What Is A Bitcoin Exchange-Traded Fund (ETF)?


Bitcoin (BTC) prices have continued to struggle in 2018. The community is once again wondering where the market will get a boost from.

As it stands, one route that could see crypto bulls seize the initiative from the bears has to do with Bitcoin ETFs.

What is an ETF?

An ETF stands for exchange-traded fund, which is a passive investment instrument. It works by tracking the underlying benchmark indexes, bonds, commodities, and portfolios.

An ETF will replicate the performance of these assets in terms of gains.
ETFs trade on an intra-day basis and thus do experience daily price changes.

However, they do not exert demands of huge fees to the investor as they are passive investments.

What is a Bitcoin ETF?

For quite some time now, various players have mulled over the introduction of a bitcoin ETF.

Those efforts were intensified in 2017, but the Securities and Exchanges Commission rebuffed them.

Among its fears was the feeling that the market wasn’t ready. However, recent developments mean that the market is so close to having the first ever Bitcoin ETF.

When they are finally launched, the assets will make investing in Bitcoin ever so easy and safe.

And that will be the pulling factor that brings in a trove of investors, especially big money institutions. A Bitcoin ETF like any other exchange-traded fund will track Bitcoin’s benchmark index.

It will replicate its intra-day performances, and allow investors who have a brokerage account the chance to invest without worrying about challenges such as buying of BTC from exchanges, storage, and more importantly, the security of those assets.

Approval by SEC

For bitcoin ETFs to be launched, the biggest player who needs to be on board is the Securities and Exchange Commission (SEC).

Fears within the market were that Bitcoin ETFs would likely not see the light of day any time soon. The sentiment was informed by the SEC’s stance since 2013.

In March 2017, it rejected an application by SolidX which sought to have the first physical bitcoin ETF. Another player with high hopes for the project is VanEck.

It had to shelve its plans in January due to SEC’s clear “no way” approach. But a lot of the concerns by the regulatory body may have been addressed.

And according to John Hyland of Bitwise Asset Management, we are likely to see a bitcoin ETF sooner rather than later.

Hyland thinks that an approval by the SEC for any futures-backed ETF will open the floodgates for many other cryptocurrency-based products to be released.

He made his remarks at an ETF.com interview and believes that “everybody who has the same outline of a product is going to probably be declared effective in roughly the same small time frame”

Two firms are at the forefront of this initiative. VanEck and SolidX have formed a partnership that aims to launch a bitcoin ETF.

According to the two firms, their objective is to “list a physically-backed bitcoin ETF that will be insured against loss or theft of bitcoin”

The partnership will see VanEck undertake marketing responsibilities for the ETF, while SolidX’s role will involve taking up the position of a sponsor.

What these two companies have on the table is the desire to see the growth in bitcoin benefit more investors

Institutional money to flow into cryptocurrency

The discussion concerning if Bitcoin will rally again in 2018 has often been pegged on the entry of institutional money into the industry.

Now it appears Wall Street could be warming up towards Bitcoin as more investment assets get launched.

The launch of futures contracts has seen interest rise and now talk of ETF is seeing many predict a new influx.

For instance, Michael Strutton, the CEO of Ironwood says in his Medium post that:

He goes on to state that:”

If the introduction of Bitcoin ETFs attracts 20% of the available equities trading market (122 million) that would add 24 million new investors!”

All eyes are on the SEC as crypto-land gears up for what would be one more step to bringing Bitcoin to the mainstream investor.

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