For most of 2023, we heard a lot about Bitcoin ETFs but many hardly know what it means. Well, hold my glass cos I’m about to give you a breakdown.

What are Bitcoin ETFs?

ETF is the shortened form of Exchange-Traded Fund, so Bitcoin ETFs stand for Bitcoin Exchange-Traded Funds. Bitcoin ETFs are funds (stocks, bonds, etc) pooled to mimic the price movement of Bitcoin. Simply put, they are products offered on traditional exchanges and are meant to act like bitcoin (in terms of shift in monetary value) but are not cryptocurrencies. They are traded like stocks & shares but track the performance of Bitcoin.

An exchange-traded fund focuses its investments mostly on assets associated with the original cryptocurrency, Bitcoin, which is known as a Bitcoin ETF. ETFs utilize the money they receive from the sale of shares to investors on the open market to build a portfolio of assets based on market indices, stock market sectors, or other asset classes like cryptocurrencies.

They are viable options for investors who don’t want to risk owning the cryptocurrency - bitcoin due to the high volatility. They are also good options for investors who don’t want the responsibility of storing the asset. ETFs, like shares, are traded on traditional stock exchanges rather than on crypto exchanges. Investors don’t need to learn about blockchain technology to invest in ETFs but would get easier exposure to Bitcoin. Large institutions that couldn't afford the risks of holding Bitcoin will be willing to pay a small percentage to see their Bitcoin ETF being held by custodian institutions.

Some people believe that, unlike the actual cryptocurrency, ETFs might lose value over time and are not designed with a long-lasting effect like Bitcoin. Bitcoin, even during a massive dip, is a valuable asset to hold on to; the same can’t be assured for ETFs.

More to note about Bitcoin ETFs

~ ETFs are designed to purchase bitcoin at market rates as capital enters the fund.

~ ETFs will be regulated by the SEC unlike bitcoin or other cryptocurrencies.

~ ETFs can be more expensive because an annual fee will be paid to the custodians of the asset.

~ Large financial institutions, hedge funds, and investment companies like Grayscale, BlackRock, Fidelity, VanEck, and more have since applied to the US SEC to launch ETFs for investors, none of which has been approved as of the date of this writing.

Late last year, the US SEC’s chair, Gary Gensler mentioned that they were taking a new look at Bitcoin ETF applications. Predictions have been made that some Bitcoin ETFs will get approved this month. Guess we can only wait and watch.

~ Countries like Canada, Brazil, and some European countries have approved some Bitcoin ETFs.

P.S.: ETFs are not exclusive to cryptocurrencies.