The Ultimate Introduction for Bitcoin ETF

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Some time ago, the US SEC announced that Bitwise’s proposal to list the Bitcoin ETF in the NYSE Arca was rejected because it did not meet the legal requirements of “preventing market manipulation and other illegal activities.”

Although we have introduced the enchantment of Bitcoin ETF before, what exactly is ETF and what is Bitcoin ETF? It’s still confusing, so let’s talk about the ETF today.

 

What’s ETF?

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ETF is the abbreviation of “Exchange Traded Fund“.

We may feel doubtful about what the fund is, but we must be very familiar with the stocks in our modern society.

Normally, if the investors want to hold stocks, they must have a certain understanding of the development prospects and capital status of all the companies. But it’s very time and energy consuming for the buyers to choose the right one out of the thousands of stocks.

The fund came into being just to simplify the investment process for ordinary investors. You only need to give the money to a fund manager, who is authorized to use the money for investment. After the deadline, you only need to pay a certain service fee to the manager and keep your principals as well as corresponding profits.

For the retail investors, it saves time and energy for them with lower risks. However, compared with stocks, funds provide less freedom for investors to buy and sell. The investors cannot arbitrarily change these assets, either.

ETF came into being thereafter. It means to enable the fund with the function of stocks, so that it can be listed on the trading platform like stocks for free exchanges. ETF is a kind of index fund as well as a basket of stocks tracking the trend of the stock market, they are packaged together into a fund.

We can imagine it as a package. If the user invests on ETF, it means that he has bought every product in the package. Such a basket of stocks can effectively prevent investors from being trapped and diversify the risks. Buying such a package is equivalent to buying the entire sector, which greatly saves time on studying all the stocks in the market.

 

What’s Bitcoin ETF?

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Then, it’s better for us to understand the bitcoin ETF now. It is an exchange traded fund based on bitcoin. If you have bought the bitcoin ETF, it means you have bought bitcoin indirectly. You own a fund that can track bitcoin although you don’t own bitcoin actually, but the two are the same in terms of the profits.

The bitcoin ETF keeps tracking the price of bitcoin. The price of bitcoin ETF rises if the bitcoin price rises, or vice versa.

Now, some people may wonder whether bitcoin is the same as bitcoin ETF? Doesn’t the bitcoin ETF mean the bitcoin trading? In fact, the only difference between the two is that we don’t have to worry about the bitcoins in our wallet to be stolen by hackers, or we don’t need to worry where we should store our bitcoins. It plays a role of facilitation at the technical level. If we have bought the bitcoin ETF, we no longer need to learn how to trade bitcoin on the computer.

 

What’s the Influence of Bitcoin ETF?

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The impact of the Bitcoin ETF on the crypto currency market is at least threefold.

First, it reduces the investment threshold to attract a large number of retail investors, who are usually interested in bitcoin investment only but lack of computer technology.

Second, it provides institutional investors a way to invest on bitcoin: bring more funds and generate more demands for derivatives.

For example, based on the bitcoin ETF, traditional fund companies can also hold bitcoin indirectly. If the investor buys a traditional fund, the fund manager can spend a portion of the investor’s funds on a small part of Bitcoin ETF. In this case, it is equivalent to increasing the investment on bitcoin.

Third, if the ETF can be applied successfully, it will be included into the supervision and its legal compliance has been officially recognized, which means it will play more active role in pushing the development of bitcoin and even the cryptocurrencies.

 

Summary

With the above brief introduction, we should already have a certain understanding of the Bitcoin ETF. With the maturity of the cryptocurrency and the deepening of global technology cognition, the Bitcoin ETF has begun to attract worldwide attention, and its influence is expanding from the United States to Russia to Japan. It may only be a matter of time before the SEC approves its first Bitcoin ETF.

 

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