Bitcoin Exchange-Traded Funds | ETF Guide 2020

July 28, 2020      Tarulika Jain

Cryptocurrency space is more than ten years old but is highly sceptical for regulatory authorities. Blockchain-based cryptocurrency is based on a decentralized model where no central entity can interfere is a bone of contention for government bodies. Crypto space is coming with new products and services to captivate the interest of people and reduce the vulnerability from regulatory compliances. One such product is the Bitcoin Exchange Traded Fund, which might receive the green light from the officials and be successful in minimizing the doubts. Though the Exchange Traded Fund was rejected by the Security and Exchange Commission in recent years crypto enthusiasts are optimistic for the BTC ETF. In this ETF Guide, let us learn about the Bitcoin ETF, how they work and other related points.

Bitcoin Exchange-Traded Fund | Quick Overview | ETF Guide

If we talk about Exchange-Traded Funds only, it is common to the traditional stock markets where one is able to take advantage of the appreciating prices of shares without investing in stock themselves. But what is Bitcoin Exchange-Traded Funds? When a central financial institution, crypto exchange platform or the crypto asset management firm cumulate the funds from investors (in terms of fiat currency), platforms buy Bitcoin on the behalf of users and in return users will receive the share from Bitcoin ETF based on the value of cryptocurrency and for the term money has been invested. The idea of BTC ETF was propounded in 2018 to attract fresh investments after the skyrocketing prices of 2017.

What Are Bitcoin ETF

Some of you might argue or get confused that the cryptocurrency is meant to be decentralised, then why should we entertain the intrusion of a middleman. Will it not be a great idea to invest in Bitcoins on our own? So, BTC ETF is meant for those investors who are willing to invest their money in crypto space but do not want to own any coins in their crypto wallet due to the headache involved in technical analysis or keep the track of the prices or fear of losing money due to cyberattacks. BTC ETF can ensure to handle all the challenges on the behalf of investor (maybe in better way) along with benefiting them from the profits gained by investments. BTC Exchange Traded Funds are meant for those people who believe in the cryptocurrency.

Working Of Exchange Traded Fund | ETF Guide

You might be confused about the working of Bitcoin Exchange-Traded funds or might be wondering if it remains a decentralised medium of exchange or not. Let us try to understand the working behind the BTC ETF, which might clear some of your doubts.

  • In the first step, the respective custodian which can be a central bank reputed crypto exchange or asset management enterprise who collects the money from the interested investors and purchases shares which are based on the assets underlying which could be gold, oil, commodity, etc.
  • Then, the custodians (authorized participants) buy the positions in Bitcoins (based on price value) or its future contracts with the funds collected and distribute the digital assets to the community who provides ETF in exchange for shares of funds.
  • Based on the percentage of shares held by users, the role of investors is assumed without actually owning the assets.

BTC ETF is considered safe because they need to be approved by the regulators before making them available in the crypto space. After the ETFs are approved and get listed on the crypto exchanges, they can be bought or sold and the decisions can bring profit or loss associated with investors.

Advantages Of BTC ETF | ETF Guide

BTC ETF has the potential to revolutionise the crypto image in terms of credibility and protection of customers. It can be treated as the opportunity for the mass adoption of Bitcoins with the following advantages:

  • Bitcoin ETF can be used to raise the awareness related to cryptocurrency, Blockchain technology, the importance of decentralised currency, etc without actually involving the community’s investment in the market.
  • Bitcoin ETFs are comparatively considered as the secured way to invest in digital assets and is already gaining popularity among the retail and institutional investors. Thus, BTC ETFs can be used as a type of security and maintaining liquidity for easy sell and purchase of assets.
  • Bitcoin ETFs can also make the track easier by sidelining the exchanges and making the purchasing and selling hassle-free without getting anxious about the processes involved in crypto exchanges.
  • Not only for the long term, but Bitcoin ETF can prove to be the option of investment for medium-term and short-term investment also without any fear of losing all the investments.
  • Bitcoin space has always been targeted by the regulatory bodies of the countries all across the world but Bitcoin ETF can be the way to improve the status in terms of regulatory compliance combined with the advantages of taxation, fewer manipulations and also the reduced effect of the volatility.

Thus, majorly BTC ETF stands out with the prospects to improve the credibility and adoption of digital assets across the world while following the legal compliances.

Summing Up

As per the ETF guide, Bitcoin ETF will soon capture the crypto space as these financial instruments have inevitable chances to attract the fresh investments in crypto markets and scale up the adoption of the digital assets as the medium of exchange. Rumours and increasing cases of the cyberattacks on the reputed exchanges, attacks on the online wallets, news related to striking down of the market due to the effect of whales is creating the ground and need for the launch of Bitcoin ETF. It could prove as the kick start for the investors who wish to enter into the market but are hesitant of lacking analytical and strategic skills. Though no one knows the future of the volatile crypto space, this could be possible that next year we might be presenting the statistical reports of the rise in trade of BTC ETF. As per the present situations, it seems that regulators especially the US SEC are getting heavy with highly complicated compliant structure and a number of licenses required for exchanges to function in particular countries.

Let us just hope that our crypto community will be diversified with the BTC ETF!

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Tarulika Jain
Tarulika Jain

Tarulika is an engineering graduate and an eloquent crypto blogger. Being a digital economy supporter, she keeps herself updated with the latest innovation in the crypto industry, Blockchain Technology, Internet of Things and other technologies. Currently, she curates the simple and interesting content for Crypto guides for beginners. If you want to learn more about the cryptocurrencies, latest trends of blockchain-powered AI applications, you are free to follow her on LinkedIn and Twitter.