Investing in Bitcoin is attracting more and more people. This is because of the performance of this cryptocurrency, but also because of its incomparable growth. The only element missing from Bitcoin is that it cannot be invested with classic or traditional financial products.
After several years of negotiations, Bitcoin was finally authorized to be associated with a traditional financial product. 2019 was the policeman on the American stock market The Securities and Exchange Commission (SEC) authorizes ProShares to market an ETF/Bitcoin product. named ProShares Bitcoin Strategy this Foundation is available from 19 October 2021.
Since then, several funds have successfully invested in Bitcoin through ETFs. To invest in an ETF/Bitcoin product, it is necessary to understand what an ETF is and how it works, but also to understand how the ETF / Bitcoin works and its benefits.
What is an ETF?
ETF is an acronym for Exchange Traded Funds, in French “Fonds Négociés en Bourse”. Practically it‘yes a fund that replicates the price of an underlying asset. The latter can be an item, a link or an action. In Foras, it is possible, in principle, to have as an underlying asset any asset listed on the various global stock exchanges.
This implies that when an investor invests in an ETF, they are not investing in the underlying asset. The investor simply follows the evolution of the asset whose price the ETF replicates.
ETFs are a recent financial creation. It dates from the 1990s the first ETF called Tips35. Since then, ETFs have proliferated around the world. In 2019 Statista estimated that the number of ETFs on the market was 6970. This number increases to 8,552 ETFs in 2021. It is largely overcome today.
BlackRock, the world’s largest asset manager, will launch an investment fund dedicated to #Bitcoin
Finally an ETF on BTC?
It could democratize BTC and crypto for many people!
— MadMaKs – 雷王力 🛸 (@0xMadMaks) August 11, 2022
The implementation of an ETF is quite simple. It connects a financial market asset and copies its evolution. This replication can be done in two ways. It can be physical or synthetic.
The IS physical replication is used more in the United States. The IS synthetic replication is more common in Europe. Almost all of the ETFs available on the market are issued by a limited number of issuers. These are final:
- Vanguard Group
- Charles Schwab
- Power Shares
When we associate ETFs with cryptocurrencies, the most common one is that of Bitcoin.
Before looking into how a Bitcoin ETF works, you first need to know what it is.
The Bitcoin ETF is an ETF that has Bitcoin as its underlying asset and tracks its price. This is done through futures contracts on the stock exchange. So it doesn’t mean you have a Bitcoin ETF..
The Bitcoin ETF works like all other ETFs. The holder of this ETF is bet on the rise or fall of the Bitcoin price evolution. More concretely, the Bitcoin ETF works as follows:
- Step 1: The Bitcoin holder; the latter creates an ETF that will replicate the price of Bitcoin in its holdings.
- Step 2: The Bitcoin holder sells the ETF to investors in the market
- Step 3: Investments are based on the rise or fall in the price of Bitcoin.
This investment can have advantages and disadvantages.
What are the pros and cons of ETF/Bitcoin?
The advantages of ETFs pegged to Bitcoin are:
- Accessibility: this form of investment opens the accessibility of Bitcoin to everyone
- Asset diversification: you can also own other underlying assets if you own a Bitcoin ETF
- Management fees: although higher than those of a stock market index ETF, the management fees of a Bitcoin ETF are still reduced due to the passive aspect of its management.
The disadvantages of a Bitcoin ETF are related to the nature of Bitcoin:
- Volatility of the underlying asset: cryptocurrencies in general are very volatile and rapid and unpredictable fluctuations can cause huge losses
- Availability: ETFs are not yet available in all countries, there are no ETFs in France yet
- Diversification: here it is about the number of cryptocurrencies available that can be attached to an ETF. There are very few indeed.
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To invest in a Bitcoin ETF, you have to do it abroad. This financial product is not accessible in France, so it must be done on a foreign platform that allows it. To do this, you must complete all the instructions related to your registration.
After that, you will need to fund your account with an amount of your choice. Then move on to get Bitcoin ETFs. You should remember that any investment involves risk. Don’t take too many jobs and you can make decent gains.
To learn more about the Bitcoin ETF: