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Highlights
- Speculations about the US approving the first Bitcoin ETF have resurfaced yet again.
- Unlike blockchain ETFs, bitcoin ETFs haven’t made their debut in mainstream markets.
- A crypto ETF is a combination of Cryptocurrencies and Exchange Traded Funds (ETF).
With a total market cap of over US $2 trillion, the crypto market has been growing and expanding across the globe. Although the prices of many cryptocurrencies, such as bitcoin, have recently touched prices as high as around US $64,000, investing in the crypto market is still quite risky. High returns come with higher risks, but it is still possible for investors to earn above average returns with less risky investments, such as ETFs. The market is yet again speculating about when the US will get the world’s first ever bitcoin ETF. Unlike blockchain ETFs, bitcoin ETFs haven’t made their debut in mainstream markets. But what are ETFs? How are they be different from crypto ETFs like the bitcoin ETF? Let’s find out.
ALSO READ: 10 Crypto Terms to Know Before You Invest
What is an ETF?
ETF or Exchange Traded Fund is a kind of investment fund that enables you to keep a track of the performance of one or multiple assets ranging from publicly traded companies and commodities to whole industries. ETFs can be used for diversification of the investors’ portfolio without a direct exposure to the asset. Generally, various assets, such as stocks, as combined to form specifically themed ETFs, like tech sector, growth etc. ETFs are credible and completely regulated, and they can be purchased via several online brokerage platforms and apps.
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Crypto ETFs
As the speculations suggest, it is just a matter of time that the first-ever bitcoin ETF is available in the market. As the name suggests, a crypto ETF is a combination of Cryptocurrencies and Exchange Traded Funds (ETF). Crypto ETFs are a good investment option as unlike cryptocurrency investments, they are passively managed by professional fund managers, and enable investments in multiple cryptocurrencies at once, which in turn leads to greater portfolio diversification.
Crypto ETFs are more secure as well as tax-efficient than cryptocurrencies which are decentralized and unregulated. Also, unlike the highly volatile cryptocurrencies, crypto ETFs offer higher returns at relatively less risk in the long-term. Crypto ETFs can be bought and sold via online brokers which mostly let you trade commission-free.
ALSO READ: 3 best Blockchain ETFs on the FTSE
How does a Bitcoin ETF work?
A bitcoin ETF keeps a track of the performance of Bitcoin and enables the investors to purchase or sell BTC on a stock exchange all day. When you cash-out this ETF, you may receive either fiat currency or actual Bitcoins. But why invest in a crypto ETF than directly buy crypto in the market?
The primary reason for traditional investors would be the familiarity with trading platforms to buy bitcoin, without private keys, crypto wallet storage etc. Crypto investments are a relatively new concept, while ETFs are better understood in the investment arena by traditional investors. Also, unlike cryptocurrencies, crypto ETFs can be held in a registered tax-sheltered account.
Bottom line
Investors with a high-risk tolerance may be comfortable with directly investing in cryptocurrencies, but on the other hand risk-averse investors or are an institution restricted by regulatory demands, may rather choose the ETF route as it is safer, more convenient, and also provide higher long-term returns than directly investing in cryptocurrencies.
ALSO READ: Cover crypto to shut down. What happens to token holders now?
