306 Interactions, 6 today
With Bitcoin nearing all-time highs, the crypto room needs an actual Bitcoin ETF (or exchange-traded fund), when more consumers than ever before are seeking to participate in the premier digital asset.
What is ETF Crypto?
ETFs have long been used in traditional capital markets. They are especially popular because exchange-traded funds incorporate the best qualities of two widely prefered assets. It combines the diversification benefits of mutual funds with the ease with which stocks can be traded.
So, how does an ETF work?
- A fund provider owns the underlying assets and designs a fund to track their performance, and sells shares in that fund to investors.
- Shareholders own shares of the asset, but they don’t own the asset itself.
- Shareholders get dividend payments, or reinvestments, for the stocks that make up the index.
- The ETFs may trade at market-determined prices that may differ from the asset itself.
- Long-term returns for an ETF may vary from the underlying asset.
Is there an ETF for Bitcoin?
To say the least, the road to a functioning Bitcoin ETF in the industry has been difficult. Since Bitcoin is largely untested and unregulated, the Securities and Exchange Commission (SEC) has been reluctant to authorise Bitcoin ETFs. The ultimate timetable for ETFs looks like this:
- July 2013 – The Winklevoss Bitcoin Trust files the first-ever Bitcoin ETF proposal.
- June 2018 – The Winklevoss twins file a second Bitcoin ETF proposal, which the SEC promptly rejected.
- February 2020 – Wilshere Phoenix creates the latest Bitcoin ETF proposal, which gets rejected by the SEC.
- September 2020 – The world’s first Bitcoin ETF gets listed on the Bermuda Stock Exchange.
Why not just invest in Bitcoin?
The Bitcoin ETF, like every other stock market ETF, essentially mirrors the underlying asset, in this case Bitcoin. If that is the case, why do they ever consider purchasing a Bitcoin ETF? Shouldn’t they already buy BTC? ETFs, it turned out, have a number of benefits over digital currency:
- Investors don’t need to bother with all the security hoopla that comes with holding bitcoin or any other cryptocurrencies.
- Investors don’t have to deal with cryptocurrency exchanges. ETFs can be traded via a traditional stock exchange.
- An ETF leverages traditional investment instruments to allow investors to short sell shares if they want to.
- Finally, ETFs bring in a lot of credibility in the whole equation. Your average investor may still be wary about investing in crypto. However, ETFs are a well-known financial instrument and a more confident investment than digital currency.
What is the best Bitcoin ETF in 2021?
This time, instead of Bitcoin ETFs, let’s look at blockchain ETFs. A blockchain ETF is a fund that satisfies at least one of the two conditions mentioned below:
- It’s a fund that invests in companies that look to disrupt business operations by integrating blockchain technology.
- It’s a fund that notes the performance of Bitcoin and other cryptocurrencies through futures contracts or by holding the underlying asset.
Now, let’s check some of the hottest blockchain ETFs in the market today. As per Investopedia, these ETFs have outperformed the S&P 500‘s total return of 12.0% in the past year.
#1 Reality Shares Nasdaq NexGen Economy ETF (BLCN)
BLCN is a large-cap ETF that invests in the technology industry in emerging markets around the world. The Reality Shares NASDAQ Blockchain Economy Index is tracked by this fund. The ROI of companies engaged in the growth, testing, support, or use of blockchain technology is measured by this index. The top three holdings of the ETFs are as follows:
- JD.com Inc. (JD), a Chinese e-commerce company
- Microsoft Corp. (MSFT).
- Square Inc. (SQ), an American financial services, merchant services aggregator, and mobile payment company
#2 Amplify Transformational Data Sharing ETF (BLOK)
BLOK is a multi-cap fund that mostly invests in businesses in the developer markets’ technology industry. This fund, in particular, focuses on blockchain-based companies and invests in both growth and valuation stocks. Their top three holdings are as follows:
- Galaxy Digital Holdings Ltd. (GLXY:TSE), a merchant bank dedicated to digital assets and blockchain technology
- Silvergate Capital Corp. (SI), the parent company of Silvergate Bank, a financial services company serving fintech and digital currency clients
- Square Inc.
#3 Innovation Shares NextGen Protocol ETF (KOIN)
Another large-cap ETF that follows the Innovation Labs Blockchain Innovators Index and invests primarily in growth stocks. Companies in this index are interested with, investing in, or experimenting on bitcoin or blockchain technologies. The top three holdings are:
- NVIDIA Corp. (NVDA), a semiconductor company
- Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
- PayPal Holdings Inc. (PYPL)
Is GBTC a good way to invest in Bitcoin?
While discussing the BLOK index, we mentioned GrayScale. They are one of the most well-known names in the cryptocurrency world. Grayscale became an SEC reporting firm on January 21, 2020, when it registered its securities with the Commission. Grayscale became the first digital currency investment fund to be listed as a reporting entity by financial watchdogs in the process.
Accredited customers who bought shares in the Trust’s private placement would have access to liquidity sooner. This is due to SEC regulations reducing the regulatory retention period of private placement securities from 12 to 6 months.
Grayscale’s public securities are denoted by the symbol GBTC. Although GBTC is not a conventional Bitcoin ETF, Grayscale says it is inspired by common commodity investment products such as SPDR Gold Trust, a physically-backed ETF. GBTC is traded over-the-counter, and investors will buy and sell it in the same way they can any other US security. It is eligible in tax-advantaged accounts such as IRAs and 401(k)s.
Bitcoin ETF Conclusion
Bitcoin ETF is a useful investing tool that can make the most common crypto asset available to the general public. Satoshi Nakamoto developed an asset that has the ability to permanently disrupt the global economy. However, the mass investor crowd is also required to enter the crypto space and enjoy its many benefits. A trustworthy exchange-traded fund (ETF) may be the perfect platform to kickstart this move.