Everything You Need To Know
Many of the crypto-curious still find it intimidating and unclear to purchase Bitcoin through a cryptocurrency exchange. Newcomers especially often feel confused about the technical aspects involved in holding Bitcoin, including crypto wallets, Bitcoin addresses, and private keys. This can sometimes scare potential investors away.
All this has intensified the growing interest in a Bitcoin exchange-traded fund (ETF), which is why major financial institutions in the United States, such as Blackrock, Fidelity, and Invesco have applied with the U.S. Securities and Exchange Commission (SEC) in order to launch ETFs. As of November 2023, it is still unclear whether the SEC will approve a spot Bitcoin ETF, but things are looking up as popular crypto asset manager Grayscale’s restless two-year battle to launch a Bitcoin ETF seems to finally be bearing fruits.
What is a Bitcoin ETF?
A Bitcoin ETF works in much the same way as any other exchange-traded fund. Investors purchase ETF shares through their preferred brokerage and trade them just like shares of popular companies like Apple or Tesla. They track the current price of Bitcoin and act in lockstep with its price swings. So what is the point? Why wouldn’t investors just buy Bitcoin? Many regular retail investors still perceive Bitcoin and cryptocurrencies as inherently risky. In addition to the lack of clear regulations around them, owning Bitcoin involves the necessity of having a wallet or trusting crypto exchanges, which places the burden of security partly on the investor. So in order to protect your Bitcoin, you either have to keep your private keys safe or buy a hardware wallet.
With a Bitcoin ETF however, you are relieved from concerns regarding your private keys, storage, and security as you hold shares in the ETF similar to how you own shares of stock. This allows you to access the cryptocurrency market without having to go through the complexities of buying and holding crypto, and for many regular investors, that is a very appealing proposition.
How does a Bitcoin ETF work?
A Bitcoin ETF is managed by a company that purchases and holds the actual Bitcoin, while its value is tied to the Bitcoin held in the fund. The company then makes the ETF available for trading on a traditional stock exchange, allowing you, as an investor, to trade the ETF just as you would any other stock. The approval of a Bitcoin ETF by the SEC would make it a lot easier for institutional investors to speculate the price of Bitcoin. It would also functionally bring Bitcoin to Wall Street, enabling the Bitcoin ETF to be traded through the same places as gold, oil, bonds, Tesla stock, or any other traditional assets, which would likely be a huge boost to the price of Bitcoin.
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