Investing in bitcoin has been quite a challenge over the past few years. The cryptocurrency tends to reach high prices, then loses 30 per cent or more of its value in a couple of days. An bitcoin ETFs, short for Exchange Traded Fund, is an investment vehicle. As you can guess by the name, it’s traded on exchanges just like any other stock. Investing in ETFs means purchasing shares of an ETF and profiting from its gains and losses. On the other hand, ETFs can be actively traded via an app or why this could be the right time for you to take bitcoin seriously and hold various assets.
ETFs are very similar to index funds in that are, the value of all ETF shares combined represent the value of a particular asset or market share. An index fund tracks an index, for example, the S&P 500, composed of five hundred stocks chosen for market size, liquidity, and industry grouping.
ETFs and index funds are almost the same, but some differences. For example, index funds (also known as passive investment vehicles) don’t have any restrictions on companies or industries; they only track what is in their respective indices.
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Why do people invest in ETFs?
By investing in cryptocurrencies, you can diversify your portfolio to reduce the risk of losing money on a currency. This is important for investors unfamiliar with cryptocurrency trading since all cryptocurrencies are highly volatile investments. If someone wants to invest their money in bitcoin or any other currency but doesn’t know much about it, investing in an ETF composed of similar currencies may be less risky.
The Winklevoss Twins are known for their attempt to create a Bitcoin exchange-traded fund (ETF) back in 2013 but were rejected by the SEC. However, they did not give up on their plans to make investing in cryptocurrency easier for mainstream investors.
Their second attempt in March 2017 to create a Bitcoin ETF was also declined by the SEC, but they are appealing the decision this time.
After their latest proposal on July 25th, 2017, to launch an Ether-based ETF was denied by the SEC, it is expected that work on their Bitcoin ETF will start soon enough.
ETFs are different from traditional mutual funds because they use a unique trading platform built for speed and efficiency. They do not take much time to buy or sell, but you will owe brokerage fees annually on the total value of their assets like index funds do. Consider checking out our article on mutual funds.
Scope of Bitcoin ETFs in future
The SEC has already rejected the application to trade the Solidx Bitcoin Trust ETF. The commission postponed its decision on whether to approve or not numerous times since it filed the request in mid-2016. The latest postponement came nearly last month when they said they would delay their decision until September 2017.
Hence, even if the commission approves or disapproves, there’s a chance that the Court of Appeals will reject it.
The SEC (Securities and Exchange Commission) has rejected over nine bitcoin ETFs in recent months. This is due to concerns about the market. However, there are still some proposals under consideration by the SEC. If approved, this will allow retail investors access to bitcoin in their brokerage accounts.
An ETF is a basket of securities that tracks a market index. The ETF holds the underlying assets and then creates shares representing ownership in that asset. So, for example, if you wanted to own all of Apple’s stock or even just a fractional amount based on its current price, buying an ETF would be your best option since it will perform similarly to owning the stock.
Investing in Bitcoin ETFs is not as easy. You cannot buy them directly or even pay for them with your credit card, so you will need to know which platform to use and how the process works (and what charges apply).