A Look Into Cryptocurrency ETF
Cryptocurrency ETFs are here to stay. Know the reason behind its popularity. Find more on the ETFs.
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About Cryptocurrency ETF
In theory, a cryptocurrency exchange-traded fund, (ETF) works just like any other ETF. ETFs track an index or a basket of assets while cryptocurrency ETF tracks one or more digital tokens. Digital token ETFs just like other ETFs are trading like a common stock on an exchange that is subject to changes in price as investors buy and sell.
How Does Cryptocurrency ETF Work?
To work properly, the organization managing the fund has to understand the underlying assets that are tracked. They have to commensurate the stake of digital tokens while the ownership is represented as shares and buying them investors would indirectly own these tokens. The ETF investors gain exposure to the upside potential in the underlying assets.
What Are The Special Considerations
The SEC indicates they will not approve cryptocurrency ETFs unless the markets demonstrate a degree of stability and security. With the SEC’s stance, it has not stopped the number of parties attempting to launch digital currency ETFs.
When launching Bitcoin futures, the Chicago Board Options Exchange is coaxing SEC to reconsider the earlier blockage of digital tokens. The founders of popular currency exchange continue to petition the SEC to approve a Bitcoin ETF without success.
The immensely popular digital currency exchange Coinbase launched an index fund with exposure to four of the largest digital currencies not quite the same as an ETF. Offering small exposure to GBTC, these are not exclusively focused on cryptocurrencies. As SEC expresses openness to cryptocurrency funds, this could continue to fuel investor optimisms as ETFs thrive in other parts of the world.
What Is Cryptocurrency ETF Vs. Bitcoin Investment Trust
With no cryptocurrency ETFs trading publicly in the US the closest is a fund known as the Bitcoin investment trust that acts like an ETF in many ways while owning Bitcoins on behalf of investors allowing them trade in shares of the trust.
Grayscale Investment Trust charges an annual management fee of 2% to the fund’s assets while a price point higher than most of the other ETFs. As the first trust of its kind, GBTC experiences odd fluctuations in the price relative to changes in Bitcoin value. It has not always been the case as GBTC is to be correlated with the price of Bitcoin. The high expense ratio along with a lofty minimum investment makes GBTC not accessible to mainstream investors as yet.
The investors in the US looking forward to investing in digital currency ETFs have limited options as one approach is investing in international ETFs meeting stringent requirements or investing in GBTC which comes as another possibility. These investors look forward to a related group of ETFs called blockchain ETFs.
The current blockchain technology supports cryptocurrency space as it is closely linked with the digital tokens. As there are growing numbers of ETFs the focus is on blockchain companies that include computer processor developers as well as manufacturers that are closely connected to the companies in the cryptocurrency industry. Also along with the ETFs like the Amplify Transformational Data Sharing ETF (BLOK) and the Reality Shares Nasdaq NextGen Economy ETF (BLCN) that allows investors access to those companies focussing on the blockchain space. Many of them see immense success already.
The Benefits Of The Present Cryptocurrency ETFs
Seeing outlandish gains, many successful cryptocurrencies have the industry surrounded by uncertainty plagued by heavy volatility. Many investors, for this reason, prefer using a vehicle like an ETF participating in the cryptocurrency space.
With the currency ETFs allowing investors to take advantage of opportunities, the tokens present leaves the management and security to experts. Those cryptocurrencies and digital token exchanges are still regularly targeted by thieves and scammers and that’s why understandably investors wish to take extra precaution.
The Concluding Thoughts
Cryptocurrency ETF gains over straight-up cryptocurrency investments with many benefits. The first being the digital wallets and the exchanges highly susceptible to hacks and thefts. Those investors who are holding digital tokens keep running the risk of seeing g assets disappear with little or no recourse, whereas an investor in the digital currency ETF has added layer of security in the custodian bank supporting the ETF.
The second and most important benefit of cryptocurrency ETF is that it can be used to attack multiple digital tokens at once when the cryptocurrency world comes highly compartmentalized the investors look forward to holding a basket of at the most 20 different tokens that may have to be surely and successfully owned and operated with multiple wallets and accounts across digital currency exchanges.