The first Bitcoin futures exchange-traded fund (ETF) was earlier launched this week at the NYSE. On October 19, 2021, the first Bitcoin ETF was launched setting out a specific moment for validation towards budding into the crypto space. This launch will enable people to gain more exposure towards the investment of Bitcoin without actually having the main cryptocurrency. At the moment of writing, Bitcoin is said to be trading at a high value which is estimated at $67,139 on Indian exchanges. Likewise, with stock trading, the investors can buy or sell the shares for Bitcoin at any time during the trading hours of the day.
The launch of the Bitcoin ETF to the NYSE has been brought with major enthusiasm for most of the crypto-enthusiasts. The excitement has also been fuelled by the fact that it will reach a historic price just after the launch in the US.
What is a bitcoin ETF and what is an ETF fund?
Wondering what is a bitcoin ETF? They are known to be a set of financial products that are mainly regulated and can also represent a wide range of assets of different nature. An ETF is also keeping track of all the underlying assets along with the price fluctuations that give people an alternative to estimate the exact profits from the overall price trend related to that particular asset without owning even a unit of that particular asset.
What is an ETF fund? These funds are related to Bitcoin futures and can also serve as a type of price-tracking trading contract which can be entered by two parties. Moreover, both of the parties can agree to the buy and sell of those Bitcoins at a preset price at a later date, according to the report by CoinDesk elaborated. In addition, this sort of trading happens on the commodities exchange.
On the final day of price finalization of the Bitcoin, either at more or less, one cannot influence the Bitcoin future contract. In such cases, the person can churn the profit, while others can be subjected to losses.
In addition to the above-discussed scenario, a Bitcoin future ETF mainly requires approval from the US Securities and Exchange Commission (SEC) and has also added to the warm climate pertaining to the cryptocurrencies, brewing in the states of the US while the government in the country is also exploring more ways for crypto space to get benefit from it and also regulate it.
What is an ETF stock?
Now let’s move on to understand what is an ETF stock? As discussed above, the ETF stock holds future contracts which help in tracking the price of bitcoin rather than directly purchasing the stocks outright. According to Gary, Gensler, who is also a chairperson of the SEC, said that the commission associated with the ETF will be more profitable due to the type of structure as it deals with the future trades on a regulated crypto market. In addition, spot trading in cryptocurrencies takes place over a wider variety of unregulated exchanges. Let’s dig into some of the types of ETF stock available to the investors,
The Bond ETFs are mainly used to provide regular income to the investors who have subscribed to the Bitcoin ETFs. Moreover, their income distribution mainly depends on the overall performance of underlying bonds. It might also include corporate bonds, government bonds, and state bonds that are also called municipal bonds. In addition, the bond ETFs do not have a maturity date as they are mainly traded at a premium or a discounted price from the actual bond price.
The other type is the Stock ETF which comprises a basket of stock for tracking a single sector or an industry. For instance, a stock ETF might be tracking foreign or automotive stocks. However, the main aim is to provide exposure to the single industry in which one includes high performers along with the new entrants that have the growth potential. On the contrary, the stock mutual funds have lower fees and do not involve the actual authority and ownership of the securities.
The sector or industry ETFs are the funds that mainly focus on the specific need or gap in the industry or a particular sector. For instance, the energy sector ETF will also include those companies which are operating in this industry. The main rationale behind industry ETFs are focused on gaining exposure to the upside of the industry through tracking the performance of certain companies that are operating in the specific sector.
“What we’re trying to do is ensure the best we can within our authorities to bring projects into the investor protection perimeter. Bitcoin futures have been overseen by our sibling agency, the Commodity Futures Trading Commission (CFTC),” – according to Gary Gensler.
Ben Johnson, director of global ETF research at Morningstar, said the arrival of bitcoin ETFs “opens up the investment opportunity to a larger pool of assets than ever before, including many investors’ nest eggs”.
Pros and Cons of Bitcoin Future ETFs
Apart from removing the requirement and cost of restoring the asset, Future ETFs can make the commodities easier for buying and trading. Moreover, the profit margins that one party will be getting into a contract can be an extract of the high magnitude of Bitcoin ETFs.
On the other hand, the major con for such a protocol is the fact that the assets such as Bitcoins cannot be traded and held on bigger exchange platforms. But, the accuracy of different crypto-price trackers will keep on fluctuating, hence the agreed-upon asset value for the specific date will bring significant losses.