As the crypto space becomes more popular, many individuals are showing interest in purchasing Bitcoin. However, most people view acquiring BTC from a trading platform as a complex process. That’s because one has to understand all the aspects of blockchain technology, including how to operate a crypto wallet, which can be confusing to some.
This has necessitated the need for Bitcoin Exchange-Traded Funds (ETFs). Big financial institutions such as Blackrock, Invesco, and Fidelity recently filed applications with the US SEC (Securities and Exchange Commission) seeking to launch Bitcoin ETFs.
What’s an ETF?
Simply put, an ETF is a publicly traded investment vehicle tracking the performance of a particular underlying asset. That means an ETF value should fall when the underlying asset depreciates and rise when that asset appreciates. ETFs are usually traded on traditional stock exchanges.
The first ETF, known as SPY, was launched in early 1993. It allows investors who wish to inject funds into the 500 largest US-based companies to do so at once.
Bitcoin ETFs work similarly to traditional ETFs. Investors purchase shares in these ETFs from the brokers they use to acquire stocks. Afterwards, they are able to trade them just like they trade shares in Tesla or Apple.
A Bitcoin ETF tracks BTC’s price, and its value changes depending on the price swings witnessed in Bitcoin.
Are Bitcoin ETFs Necessary?
So, instead of investing in a Bitcoin ETF, why can’t investors just purchase BTC? Well, for many retail investors, unbacked cryptocurrencies like Bitcoin are super risky. There is also the issue of unclear crypto rules in many countries, including the United States.
Moreover, buying and owning Bitcoin requires some blockchain technology knowledge, which many traditional investors lack. Becoming a Bitcoin holder can also be quite expensive, considering that you must always keep it safe. This means you might be forced to buy pricey hardware wallets, which guarantee safety.
However, when it comes to Bitcoin ETFs, investors don’t have to worry about all that because instead of buying BTC, they only need to acquire shares in an ETF, similar to buying shares of a company’s stock.
This simplified way of gaining exposure to the crypto market has attracted many regular and institutional investors. For that reason, several asset management companies have applied for Bitcoin ETFs with the SEC to meet the growing demand.
Gemini founders Tyler and Cameron Winklevoss were the first to apply for a Bitcoin ETF. The filing was delivered to the SEC in 2013. However, the regulator did not approve it.
How Do Bitcoin EFTs Work?
Bitcoin EFTs are managed by companies that purchase and hold the actual BTC. The firms list the ETFs on stock exchanges to allow investors to trade them like other stocks. Bitcoin ETFs have also introduced new trading opportunities, such as short selling, which involves investors betting against BTC.
The History of Bitcoin ETF Progress
- The Winklevoss twins file for a Bitcoin ETF in July 2013, which the SEC rejects.
- The SEC turns down the second Bitcoin ETF application from the Winklevoss twins in June 2018.
- A year later, the regulator rejects another Bitcoin ETF filing from Bitwise.
- The SEC disapproves the fourth Bitcoin ETF application from Wilshire Phoenix in February 2020.
- Seven months later, the first Bitcoin ETF globally gets listed on a Bermuda-based stock exchange.
- The SEC rejects the fifth Bitcoin ETF proposal from VanEck in December 2020.
- Canada approves three Bitcoin ETFs in February 2021, including Evolve Bitcoin ETF, CI Galaxy Bitcoin ETF, and Purpose Bitcoin ETF.
- Volatility Shares sees its Bitcoin Strategy ETF approved by the SEC in June 2023.
- Several asset managers apply for Bitcoin ETFs that month.
Conclusion
Bitcoin ETFs in the United States are expected to encourage BTC investments in a way that is less risky. Approval of the recently filed ETF applications with the SEC will help bring BTC to Wall Street since the ETFs will be traded on the same exchanges as gold, bonds, and stocks of various big companies.
SureTradeGroup.com is not responsible for the content, accuracy, quality, advertising, products or any other content posted on the site. Some of the content on this site is paid content that is not written or posted by our writers or editors and the opinions expressed do not reflect the opinions of this website. Any disagreement you may have with brands or companies mentioned in articles will need to be taken care of directly with those specific brands and companies. The responsibility of anyone who may click links in our articles and ultimately sign up for that product or service is their own. Forex, Stocks, Cryptocurrencies, NFTs and Dogital Tokens are all a high-risk asset, investing in them can lead to losses. Readers should do their own research before taking any action.