Exchange-traded funds (ETF-s) have captured the attention of investment enthusiasts worldwide. If you are a cryptocurrency investor wondering how to use ETFs to your advantage, you will love bitcoin ETF-s. But what are they, and are they worth your time? Read our expert analysis to find out!
What is an ETF?
An exchange-traded fund (ETF) is a financial tool that can be used to track the value of a particular asset or even a collection of assets. Investors use ETF-s for the diversification of their holdings without getting ownership of the assets themselves. This means that a crypto ETF will be responsible for tracking the value of one or multiple crypto assets. Investors can trade ETFs on traditional market exchanges instead of crypto exchanges.
What is Bitcoin ETF?
Bitcoin ETF can track the value of bitcoin, which is the most popular cryptocurrency in the world. It replicates the price of bitcoin so that potential investors can invest in the ETF without having to undertake complex trading activities with bitcoin.
Holders of the bitcoin ETF will not have any direct investment in bitcoin itself, which means that they will not have to manage the storage and security procedures mandatory for cryptocurrency investors. They can avoid cryptocurrency exchanges altogether because ETFs can be bought and sold in traditional exchanges and markets.
One important benefit of the bitcoin ETF compared to regular bitcoin is that it is less risky in the long run. ETF-s function as investment vehicles which means that investors have the power to short sell shares of the ETF in case they fear the price of bitcoin going down soon.
Beginner investors are more likely to understand ETFs better than the working of cryptocurrencies. If you are someone who is looking to invest in digital currency for the first time, it might be better to trade a crypto vehicle instead of the currency itself to get started.
In a very recent development, crypto ETFs finally entered the New York Stock Exchange. ProShares is offering a new Bitcoin-linked fund in the form of an ETF. The United States took a while to introduce Bitcoin-linked investment products in an official capacity, but it is finally here, and crypto enthusiasts are delighted.
This ETF from ProShares will track the bitcoin futures market. The fund will be traded under the ticker symbol BITO. Investors will be able to buy into bitcoin traditionally instead of getting involved with a crypto exchange. BITO is expected to popularize bitcoin among investors with a brokerage account who are open to buying stocks and ETFs but not crypto exchange.
Should you get a bitcoin ETF?
Bitcoin ETFs are worth the experimentation if you have been wanting to dip your toes into cryptocurrency without going too deep. Experts suggest that you can invest up to 5% of your total portfolio in speculative assets such as cryptocurrency ETFs. Since bitcoin is highly volatile, there will be ups and downs in the price of BITO, and the ETF will not provide you with added stability.
It is also important to keep an open mind and accept the risks that come with Bitcoin ETF.