If you have been following the latest news, you must know that ProShares Bitcoin Strategy Exchange Traded Fund, as the first US Bitcoin-linked exchange-traded fund, was listed on Tuesday.
The fund is traded under the ticker symbol “BITO” and tracks the Chicago Mercantile Exchange Bitcoin futures contract.
If you are interested in Bitcoin ETF trading, its risks, and its benefits, let’s discuss what you need to consider.
What is a Bitcoin ETF, and how to use it?
Futures-based ETFs track futures contracts, not asset prices. Thus, futures-based Bitcoin ETFs will track Bitcoin futures contracts, not the price of Bitcoin itself. Accordingly, the cost of the ETF will not match the price of Bitcoin.
This difference may be a risk. Traders might trade the futures-based Bitcoin ETFs‘ price at a premium during a bull market or a discount during a bear market.
Some Bitcoin proponents believe that investors can get better returns by directly buying cryptocurrencies. However, it is difficult to predict the future performance of any asset.
Futures-based Bitcoin ETFs may help those who are unsure of how to buy Bitcoin safely. Those, who do not want to take the responsibility of protecting and protecting Bitcoin wallets will find ETFs useful too. The price of Bitcoin also fluctuates frequently, so investors who directly purchase cryptocurrencies must withstand the fluctuations.
Why is ETF better?
ETFs provide a simpler alternative to buying and selling personal assets for individuals who only want to focus on gains and losses. Because many traditional ETFs aim for a broader range of names that have in common—for example, focus on sustainability or stocks that represent the video game industry and related businesses—they allow investors to diversify their holdings quickly.
Bitcoin ETF mimics the world’s most popular cryptocurrency price.
This lets investors purchase ETFs without having to go through the complicated Bitcoin transaction process. Additionally, as ETF holders will not directly invest in Bitcoin itself, they do not have to worry about cryptocurrency investors’ complex storage and security procedures.
Why not invest in Bitcoin directly?
While discussing ETFs, the same question might come up in everyone’s mind: If the Bitcoin ETF only reflects the cryptocurrency’s price, why should we not invest directly in BTC? There are several reasons.
First, as mentioned above, investors do not have to worry about the security procedures associated with holding Bitcoin and other cryptocurrencies. Additionally, there is no need to deal with cryptocurrency exchanges in this process. Investors only need to buy and sell ETFs through traditional sales and markets.
There is another significant benefit of focusing on Bitcoin ETFs instead of BTC itself. The ETF is an investment tool. So, if investors believe that the price of Bitcoin will fall in the future, they can short the stock of the ETF. This is not possible in the traditional cryptocurrency market.
Will ETFs get more popular in the future?
The popularity of digital currencies and tokens are growing. Thus, ETFs are easier to understand than cryptocurrencies in the entire investment field.
Investors who want to participate in digital currencies can focus on trading tools they already know. For this, they don’t need to learn the ins and outs of seemingly complicated things.