Posted in line with recent cravings on the matter of Bitcoin ETFs at this time
What are ETFs?
An Exchange-Traded Fund, commonly known as an ETF, defines a type of investment fund that tracks the price of an underlying asset, such as *Bitcoin*, Gold, Oil, an Index or a basket of Stocks. ETF’s are traded on exchanges in the same way as stocks hence; any investors – retail or institutional – can buy and sell holdings in an ETF to other market participants over the stock exchange.
ETF refers to a fund that represents something of value with shares that can be traded on an exchange in a derivative market; meaning, when trading an ETF, you aren’t trading the actual asset instead, you’re trading shares that represent the asset.
Example: In the case of Gold. You could buy and sell a chunk of gold, and its price is based on its weight and purity, But instead, more conveniently, you can trade a Gold ETF, which is a share that represents a certain quantity of gold and is therefore worth as much as the same quantity of physical gold when traded. This way, you avoid the hassles of physically trading chunks of gold and instead trade a share that entitles you to that particular value in gold, while the gold is held securely in one place.
The Bitcoin ETF
A Bitcoin ETF as proposed by its applicants will have the digital currency Bitcoin as an underlying asset; which means that by purchasing a Bitcoin ETF, investors would be indirectly purchasing Bitcoin, as they will hold the Bitcoin ETF in their portfolio as opposed to the actual digital currency itself. However, the ETF would closely tally with the price of Bitcoin, hence for investors it would make little difference whether they hold a Bitcoin ETF or the actual digital currency.
Bitcoin ETF vs Bitcoin
A major difference between buying a Bitcoin ETF versus Bitcoin will be that investors would by buying Bitcoin ETF; be purchasing a regulated investment vehicle which they can buy and sell on exchanges instead of having to *only* buy and securely store Bitcoin.
The Benefits of a Bitcoin ETF
A Bitcoin ETF will posses the following advantages; It will prove beneficial for Bitcoin as an asset class for many investors as the ease of purchasing a Bitcoin ETF would expose the asset class to an influx of several new types of investors with deep pockets that were previously not able to invest in Bitcoin.
The approval of a publicly traded Bitcoin ETF would most likely boost the price of Bitcoin to new highs as the new institutional investors as well as more private investors will now be able to freely invest in the digital currency through the ETF.
The Bitcoin ETF will make it easier to buy/sell rather than depend solely on actual digital currency on exchanges which come with a bit of hassle; also there are no *serious* worries on the safety of your coins as is the case when holding on exchanges.
NOTE: As seen at the time of this publication, the ETFs rejection has shown no direct dip effect on Bitcoin price as in the case of the August 22 ETF disapprovals; however, the effect of its approval will most likely prompt a Bitcoin price increase and can’t be entirely ruled out. Either way ETFs could strike as a development and not necessarily a wholesome Bitcoin price determinant.
Views expressed are solely of the Author and not a representation of the BTC.ng general views.