Exchange-traded funds (ETFs) emerged in traditional financial markets in the 1990s to provide an easy way to invest in different asset classes at a low cost. Today, they are one of the most popular investment instruments among both retail and institutional investors.
With Bitcoin ETFs, investors can add Bitcoin (BTC) to their portfolios without actually owning the underlying asset and without having to worry about the safe keeping of their investment in the form of digital assets. However, this also means that Bitcoin ETF holders do not own BTC per se.
If you want to directly own BTC, you can use a crypto wallet such as Trust Wallet, which allows you to easily and securely buy and store Bitcoin. Since Trust Wallet is not a custodial wallet, you fully own and control the BTC you buy and can use your coins to make payments.
However, if you are interested in adding a Bitcoin ETF to your portfolio, read on. In this article, you’ll learn all about what Bitcoin ETFs are, how they work, see some examples, and more.
The basics
An ETF is an investment vehicle that tracks the performance of an underlying asset, such as a commodity, stock, bond, index, derivative, or basket of assets.
ETFs are traded on an exchange, just like stocks. Hence the name. In all respects, an ETF is similar to a mutual fund, as they are both pooled and managed by their issuers. But they differ in structure and trading method.
The global ETF industry is currently worth $10 trillion and is expected to reach $18 trillion by 2026.
Typically, ETFs are created by asset management companies or other financial institutions that continue to manage the asset. They pool investors’ funds to invest in a diversified portfolio of assets. Investors can buy and sell ETF shares at any time during the trading session. Mutual funds, on the other hand, are usually traded at the end of the market day, when the price is set.
With ETFs, investors have access to a wide range of assets, which allows them to diversify their portfolio. They also provide transparency, as information about the assets in them is usually disclosed on a daily basis. In addition, ETFs tend to have lower expense ratios compared to mutual funds.
What is a Bitcoin ETF?
A Bitcoin ETF is an exchange-traded fund that consists of Bitcoin or assets tied to the price of Bitcoin.
Unlike Bitcoin, which is traded on cryptocurrency exchanges, Bitcoin ETFs are traded on securities exchanges, just like stocks. As a result, investors do not have to go through the process of setting up a digital wallet and dealing with cryptocurrency exchanges.
Bitcoin ETFs are a more familiar financial instrument for traditional investors who prefer to invest in Bitcoin without worrying about the risks and complexities of owning and storing digital currency. For example, bitcoins are stored in a wallet, and if an investor loses access to the wallet, they lose their bitcoins. With Bitcoin ETFs, there is no need to worry about this.
Today, in the US, Bitcoin ETFs do not hold Bitcoin themselves. Instead, they hold Bitcoin futures as an underlying asset.
The introduction of Bitcoin ETFs is seen by many as a significant development in the cryptocurrency industry. It provides a regulated and affordable way to invest in Bitcoin. This can attract institutional and retail investors who prefer more traditional investment instruments. Bitcoin ETFs could lead to the mass adoption of Bitcoin as an investment asset.
Bitcoin ETFs available on the market
Currently, the US Securities and Exchange Commission (SEC) has approved several Bitcoin ETFs for trading in the United States. However, at the time of writing, the ETFs available in the US are not actually backed by Bitcoin, but instead track its price. Nevertheless, Bitcoin ETFs do exist outside the United States. Below, we will take a look at some of the most actively traded Bitcoin ETFs and provide some information about them.