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The world’s first Bitcoin Futures Exchange-Traded Fund (ETF) launched on October 19, 2021, and began trading at the New York Stock Exchange (NYSE). This follows over eight years after the first application for a Bitcoin ETF was filed and is projected to be the first of many cryptocurrency ETFs that will launch in the not-so-distant future.
However, even with this significant milestone, a couple of questions still linger in investors’ minds. For starters, how does a Bitcoin ETF work? Second, how different is it from investing directly in Bitcoin? Then, finally, is it a worthy investment?
What is a Bitcoin ETF?
Proper investment comes from understanding what one is investing in, knowing the rules, the ins and outs, and generally what the asset you are buying entails. An ETF, for starters, can be described as an investment vehicle that allows investors to track the performance of a specific asset or group of assets. Doing so enables these individuals to diversify their investments without owning the assets in the first place.
For a Bitcoin ETF, the asset is Bitcoin, the largest cryptocurrency in the world by market capitalization. The ETF allows investors to invest in Bitcoin and benefit from its growing value without going on cryptocurrency trading sites and dealing with the complicated process of trading this digital currency.
Why Bitcoin ETF
In an interview with Entrepreneur on Bitcoin Futures ETF, Jonathan Manzi, the Chief Executive Officer (CEO) of Beyond Protocol, acknowledged that the launch of this first ETF is a tremendous milestone both for cryptocurrency and for investors.
“The primary function of ETFs to date has been to provide exposure to an asset class by tracking a basket of investments with a common connection- e.g., oil, biotech, gold, or natural gas. There are also stock index ETFs which track broader markets, like the S&P 500,” he reckoned.
Jonathan Manzi also acknowledged that most traditional investors have the capital to invest but are only familiar with the more mainstream assets mentioned above. As such, he noted: “Many traditional investors have yet to buy bitcoin; an ETF taps into this demographic, allowing those with accounts at large brokerage firms to continue to manage all of their assets under one roof, while still gaining exposure to Bitcoin.”
However, he was keen to note that with an SEC-regulated fund, as is the case with the current Bitcoin ETF, it is considered a lot safer than Bitcoin for self-custody. As such, an individual’s investment is a lot more secure, protected, and has a higher likelihood of realizing a decent return.
Jonathan Manzi has been invested in the cryptocurrency industry for quite a while, understanding its inner workings, opportunities, and threats therein. Having analyzed it over the years, he is confident that the currency is far from volatile. Moreover, he has been keen to note that “While detractors will point to volatility, the fact remains that Bitcoin has outperformed every other legacy asset in existence since 2009.”
“While there are many other cryptocurrencies with wonderful and innovative use-cases, Bitcoin has continued to thrive, driven by the purity and simplicity it was designed with. Its inherent traits made it uniquely well-suited as the people’s choice for monetary freedom- a hedge against tyranny for the masses, built with immutable code,” he added.
Proceed with Caution
An important thing to note with Bitcoin ETF is that just because it is an ETF, it does not mean that it is a safer investment. On the contrary, the investment is still risky, and it mainly boils down to two key aspects. For starters, Bitcoin remains largely unregulated, a reason why initial Bitcoin ETF applications have been turned down by the SEC. Secondly, the intricacies surrounding futures contracts can limit one’s earnings and prevent it from being a lucrative investment in the first place.
The rule of thumb with investment is first to understand what you are buying before putting your money on the table. Many have argued that simply because it is a Bitcoin ETF, they do not need to know what Bitcoin is all about and how it works. Unfortunately, this is far from the case. As a person investing in the ETF, you need to understand Bitcoin, but, most importantly, you need to know that you are not buying the actual bitcoin.
You should also note that simply because it is an ETF does not mean that the investment is safer than investing in actual crypto. Many investors have held back on directly investing in Bitcoin and other cryptocurrencies, citing safety issues and the high volatility of these currencies. Most of these individuals have pointed out that with ETFs, they may finally get around to investing in crypto owing to the perceived increased safety, which is not necessarily the case.
As an investor, you can lose money through a Bitcoin ETF just as quickly as you would, had you invested directly into Bitcoin itself. As such, you should know that you could lose money at any point, which means that you should only invest what you can afford to lose.
How to Proceed
With the proliferation of cryptocurrencies, we can expect more crypto ETFs to launch soon. However, the fundamentals will all be uniform across the board, and our advice will remain the same- do all the requisite research and only invest money you can afford to lose.
Every investment is a risk. Investing in a Bitcoin ETF is no different. While it opens the pool for a broader audience to invest in Bitcoin, it also presents its fair share of challenges, particularly technical challenges and intricacies associated with futures trading. Still, there are opportunities to make some decent returns on the investment made. We recommend that you proceed with caution. Do your diligence and resolve to learn all you can about the ETF before putting your money in it.
Featured image via Pexels.