Last Friday a historical milestone has been set by the SEC. The Financial Authority of the USA approved the first two Bitcoin Future ETF’s (Bitcoin exchange traded funds). We dig in with 10 questions and answers.
A lot of investors reacted very optimistic and the Bitcoin price surged after the news that the SEC has approved the Bitcoin ETF’s. Retail traders are wondering what’s going on and why the market is so enthusiastic. Of course there is one more question asked by every investor. Is there some money in it for me? In this article we search for clarification with 10 questions and answers. Let’s begin with the start.
1. What is an ETF?
An ETF stands for ‘exchange traded fund’. The ETF is buy able and saleable on the stock market and follows the index of a certain index. Due to the nature of these funds they are in general very interesting for the passive investor.
2. So these Bitcoin ETF’s follow the Bitcoin index?
No, not quite. There has been issued many applications for approval of a Bitcoin ETF or a Bitcoin derivatives fund, like futures. The first two granted Bitcoin ETF’s are for tracking Bitcoin Futures, so the correct name should be Bitcoin Futures ETF.
3. Ok, which companies have got their approval?
The first two companies with an approved American Bitcoin ETF are ProShares and Valkyrie. The ProShares Bitcoin ETF is listed on the New York Stock Exchange with the symbol BITO as of Tuesday October 19th 2021 according to their press release. Apart from the publication of the Nasdaq approval there are no details known about the launch of the Valkyrie Bitcoin ETF.
BREAKING: It is official, Valkyrie Bitcoin Strategy ETF is approved!! pic.twitter.com/fsIZuUkgFT
— Dr. Julian Hosp (@julianhosp) October 15, 2021
4. Why did the SEC choose for a Future ETF?
First of all the costs of a future consist of a premium for the right to buy or sell at a certain moment. These premium are much lower in price than the actual Bitcoin. The second argument is that the premium price is less volatile than the actual Bitcoin price.
5. Will the SEC approve direct Bitcoin ETF’s in the future?
Of course it’s in thin air what the exact plans of the SEC are. Furthermore there is a discussion about regulation of cryptocurrencies in general. The broad expectation however is that on a longer term there will be approval for direct Bitcoin ETF’s and other ETF’s for other cryptocurrencies once these market entries prove to be successful.
6. So these are the first two Bitcoin related ETF’s in the world?
Once again the answer is negative. There are multiple ETF’s regarding Bitcoin, sometimes even combined with other cryptocurrencies, in various continents such as Canada and Europe.
7. So if they are not unique and not direct Bitcoin ETF’s, why are investors so enthusiastic?
Shortly spoken, there are three factors that makes investors so euphoric. These factors are:
- First of all, the fact that the SEC provides an approval is seen as a sign that the SEC and American Economic Authorities are taking Bitcoin and crypto serious. This opens the door for more renowned and respectable financial institutions to offer Bitcoin trading options.
- Second factor is that these renowned institutions will bring Bitcoin and other cryptocurrencies to a new group of more conservative investors. Therefore a rise of demand is expected. As always, more demand causes a rising Bitcoin price.
- Third factor is that companies who are not entitled to invest in Bitcoin directly can buy these stock exchange noted ETF’s. Therefore a large competitor for institutional institutions like GrayScale and CME-futures exchanges comes knocking.
Of course, GrayScale reacted to the new developments (text continious after the video).
8 Are all crypto experts enthousiast about this Bitcoin ETF’s?
Despite all these positive effects there is criticism. First of all the offering is expected to be risky since it’s a new form of trading on the regular stock exchanges. Furthermore the SEC has qualified Bitcoin futures more risky than other types of futures.
The second part of criticism is that the managing costs of the ETF’s will be higher than the transaction fees paid on crypto exchanges. Therefore experts question if investment in the current Bitcoin future ETF’s is profitable. A comparison with other Bitcoin ETF’s causes doubt.
This chart shows why you’re better off buying #Bitcoin than Bitcoin Future ETF. For investors, new Bitcoin ETFs might be more costly than purchasing cryptocurrency directly. Bitcoin Future has underperformed by 30ppts since start of Bitcoin Future in 2017. https://t.co/1ZnVBJQlGa pic.twitter.com/oXrZ95Wsmg
— Holger Zschaepitz (@Schuldensuehner) October 17, 2021
9. How to prepare for trading Bitcoin ETF’s?
If you want to trade or invest in Bitcoin ETF’s it’s a suggestion to gather knowledge about investing in crypto ETF’s. The SEC’s investor bulletin as mentioned above can be a starting point. Furthermore the analyses for stock markets and Bitcoin market can provide insight. Of course we will pay attention to the developments and provide knowledge when applicable. If you subscribe to our free newsletter you’ll receive any updates automatically.
10. Are the current Bitcoin ETF’s a suitable investment for retail traders?
As always a new trading facility is more suitable for large and experienced investors. Furthermore it’s important to have knowledge of the Bitcoin Futures market to gather a comprehensive view on the the Bitcoin Futures price developments.
Therefore the general opinion is to be careful as a retail investor and consider investing in Bitcoin and/or other cryptocurrencies directly to profit from any positive market developments. On our prices page you can follow all results and live prices of Bitcoin and other cryptocurrencies.
Note: We never provide financial advice, so you can’t interpret our contributions that way. Always do your own research and make rational decisions about whether, when, in what and how much you want to invest.