Let’s take a step back and define what a bitcoin ETF is and how it works before we look at the potential benefits and hazards of a bitcoin ETF. An exchange-traded fund (ETF) is a type of investment vehicle that monitors the performance of a specific asset or group of assets. ETFs allow investors to diversify their portfolios without having to hold the assets.
ETFs are a simpler alternative to buying and selling individual assets for those who want to focus just on gains and losses. Traditional ETFs allow investors to readily diversify their holdings since they target larger baskets of names with something in common—for example, a focus on sustainability or stocks representing the video game industry and related firms.
A bitcoin ETF is a fund that tracks the price of the world’s most popular digital currency. This allows investors to invest in the ETF without having to go through the time-consuming process of trading bitcoin. Furthermore, because the ETF would not be directly invested in bitcoin, holders will not have to worry about the complicated storage and security protocols that cryptocurrency investors must follow.
Is it wise to invest in a bitcoin ETF?
Despite the fact that a futures-based bitcoin ETF isn’t a direct investment in cryptocurrencies, it’s nevertheless dangerous due to bitcoin exposure and the complexities of futures contracts.
Ross is particularly concerned about new investors who have been anticipating the launch of a futures-based bitcoin ETF in order to obtain exposure to the cryptocurrency without fully comprehending its hazards. “Those who may have been waiting and thinking that this was going to make it really safe for them, without actually doing the necessary diligence,” he says, are the ones who should be concerned.
Financial experts advise that you only invest what you can afford to lose, whether you use a futures-based bitcoin ETF or directly invest in cryptocurrencies.
Don’t miss: The Securities and Exchange Commission is ready to enable bitcoin futures ETFs to begin trading – here’s what investors need to know.
Why is it vital to invest in bitcoin?
Bitcoin’s outstanding performance as a currency and an investment has attracted both traditional and institutional investors. Is Bitcoin a sound financial investment? To be fair, it has a number of benefits over regular investments.
- Liquidity. Due to the worldwide construction of trading platforms, exchanges, and online brokerages, Bitcoin is probably one of the most liquid investment assets. With incredibly cheap costs, you may simply trade bitcoin for cash or assets such as gold. If you’re searching for a quick profit, bitcoin’s high liquidity makes it an excellent investing vehicle. Due to their great market demand, digital currencies may also be a long-term investment.
- Inflation risk is reduced. Bitcoin is impervious to inflation, unlike other foreign currencies that are managed by governments. There’s no need to be concerned about your cryptos losing value because the blockchain system is limitless.
- There are new possibilities. Bitcoin and cryptocurrency trading are still in their infancy, with new coins entering the mainstream on a daily basis. This newness carries with it very high price fluctuations and volatility, which could lead to large gains.
- Trading that is as simple as possible. Stock trading necessitates the possession of a certificate or license. To trade a company’s shares, you must also go through a broker. Bitcoin trading, on the other hand, is simple: simply purchase or sell bitcoins on exchanges and store them in your wallet. Bitcoin transactions are also instantaneous, unlike stock trading orders, which can take days or weeks to settle.
What does an ETF entail in terms of bitcoin?
Bitcoin ETFs are exchange-traded funds that track Bitcoin’s value and trade on stock exchanges rather than cryptocurrency exchanges. They allow investors to invest in Bitcoin without the inconvenience of using a cryptocurrency exchange while also giving price leverage.
Do Bitcoin ETFs actually own Bitcoin?
The Bitcoin ETF prevents investors from holding and trading Bitcoins on larger trading platforms. Because the Bitcoin ETF is an investment vehicle, investors can short sell shares if they believe the price of Bitcoin will fall in the future.
Is there a bitcoin stock or exchange-traded fund?
Bitcoin has made its debut on the New York Stock Exchange, after years of wild ups and downs on cryptocurrency marketplaces. ProShares, a financial firm, created the first exchange-traded fund tied to bitcoin on October 19. The BITO ETF (ticker: BITO) does not invest in bitcoin directly.
Is Bitcoin still a good investment in 2021?
