. Therefore, fears arise in authorities such as SEC that investors would unknowingly end up putting their funds at high risk by investing these assets.
What is Bitcoin ETF?
According to Investopedia, “an ETF is an investment vehicle that tracks the performance of a particular asset or group of assets.” Further, it also says that an investor with an ETF can diversify their investment without purchasing the asset. For example, if an investor invests in entertainment industry ETFs he or she will be able to gain out of the share price appreciations without owning the stocks by themselves.
When considering Bitcoin ETF, it will be something that resembles the price of a Bitcoin. By buying a bitcoin ETF, investors will be able to avoid the complicated procedures involved with making an investment in Bitcoin.
Looking at the functionality of a Bitcoin ETF; initially an asset management company or a crypto exchange would collect funds from the investors. Afterwards, these funds will be utilized to acquire Bitcoins on investor’s behalf. On the other hand, investors will receive shares of the Bitcoin ETF. When the price of Bitcoin fluctuates, alongside that its underlying ETFs value too would fluctuate.
Why not invest directly in bitcoin?
When holding a Bitcoin ETF, investors need not be bothered about the security procedures that is involved with holding Bitcoin. Certain investors are not willing to go through the technical jargon when creating bitcoin wallet. Most of all, ETFs are a well understood method of investment among investors rather than investment in cryptocurrencies.
The advantage of obtaining the opportunity to trade Bitcoin ETFs in the traditional stock exchanges such as New York Stock Exchange, make Bitcoin ETFs further appealing for investors. With all these benefits, why bother to buy Bitcoins?
Latest development on Bitcoin ETFs
On January 23rd Valkyire Digital Assets has filed an application for a Bitcoin ETF. As Coindesk reports, the Valkyrie Bitcoin Fund would be listed on the New York Stock Exchange and Coinbase Custody Trust Company, LLC would serve as the custodian for the proposed ETF.
With the new administration of SEC, optimism arises as to the approval of Bitcoin ETFs by 2021. The new chairman of SEC, Gray Gensler is seen as pro-crypto personnel than his predecessor.
If the Bitcoin ETFs were to gain approval from the authorities it will be a paradigm shift of the cryptocurrency market. This will surely have a positive effect on the overall crypto market while opening new doors for investors to enter into crypto investments.