The Rise of the Bitcoin ETF: What You Need to Know

2013 was the year that the Winklevoss Bitcoin Fund filed for approval of the first Bitcoin ETF. However, the first approval for a Bitcoin ETF application in the world took place in 2020 and was listed on the Bermuda Stock Exchange.

Since 2020, the cryptocurrency industry has taken a major step forward with the introduction of Bitcoin ETFs. In Europe, a spot Bitcoin ETF was launched on August 15, 2023. In the United States, Futures Contract have been approved.

Yet, it seems that the crypto industry's interest remains in spot Bitcoin ETFs because of their more significant impact. This article will help you understand the meaning of Bitcoin ETFs, how they work, and the types of Bitcoin ETFs.

What is Bitcoin ETF?

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Bitcoin ETF is a financial product that allows traditional investors to access and trade Bitcoin without needing physical access to the product. You see, the initial settings of cryptocurrency trading are quite different. You need to have some money in your cryptocurrency wallet and invest it in the market where you can profit or lose.

However, the Bitcoin ETF changes the entire Bitcoin trading game. It allows you to gain exposure to bitcoin price fluctuations and trade it without directly owning the asset. ETFs (exchange-traded funds) track the price performance of bitcoin as an underlying financial asset.

So, when you as an investor buy these ETFs on the stock exchanges, it is just like buying shares of a company. You don't need a wallet and you might not even need any expertise in the cryptocurrency industry. As long as you are a stock trader and knowledgeable about the market, you can trade ETFs.

There are two types of Bitcoin ETFs: Futures ETFs and Spot ETFs. Spot Bitcoin ETFs are the most popular ETFs for many reasons. Furthermore, the companies that offer traders to invest in spot Bitcoin ETFs on stock exchanges are the companies that hold the actual Bitcoins. So they peg the actual Bitcoin price to the ETF that you (the trader) can now trade. In other words, let's say the price of one Bitcoin is $26k, you will see these ETFs at $26k in the stock market.

The difference between Bitcoin futures and spot ETFs

There are two types of Bitcoin ETFs: Futures ETFs and Spot ETFs – there are big differences between the two

A Bitcoin Spot ETF is where actual Bitcoin is directly linked to an ETF — buying this ETF means you are essentially buying a representation of actual Bitcoin. On the other hand, Bitcoin futures ETFs do not actually directly represent the value of Bitcoin. In reality, buying these ETFs means buying Bitcoin-related contracts. In these contracts, you bet and agree on certain price movements related to Bitcoin that are set in the future. Basically, you speculate on price movements and decide to sell or buy depending on the Futures Contract.

The first difference between these two ETFs lies in the underlying assets. The underlying asset of a Bitcoin spot ETF is essentially Bitcoin, while a futures ETF is a Futures Contract.

Second, the value of the spot Bitcoin ETF is directly tied to the real-time price of BTC . On the other hand, Bitcoin futures ETFs are connected to futures market dynamics.

Third, the exposure and risk of Bitcoin spot ETFs are directly tied to actual market movements. On the other hand, Bitcoin futures ETFs have indirect exposure to Bitcoin price fluctuations.

Opportunities ahead with Bitcoin ETF

There are a lot of opportunities with Bitcoin ETFs, especially spot ETFs.

• Access the property

One of the most important advantages people get from a Bitcoin ETF is that it gives you access to trade Bitcoin without having to have it in a cryptocurrency wallet.

• Regulations

For many people, one of the reasons they do not invest in cryptocurrency is due to regulatory issues. Bitcoin ETF allows you to trade fully regulated Cryptoasset .

• Diversify your investment portfolio

Assuming you are an investor and you want to diversify your portfolio into the cryptocurrency industry without actually having a wallet, ETFs are a promising avenue. Especially the spot Bitcoin ETF, you can easily trade Bitcoin in real time.

• Security

One of the benefits of a Bitcoin ETF is the security it offers investors. In most cases, regulators like the SEC have XEM the companies offering these ETFs.

• Income potential

Ultimately, the biggest advantage that a Bitcoin ETF has is that it gives you exposure to the cryptocurrency market. Whether Futures Contract or spot Bitcoin ETF, it offers an opportunity to profit from investments.

Disadvantages of Bitcoin ETF

• Lack of precision

Especially for Bitcoin futures ETFs, there are a lot of price inaccuracies in their price charts. For example, you may see Bitcoin price at $28k in futures ETFs when in reality it is $26k. Bitcoin spot ETFs are much more accurate in maintaining the actual price of Bitcoin.

Top Companies Sign Up for Spot Bitcoin ETF Applications

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• Blackrock

Blackrock filed for a Bitcoin spot ETF on June 15, 2023.

• Valkyrie Investments

Valkyrie Investments first filed for an ETF in 2021. But in 2023, they fully applied for a spot Bitcoin ETF.

• WisdomTree

WisdomTree is a New York-based asset manager that first registered its Bitcoin ETF in March 2021. But it has joined the ranks of other investment firms looking for spot Bitcoin ETFs in 2023.

• Fidelity

Fidelity/Wise Origin is among a group of financial giants in 2021 that have joined the wave of Bitcoin ETF adoption. But it was rejected. They return in 2023, seeking approval for their spot Bitcoin ETF.

• Galaxy

Galaxy Digital and Invesco filed the first Bitcoin ETF application on September 22, 2021. They returned after submitting their own Bitcoin spot ETF application shortly after Blackrock's application.

Conclusion

With its long history, Bitcoin ETF has gradually entered the cryptocurrency industry with many rejections. Bitcoin ETF is a financial asset that supports the trading of Bitcoin-related assets without having Bitcoin in a cryptocurrency wallet.

Bitcoin ETF is intended for traditional stock traders with their brokerage accounts. It has its pros and cons, although many in the crypto industry have some preference for a spot Bitcoin ETF.

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