The bulls of the market have broken out again as Bitcoin price nears its all-time high after news of a Bitcoin ETF, or Exchange Traded Fund, being approved in the USA with 2 more expected to follow shortly.
Tuesday, we also saw the highest ever first-day natural trading volume for an ETF launch with over $1 billion in trading volume of the Bitcoin ETF by ProShares’ Bitcoin Strategy exchange-traded fund (BITO). Grayscale has submitted paperwork to convert its already existing $40 billion Bitcoin fund into a Bitcoin ETF. Bitcoin ETFs have been talked about among investors and crypto enthusiasts for years. Many feel that this would expose stock investors to Bitcoin and help to drive the legitimacy of Bitcoin and eventually drive adoption. But luckily Bitcoin did not wait on an ETF. We have seen numerous large corporations add Bitcoin to their holdings and even saw El Salvador make Bitcoin legal tender, while quite a few other countries are exploring the possibility.
Over the years we would see a spike in Bitcoin price when a Bitcoin ETF was submitted for approval and then eventually followed by a drastic drop in price when that application was denied. Each time a denial happened over the year, it began to impact the price less and less. This is similar to the desensitizing of the multiple times China banned cryptocurrency. Each time it was announced, it had less impact on the price. You may be wondering...WTF is an ETF? And also, why does it matter? In this How To Crypto report, we’ll dig deep into what an ETF is and why it matters.
An exchange-traded fund, or ETF, is a fund that may be purchased and sold throughout the day on a stock exchange like a stock. Fees for ETFs are typically cheaper than for other types of vehicles. ETFs come in a variety of risk levels, depending on the product. The fund company owns the underlying assets and creates a fund to track its performance. They then sell shares of that fund to investors. Shareholders own a portion of an ETF, but not the underlying asset. While one of the best things about Bitcoin is that you can have total control and ownership of your Bitcoin, an ETF does give exposure to people who normally may not feel comfortable yet holding their own Bitcoin. Millions of new people could get exposure simply by their retirement account management company allowing these ETFs to be invested in with retirement funds. While these ETFs track the value of an underlying asset, like we’ve seen with gold in the past, they are traded at a market price that is usually different from the asset price itself. You must also take into account the expenses and fees that the ETF provider charges. ETFs trade on traditional markets such as NYSE or Nasdaq and are regulated financial products.
Now, why is a Bitcoin ETF important? One of the biggest reasons is that it can drastically speed up the institutional adoption of Bitcoin. Several large companies have already invested in Bitcoin directly, but having regulated and approved options could see Bitcoin become a major asset in the global economic environment while breaking down many of the barriers that stopped companies with an interest in Bitcoin, but not confident enough to invest prior to an ETF being approved.
Many traditional investors who only play in the stock market but have been Bitcoin-curious could jump into the ring with a Bitcoin ETF. And one possibility will be for the Bitcoin ETFs to exceed the performance of the actual Bitcoin price(because of ETF fees) or investors will soon realize how easy it is just to buy and hold Bitcoin without having to pay someone to do if for you. Bitcoin ETFs also allow institutions to invest hundreds of millions or even billions of dollars into Bitcoin and still be protected from some regulatory framework.
Exposure to Bitcoin could quickly lead to these ETFs and future ones offering a basket of different cryptocurrencies, further increasing the exposure of the world to cryptocurrency and its potential. Plain and simple for now, just know that a Bitcoin ETF can drive adoption and expand the potential investor base of not just Bitcoin, but cryptocurrency in general. As of now, it looks like a definite case of the bulls coming to town as the Bitcoin price flirts with its previous all-time high.
Content written by Blockchain Wayne and NewsCrypto Team
