Understanding Bitcoin ETFs and Their Functions

Since its inception in 2007, Bitcoin and the entire digital currency market have come a long way. About 10 years back, crypto technology was only utilized by a small number of people; Bitcoin’s worth was practically non-existent, with 10,000 Bitcoins being exchanged for $50 worth of pizzas.

Today, numerous businesses have been established because of cryptocurrency. On digital currency exchanges, you can buy litecoin. DeFi is integrating the world of conventional finance with crypto, and NFTs serve as a worthy disruption of the art market.

Furthermore, traditional financial institutions are starting to embrace cryptocurrency better. The Fortune 500 company, Tesla, owns a large amount of Bitcoin, and asset management companies are beginning to diversify into cryptocurrency.

Nevertheless, some still say Bitcoin and other cryptocurrencies aren’t still major players in finance. One of the things that the wider finance space is waiting for is for Bitcoin ETFs to get established.

What are Bitcoin ETFs?

The term ”ETF” stands for Exchange-Traded Fund, and it exists in the conventional finance market. An ETF tracks the value of a financial instrument like gold, stocks, or even an entire market. If a Bitcoin ETF were established, it would also track the price of Bitcoin.

ETFs are used by investors who do not want to hold the asset on crypto exchanges for a variety of reasons but still intend to benefit from the price movement of the asset. The fact remains that as a retail trader, how you trade is different from that of institutions.

If a Bitcoin ETF can get established, there would be mass adoption from the traditional financial space. A Bitcoin ETF could also track the price of other crypto assets like Ethereum to diversify risk.

Why Bitcoin ETFs Are Crucial to the Crypto Market

Financial security like Bitcoin isn’t convenient for some classes of investors to own. A large organization with millions of daily transactions would find it difficult to manage digital currency. For instance, a firm like JP Morgan Chase can’t just buy a hardware wallet to begin making transactions with it.

You need to realize that big financial firms don’t trade the same way as individual traders do. To even begin to delve into the cryptocurrency space, big finance firms need to go through a higher level of regulation.

A Bitcoin ETF is similar to meeting these big firms in their comfort zones. Once a Bitcoin ETF is  created, there’d be interest from hedge funds and other top financial institutions. This way, they can experience the benefits of engaging in the cryptocurrency market without owning any digital currencies.

Bitcoin ETFs don’t need to be limited to holding Bitcoins alone. Theoretically, a Bitcoin ETF can invest in various cryptocurrencies like Ethereum, Litecoin, and even instruments in the stock and commodity markets. This style of spreading your assets over a range of financial assets provides investors with the advantages associated with asset diversification.

The Future of Bitcoin ETFs

Typically, when people refer to Bitcoin ETFs, they focus on the American market. After all, the US sets the trends for many other markets to follow as it’s the biggest market.

There are already Bitcoin ETFs existing in other countries like Canada. The SEC has already accepted the application of a Bitcoin ETF to get listed on the New York Stock Exchange (NYSE). Investors are waiting to see if other Bitcoin ETF applications get accepted to drive the general cryptocurrency market capitalization.

Suppose you’re attracted to investing in a Bitcoin ETF rather than in Bitcoin. In that case, it must be noted that both come with their associated advantages. If you intend to participate in the financial markets to remove inflationary pressure off your fiat currency, it would be best to simply buy Bitcoin.

Some investors prefer having their bitcoin in a wallet to use as they deem fit. There are also various ways you can invest your crypto, like yield farming.

Conclusion

Bitcoin ETFs have been the center of discussion for participants in the financial markets. Several traders believe that establishing Bitcoin ETFs will usher institutional money into the sector.

Bitcoin ETFs can also decide to track other financial assets apart from Bitcoin. Although a few Bitcoin ETF applications have been accepted, investors are looking for increased creations of Bitcoin ETFs.