Because Bitcoin is the largest cryptocurrency by market value, and the rest of the market tends to follow its patterns, it is a good predictor of the crypto market in general.
In 2021, the price of bitcoin embarked on a rollercoaster swing, reaching a new all-time high of $68,000 in November. Following earlier highs of over $60,000 in April and October, as well as a summer decline to less than $30,000 in July, this current record high has been set. Because of this volatility, experts recommend that you limit your crypto investments to less than 5% of your overall portfolio at first.
But how far can Bitcoin rise? According to many experts, it’s simply a question of time until Bitcoin reaches $100,000, not if. According to Kiana Danial, author of Bitcoin: A History, the past may provide some pointers as to what to expect in the future “Investing in Cryptocurrencies for Dummies.”
Since 2011, Danial claims that Bitcoin’s price has experienced numerous massive rises followed by pullbacks. “Short-term volatility and long-term growth are what I expect from Bitcoin.”
What Bitcoin price volatility means for investors
The volatility of Bitcoin is yet another reason for investors to stick to a long-term strategy. If you’re buying for long-term growth, don’t be concerned with short-term fluctuations. The best thing you can do is “set it and forget it” when it comes to your cryptocurrency investment. Emotional reactions can force investors to act rashly and make judgments that result in losses on their investment, as experts continue to warn us every time there is a market movement – whether up or down.
Who has the largest Bitcoin holdings?
Companies can buy bitcoin with corporate savings, referred to as a treasury. This technique, which is used by companies including Microstrategy, Tesla, and Galaxy Digital Holdings, protects savings from inflation and negative-yield bonds.
Large firms that can issue low-interest corporate bonds have the ability to create inexpensive debt and use the proceeds to buy bitcoin. In theory, when the value of the dollar declines due to inflation but bitcoin maintains its value, paying down fiat debt will need fewer bitcoin. Buying on margin or using leverage is similar to this method.
Public Companies
Public businesses own a total of 216,038 BTC, accounting for 1.029 percent of the entire supply. The top ten publicly traded firms with the most bitcoin on their books have roughly 200,000 BTC in total.
Microstrategy, led by Michael Saylor, is the largest public business in terms of bitcoin holdings. Microstrategy has purchased around 105,000 BTC, accounting for over 0.5 percent of the total supply. Microstrategy has bought bitcoin with their corporate treasury as well as through bond sales. These bonds have a very low interest rate and can be redeemed for Microstrategy shares or fiat currency. This technique enables Microstrategy to obtain bitcoin at a low cost and in excess of their corporate treasury’s capabilities.
Tesla, Inc. has 42,902 bitcoins, or 0.204 percent of the entire supply. Galaxy Digital Holdings, which has 16,400 bitcoins, is the third-largest bitcoin ownership by a public business.
Private Companies
About 174,068 BTC, or 0.829 percent of the entire supply, is held by private companies. Block.one, a Chinese firm, is the largest private bitcoin owner. Block.one now has 140,000 BTC, or 0.667 percent of the total supply.
Indirect Bitcoin Exposure
Investors wishing to obtain exposure to the bitcoin price without purchasing bitcoin directly can use indirect bitcoin exposure. Some investors assume that diversifying their portfolio with a variety of bitcoin-related products will lessen risk. A Bitcoin exchange-traded fund (ETF) may include stocks as well as other bitcoin-related assets, resulting in a more diversified portfolio. Bitcoin ETFs attempt, albeit inadequately, to track the price of bitcoin. Some of the ETFs proposed are based on bitcoin futures and other derivatives.
ETFs own a total of 816,379 bitcoins, or 3.8% of the total supply. Grayscale Bitcoin Trust (GBTC) is the largest bitcoin ETF, with 654,600 BTC, or approximately 3.2 percent of the total supply. ETFs, public and private companies collectively control about 1.5 million BTC, accounting for nearly 7% of the total supply.
Another popular way to get indirect bitcoin exposure is through retirement funds. A increasing number of custodians are now offering financial services as well as Traditional and Roth IRA solutions that contain bitcoin.