Bitcoin ETFs have burst onto the scene, offering investors a new way to gain exposure to the volatile cryptocurrency. But before you jump in, it’s crucial to understand the significant risks involved.
While established financial institutions are now backing Bitcoin ETFs, the underlying asset remains highly unpredictable and prone to dramatic price swings. Remember, Bitcoin’s value plummeted by over 70% in 2018, highlighting the potential for significant losses.
So, lets understand the answers to some of the commonly asked questions about the Bitcoin ETFs.
What is ETF?
An ETF, or exchange-traded fund, is a type of investment fund that tracks an underlying asset, such as a basket of stocks, bonds, or commodities. ETFs trade on exchanges like stocks, and they offer several advantages over traditional mutual funds, such as lower costs and greater transparency.
What is Bitcoin ETF?
A Bitcoin ETF, or exchange-traded fund, is a type of investment product that tracks the price of bitcoin. It is similar to a gold ETF in that it allows investors to gain exposure to bitcoin without having to buy and hold the actual cryptocurrency themselves. This can be appealing to investors who are interested in bitcoin but who are not comfortable with the risks of storing it themselves.
How the current ETFs are different?
The current Bitcoin ETFs are different from the previous ones in a few ways. First, they are “spot” ETFs, meaning they hold the actual bitcoin itself, rather than futures contracts that bet on the price of bitcoin. This means that the value of the ETF will track the price of bitcoin more closely than the futures-based ETFs. Second, the new ETFs are generally cheaper than the futures-based ETFs, with fees ranging from 0.19% to 0.39% annually. Finally, the new ETFs are available from a wider range of financial institutions, including some of the biggest names in the industry, such as BlackRock and Fidelity.
What is the risk associated with the Bitcoin ETFs?
The document says that there are several risks associated with investing in Bitcoin ETFs, including:
- Volatility: Bitcoin is a highly volatile asset, meaning that its price can fluctuate rapidly and significantly. This could lead to large losses for investors.
- Lack of regulation: Bitcoin ETFs are not subject to the same regulations as traditional ETFs, which means that there is less oversight and protection for investors.
- Potential for fraud and manipulation: The Bitcoin market is still relatively new and unregulated, which makes it more susceptible to fraud and manipulation.
- Illicit activity: Bitcoin has been used for illegal activities such as money laundering and ransomware. This could damage the reputation of Bitcoin and make it more difficult for investors to cash out their holdings.
Registered Bitcoin ETFs
Based on the NASDAQ website there are 11 ETFs approved by Securities Exchange Commission.
- ProShares Bitcoin ETF (BITO)
- VanEck Bitcoin Trust (GBTC)
- Valkyrie Bitcoin Trust (BTRY)
- Purpose Bitcoin ETF (BTCC)
- Galaxy Bitcoin ETF (BTCG)
- Tuttle Capital Short Bitcoin ETF (SBIT)
- One River Bitcoin ETF (ONBTC)
- WisdomTree Bitcoin Trust (BTCW)
- Global X Bitcoin ETF (BITI)
- Invesco Bitcoin ETF (BTO)
- Siren Digital Bitcoin ETF (GBTC)
The SEC approval doesn’t mean that these are secured investment products.
